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For the last three years, I’ve been rocking the car-free lifestyle in L.A.  It’s been a fun and enlightening experiment, but I’m ready to make a change.  As much as I’ve loved not paying $600 per month to own a car (all in, annualized), my perspective on life has changed.  I’ve decided that I want to start taking road trips with my dog, Katie, to visit my Father in Santa Barbara and explore more of Northern California and the Pacific Northwest.  What I don’t want to do is rent a car every time I decide to go on one.

In reviewing current models, options, and deals over the last few weeks, I was reminded that choosing a car is about more than just the money you’ll spend.  It’s about figuring out what’s most important to you.

Safety First

A bad car accident in the summer of 2005 changed my criteria for getting a vehicle. Up to that point, my only safety concern was making sure that a car had airbags (mine in high school didn’t…seriously).  After spending a week in the hospital and three subsequent months learning how to walk again, safety became the most important, and an absolutely non-negotiable, consideration for me.

We were incredibly fortunate that my friend, Jenny, who was driving that night, had just bought a new Jetta.  It had state-of-the-art airbag and crash-protection technology and was designed to absorb the force of a major collision and protect the occupants.  Even though her car was completely crushed in on both sides and in the front, it did exactly what it was intended to do – it saved our lives.  Looking back, I realize that things could’ve been much worse had we been riding in an older or less safe vehicle.

Rating Agencies

If safety is a major decider for you as well, here are my go-to resources to research the current and/or older models of any car you’re interested in getting:

  • Insurance Institute for Highway Safety (IIHS) – An independent, nonprofit scientific and educational organization dedicated to reducing the losses – deaths, injuries, and property damage – from motor vehicle crashes. Their tests evaluate two aspects of safety: (1) crashworthiness – how well a vehicle protects its occupants in a crash – and (2) crash avoidance and mitigation – technology that can prevent a crash or lessen its severity.  In 2016, IIHS launched headlight ratings, filling a void in information about this basic equipment.
  • National Highway Traffic Safety Administration (NHTSA) – Established in 1970 by The Highway Safety Act, its mission is to reduce deaths, injuries, and economic losses resulting from motor vehicle crashes. The NHTSA’s New Car Assessment Program (NCAP) created the 5-Star Safety Ratings Program to provide consumers with information about the crash protection and rollover safety of new vehicles beyond what is required by Federal law.  One star is the lowest rating; five stars is the highest.  More stars equal safer cars.

After several weeks of cross-checking the safety ratings of midsize SUVs on the IIHS and NHTSA sites, I’ve whittled the search down to three highly ranked options.  Now I can shift my focus to choosing the one that best meets my needs (hello, road tripping!) and is affordable for my budget.  Saving money by going with the cheapest car from the get-go might seem like a good idea, but, in the end, protecting yourself and your passengers is one of the smartest financial decisions you can make when buying or leasing a car.

The post Why You Should Incorporate Safety Into Your Car-Buying Decisions appeared first on Abacus Wealth Partners.

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I am 45 now, and I love what I do, where I work, and the city I live in.  Yet, I still want to know when I’ll have the freedom to stop working. However, the nest egg target that I keep in my head isn’t synced up to that point in time. It’s my WOFI number, and it arrives much sooner. Here’s what it is and why it relaxes me a lot more than knowing how much I need to save in order to retire.

WOFI refers to “work optional, financially independent.” Yes, I’m partially borrowing from the FIRE (financially independent, retire early) movement. WOFI, however, is the point in time where I’ll probably keep working but will have the option to stop or try something different. I’ll have enough, based on my standard of living today, not what I need to live my ideal life.  In the future, I’ll probably want to keep working in order to keep a sense of purpose in my life and to further enhance my standard of living.

Why WOFI?

The R-word (retirement) feels too final and unrealistic for me at this point in my life, so building a long-term financial roadmap for myself that assumes I’ll work into my 60s or 70s gives me some clarity about what lies ahead, but it doesn’t add a sense of calm. I’ve witnessed that type of calm countless of times with clients in their 50s or 60s who just want to make sure they’re making the smartest financial decisions possible as they wind down their career and shift gears into their version of retirement.

Now that I’m a homeowner and in the middle phase of my career, I know how much I’d want to be able to spend to at least maintain a minimum type of lifestyle.  But, my WOFI number can also help hedge against a few of the big unknowns that have nothing to do with my job stability. While I love what I’m doing now, how can I know that I’ll feel this way in 10 or 15 years? How do I know my partner and I won’t want to relocate for work reasons or because we tire of this nutty city?  What if I get the itch to follow through on some wacky idea for a new business? All of these are seriously unlikely to happen, but I’d like to be prepared for the possibility. If I was pondering a life change before reaching my WOFI moment, it might cause me some stress – not so much after I reach it.

I’m also fully aware that what I view as enough today may not land for me a decade from now. My colleague, Spencer, shared a story of a client many years ago. Spencer was all jazzed for the meeting where he was going to share the great news. His client had just achieved his primary financial objective of doubling his assets because that’s what he felt needed to happen in order to reach financial independence. Only, it wasn’t enough. This was an end goal for him initially but it ended up being a career intermission for a point where he could probably have stopped but opted to keep going.

Who is this for?

This is for anyone, likely between ages 40 and 60, who has that little voice suggesting that there may be another interesting chapter between your primary career and the point where working just doesn’t make much sense. It also has the added benefit of being a really straight forward and simple way to plan for the future if you go deer-in-headlights at the idea of tracking the details of your spending.

Your Minimum Desired Lifestyle Figure

How do you figure out your WOFI number? Let’s say that I want my WOFI figure to provide at least $80,000 per year. A portfolio worth $2 million should be able to support that kind of cash flow need. I touched on my 3% spending rule in my article, Long-term saving for the short-term worker. In this case, I’m assuming that I can withdraw as much as 4% of my nest egg when my WOFI moment happens. Talk to your Abacus advisor to see what’s possible for you.

As of now, I want my WOFI moment to arrive within 10 years, but I’ll always know where I am in relation to my WOFI goal and can adjust how much I save and spend today if I want to accelerate it. Thankfully, I am in no rush to reach either a WOFI moment or a retirement. But I’ve always believed in the under-promise, over-deliver philosophy, so maybe this is just my goofy way of exercising that. It must be working because I never felt compelled to create a long-term financial projection for myself. But I‘m loving this shorter one.

Happy planning,

Barrett

The post Planning to Make Work Optional appeared first on Abacus Wealth Partners.

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I will be attending a wedding this weekend which may deteriorate into a cage match, albeit without the steel cage.  At this wedding will be four siblings. The surviving parent of the four passed away without a will three years ago, leaving verbal “instructions” with one of the siblings as to how to distribute the estate assets. To date, no assets have been distributed; no accounting has been produced.

Last year, I attended the funeral of an individual who had, over his lifetime, accumulated not only financial assets and a home but also an extraordinary collection of rare classical music recordings and music.  This individual passed away unmarried, with no children, and no will.

A few years ago, a friend in a cohabiting couple died very suddenly. The partner, also a friend, developed a brain function disease very soon thereafter. Although there was some evidence of a will which reflected the relationship, that will was never found. The couple’s non-legal advisors did not know who drafted the document. The deceased person’s children became the beneficiaries.  The ill partner survives under extremely reduced financial circumstances.

Although these individuals left no written instructions on how to handle their affairs, they did create a legacy.  It is a legacy of uncertainty, confusion, anger, turmoil, broken relationships, and wasted resources.  And it is a legacy that keeps on giving, over the ensuing months and years.

If I asked you if your goal, during your lifetime, was to create a mess for your family and friends while you were alive, the answer would likely be “No”. Then why would you choose to create that same mess for them after you’re gone?  There’s no reasonable answer to that question and there’s no reasonable excuse for you to not get your affairs in order before you go.

Here’s a quick step-by-step guide you can execute to ensure an easier transition for your loved ones:

  1. Have a will drafted that clearly reflects your wishes as to burial procedures and how you want your assets to be distributed.
  2. Make sure that the beneficiary designations of any life insurance and annuity policies, IRA accounts, and retirement plan accounts are consistent with your will.
  3. Have a living will and medical directive drafted to handle end of life medical issues
  4. Store these documents in a secure place in your home. (Do not store them in a safe deposit box.)
  5. Alert your executor as to both the location of these documents and the name and contact information of the attorney who drafted the documents.
  6. Provide a copy of the documents to your financial advisor and the contact information for the drafting attorney.
  7. Finally, celebrate. You’ve created a legacy of attention and care that will be appreciated and respected by those close to you.

For help with executing these steps, reach out to your financial advisor or other estate planning professional. Read more estate planning tips in Five Things to Do Before You Die.

The post Getting Your End of Life Affairs in Order appeared first on Abacus Wealth Partners.

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Health Savings Accounts are one of the most underutilized tax savings tools out there. And even if you have one, you might not be taking full advantage of all the benefits. Let me explain briefly what a Health Savings Account is and expand on some of the most common misconceptions and overlooked benefits.

Before we get started an editor’s note: in the financial planning world, we are guilty of using too many acronyms. But to keep this blog an acceptable length, I shall refer to Health Savings Accounts also as HSAs.

So, what the heck is an HSA?

An HSA is an investment account that allows you to save for medical expenses. But that’s not all! The money you put in is tax-deductible and the money you take out is tax-free (when used for qualified medical expenses). And don’t let the name fool you. Even though the word “savings” is in the name, this doesn’t mean your cash must sit in a bank savings account just earning interest…which leads me to my first common misconception.

Tip #1: Money in an HSA does not have to be in cash.

You can invest this money just like you do your 401k or other retirement or investment account.

Who is eligible?

The most important requirement for owning one of these magic accounts is that you are enrolled in a high deductible medical insurance plan. Check out Healthcare.gov to find out the most up to date definitions and minimums of a high deductible plan. If you get your insurance through your employer, it’s likely they will provide the benefit of setting up an HSA. Some employers will even contribute to your account. This brings me to another misconception:

Tip #2: If your employer does not offer an HSA to go with your high deductible insurance plan, this does not mean you can’t set up your own account.

And if you are self-employed and have a high deductible plan, you most certainly should set up an account for yourself.

How much can you contribute?

The IRS sets the limits each year on how much you can put into an HSA. In 2019 this was $3,500 for a single person and $7,000 for a family. These figures might not seem like a lot, but consider someone who is just starting out in the workplace. They open an HSA at age 25, add the maximum to this account each year and then decide to use this money only after they are no longer working at age 65. This person could have now amassed a medical savings account of over $330k (assuming before 40 years at 4% ROR and $3,500 contributed per year).

Tip #3: The money in your health savings account does not have to be spent in the same year you put it in (unlike Flex Savings Accounts).

You can start saving during your working years to use this money for medical costs in your non-working years when medical bills are most likely to be higher.

 You can play catch up!

The IRS allows for what is called a “catch up” for people putting money into an HSA who are over the age of 55 in the amount of $1000 per person (over 55). This is important not only for you but also for your spouse — and another commonly overlooked benefit. It’s not just the working spouse who can add extra money when they are both age 55.

 Tip #4: Non-working spouses or spouses covered by their partner’s high deductible plan can also open their own HSA and add money if they are over 55. 

 The catch here is that the non-working spouse must open their own account. There is no such thing as a joint HSA account.

Does your income change the rules?

The amount of income you earn or don’t earn does not affect your ability to add money to an HSA. This is much different than other tax-saving opportunities you might come across like IRAs and Roth IRAs. Let’s assume you retire at age 60 and are covered by your employer’s medical plan until age 65. For the next 5 years, you can continue to contribute to this HSA even though you have no earned income.

 Tip #5: There are no income restrictions for contributing to your HSA.

 High-income earners and people with no income at all can still contribute to an HSA as long as they are covered by a high deductible insurance plan.

 Does Medicare change the rules?

When do you stop becoming eligible for the opportunity to save in this fantastic way? It’s not necessarily when you are 65, but typically, it is. Because this is the time most people enroll in Medicare. This comes as a shock to some people.

Tip #6: When you enroll in Medicare part A you can no longer contribute to your HSA.

 But you can now spend that money on Medicare premiums along with other medical-related expenses. Why is this the case? Medicare part A becomes your primary insurer when you sign up for it, and Medicare part A is not a high deductible plan.

The hidden gem in your HSA strategy!

There is one other little gem I want to tell you about regarding the Health Savings Account.

Tip #7: Once in everyone’s lifetime you can use money in an IRA to make your annual contribution to your HSA.

Why is this a gem? The money from your IRA was tax-deductible going in and would be taxable going out.   But now you’ve moved money that would usually be taxed when you need it and put it in a place where it might never be taxed if spent on medical needs.

 As with all investment accounts and tax-saving opportunities, it is best to consult your financial advisor when considering your options. These plans and the strategies around them should be tailored to fit your individual needs. But if you are offered a high deductible plan or are already in one, you should be taking note of these extra cost saving benefits.

The post How to Maximize the Benefits of Your Health Savings Account appeared first on Abacus Wealth Partners.

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You love your tenants. They always pay their rent on time, rarely complain, and they are super nice. Now for the bad news – that’s probably why you’re undercharging.

In the spirit of disclosure, I own no rental properties so I can’t speak from personal experiences, only those of my clients who rent out single family homes. The common theme – none of them have a system for raising rents based on inflation or comparable listings (comps). When I ask why, they usually share that they’d feel bad doing so because the tenants are so nice.

I found a similar theme with my friends who have been renting out properties as a side hustle for years, and they also don’t like to raise the rent on tenants they like (the ones who pay on time and aren’t high maintenance). They think that there is a real risk of losing a tenant if they raise their rent, even if it’s just to keep pace with inflation and rental comps in the area. They’re speculating a higher cost to replace the tenant than the “extra” income they’d generate by increasing rent systematically.

Does it Really Matter?

Perhaps you aren’t worried about the extent of your earnings because you’re renting to a loved one or you specifically deal with short-term lease agreements (you can always adjust the rent with the next tenant). If you’re not dealing with a unique situation, and your tenants tend to stick around for the long haul, then it makes sense to know how much money you might be leaving on the table if you’re undercharging.

Let’s say you are charging $3,000 per month and don’t raise the rent for 10 years. If, instead, you added a 3% annual increase, you would have more than $50,000 of additional income in that period (even higher, if you reinvested the cash flows as they came in). For many property owners, that can have a real impact on their own personal financial life goals.  That $50,000 could pay for a year or two of college or knock a year off a person’s work life, for example.

Irrational Fear?

My friend and realtor, Craig, pointed out that it’s usually a bigger burden (time and money) for a tenant to move than it is for a property owner to lose the tenant. He feels that it’s a somewhat irrational belief that tenants will pack it in because their rent goes up by 3% every year. There is, he feels, a disconnect between the actual risk of a landlord losing his tenant and their perceived risk of it happening. To maximize income and the chances of retaining a tenant, his strategy is to keep the rent just a touch below the market rate (he checks comparable rental listings, AKA “rental comps” annually).

The Intimacy Factor

I once wrote about avoiding intimacy interference in your investments. If your goal is to get a market rate of return, but the idea of doing this regularly with your tenant causes you stress, consider hiring a property management company. Even though they’ll take a portion of your rent, you’ll likely earn more over the long haul with those modest annual increases. If that doesn’t sound attractive, consider investing in something else entirely (I’m sure your Abacus advisor will have some ideas).

Whether it’s a personal connection, or a fear of losing the tenant (or both), remember that your tenants expect rising prices on almost everything they buy in life, and their investment portfolios and/or wages are also probably rising at a rate that’s equal to or higher than inflation. In other words, small rent increases are normal and to be expected. They expect a good landlord, and hope for a good rent deal. If you’re still torn about the right path for you, you can always talk to your Abacus advisor.

Happy planning,

Barrett

The post But My Tenants Are So Nice appeared first on Abacus Wealth Partners.

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The Bigger Picture

I’ve always considered myself to be pretty mindful of trying to do my part when it comes to environmental and social issues. Whether it’s skipping my drive to walk to work or shopping for fair trade products, I often find myself doing little things that reflect my values on a regular basis. Then one day, I realized that there was a big piece of the puzzle that I had been overlooking…my values were not guiding any of my investment decisions.

When I first learned about environmentally and socially conscious investing several years ago, I took a look into my portfolio and was appalled. The mutual funds I was invested in owned companies that were massive polluters, cited for human rights violations, and paying CEOs thousands of times more than their average employees. Did my attempts to forgo a plastic bag or straw here and there really help when the majority of my net worth was helping to fund these operations? Probably not so much.

What is Values-Informed Investing?

So, how do you begin to align your portfolio with your own values? First you need to understand a little about how they are typically categorized. The values that can be integrated into portfolio decisions can be broken into three different categories: Environmental, Social, and Governance (common acronym = ESG.) Companies or governments up for investment can be evaluated on all three, based on an individual’s preference.

The environmental piece addresses the company’s impact on the planet. You might ask if a company is dedicated to making good use of their resources? Are they investing in green technology? What is their carbon footprint?

When it comes to the social impact of a company, think of the effect on people (and critters). Are employees, and others in the supply chain, given fair wages and good working conditions? Does the company have policies that support women, the LGBTQ community, diversity, etc.? Does the company engage in animal testing?

A little less intuitive (at least to me at first) is governance. These issues are related to how a company is run from the top. Are executives overpaid? Is there diversity on the board? Is the management incentivized to do the right thing for clients, employees, and shareholders?

Divest, Invest, Engage

Knowing what to look for is the first step, now you need to know how to take action. There are three strategies that can help you address issues within your investment portfolio.

  1. Divest from companies that conflict with your values: Once you identify your values in terms of investing, you can eliminate companies from your portfolio that are misaligned.

For example, did you know that Exxon Mobil is estimated to be responsible for 2% of the world’s greenhouse gas emissions since 1988?[1] And because the company is so large, it shows up in many portfolios by default.

  1. Invest in companies and projects that support your values: There are many companies and government entities taking positive, impactful actions, and you can elect to support them with your investments.

For instance, last year Starbucks announced it had reached 100 percent pay equity for people of all genders and races performing similar work in the U.S. [2]

  1. Engage by using your power as a shareholder to bring change: When you buy a company’s stock, you are essentially a partial owner (congrats!), which gives you the ability to influence the operations of a company through dialogue, proxy voting and shareholder resolutions.

Many studies have shown this final tactic to be the most impactful way to significantly influence a company’s behavior. But since this topic warrants an entire blog post on its own, I’ll share a guide from our friends as As You Sow on shareholder engagement.

Each of us has a unique set of values and passions that guide our decisions, and a combination of these three strategies is a great way to ensure your portfolio is helping to support those values, rather than working against them. If you’re ready to start aligning your money with your values, reach out to your advisor and find out what ESG options are available to you.

Resources:
[1] CDP Carbon Majors Report 2017

[2] https://stories.starbucks.com/stories/2018/starbucks-pay-equity-for-partners/

The post A Beginner’s Guide to Values-Informed Investing appeared first on Abacus Wealth Partners.

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Icebreaker

I’ve finally found my perfect match. I now have 3 credit cards that provide me with an average reward of around 3% cash back because of how I use them. And I no longer have any fear of missing out, or unused cards sitting in a drawer gathering dust. If you buy things, eat, and travel at least a couple of times per year, perhaps these three cards should be in your wallet as well.

Benefits of Changing

I estimate that I’m averaging about 3% back (cash, or cash equivalent). For every $50,000 of credit card spending, that’s about $1,500 back. Many cards make it hard to know exactly what you’ll get back, on average, in a one-year cycle. I just wanted a few cards that would give me rewards I won’t forget to use. I also wanted rewards for buying, say, gas or flights, not a card that requires me to specifically fuel up with Chevron or fly with American. These cards do just that and are easy to understand because the rewards translate to cash back (I’m never confused about what my points are worth).

The Big 3

Here are my 3 favorite cards (at the moment) and how the rewards work out for me:

Supermarkets and Gas

Amex Blue Cash Preferred: My expected reward – about 4% cash back. I get 6% back on grocery spending up to $6,000, and 3% on all gas, and there’s a small annual fee on this card.

Travel and Dining

Chase Sapphire Reserve: My expected reward – about 4.5% cash back. The actual reward is 3% but I get a 50% bonus on the points because I save these rewards to use for future flights only. This card has a large annual fee, but you’ll earn a $300 credit towards this fee as soon as you spend $300 in the travel category).  The rest of the fee ends up being justified by the amazing perks or more cash back (they’ll pay for your Global Entry access at airports, for example).

Everything Else

Chase Freedom Unlimited: My expected reward – about 2.25% back. The actual reward is 1.5% but I get a 50% bonus when I transfer these points to the Chase Sapphire Reserve card and then use them to book future vacations (flights).  It’s easy to remember when to use this one because I only have to remember what NOT to use it for (the 4 categories for the previous two cards).

When I applied each reward and factored that I use all of my Chase rewards to book travel (50% bonus), it averages to around 3% back for me. Your reward percentage will likely be slightly different based on how much you spend in each category.

Teeing Things Up

As soon as I got my new Freedom Unlimited card, I took 15 minutes to review and update all of my accounts with online and recurring billing (Amazon, Netflix, home and auto insurance, gym membership, Ticketmaster, and more). This part is key when you add a new card to your life because it’s easy to forget how much we buy with credit cards that are already stored.  My Reserve card is stored in my Uber and Lyft accounts and with my preferred airlines. And they are all in my digital wallet, so I don’t even need to have my AMEX with me most of the time, since Vons and Trader Joes (my two main grocery stores) accept Apple Pay.

Could I do better? Of course. Will this set of cards be behind the times in a year or two? Probably.  But, for now, I don’t want more cards and I’m happy with the rewards and not having to think too much about every time I buy something.  No more FOMO for me.

Happy planning,

Barrett

The post My Credit Cards Are Better Than Yours appeared first on Abacus Wealth Partners.

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There are three highlights from the first quarter of 2019 that I would like to share with you.
  1. As we discussed last quarter, the value of the largest 500 U.S. companies, tracked by the S&P 500 index, was down 20% on Christmas Eve from its previous high on September 20. The S&P 500 closed the first quarter of 2019 up 21% from the low on December 24. However, because we had a smaller value to grow from, we will need a 25% rise from that low to reach the previous high.
  2. Of course, Abacus invests globally and across all the major asset classes of the stock and real estate markets. It was satisfying to see that all of these growth-oriented asset classes delivered impressive returns during the first quarter given that they all struggled in the prior quarter. The returns ranged from 8.7% for small-value companies in the developed international countries to 15.2% for global real estate securities.
  3. The final highlight from the quarter was the ten-year anniversary on March 9 of the lowest point in the market during the panic of the Great Financial Crisis. Few would have been bold enough on that dark day to predict that in ten years the S&P 500 companies would quadruple in value! What made this possible?

In terms of the business landscape, corporate profits across the economy have nearly tripled over those ten years. Many of the companies that survived the Crisis have grown and innovated; Apple sold 1.3 billion iPhones these past ten years, and Budweiser and Amazon are now deploying self-driving semi-trucks. And many new companies have thrived during this time such as Uber which released an app on those iPhones that would have previously been considered science fiction.

In terms of the economy, the U.S. has nearly reached energy independence, becoming the largest energy producer in the world while simultaneously reducing our CO2 emissions to their lowest level since 1990. Meanwhile, the unemployment rate which reached as high as 10% in 2009 is now only 3.8%.

While many spend endless amounts of time following the news in Washington, the Federal Reserve or China, at Abacus we know that hard-working people, be they innovative entrepreneurs, inspiring mentors, or tenacious researchers, are what really revolutionize the world. I often tell clients that every 20 years the world becomes unrecognizably better. I might have to change that to every 10 years because clearly these changemakers are as alive and well as ever.

Disclosure: Abacus Wealth Partners, LLC (Abacus) is an SEC registered investment adviser with its principal place of business in the State of California. Abacus may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. This brochure is limited to the dissemination of general information pertaining to its investment advisory services. Any subsequent, direct communication by Abacus with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Abacus, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).

This is not an offer to sell any type of security, and there is no investment currently available through Abacus. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell this security. This newsletter contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Information was based on sources we deem to be reliable, but we make no representations as to its accuracy. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

For additional information about Abacus, including fees and services, send for our disclosure brochure as set forth on Form ADV from us using the contact information herein. Please read the disclosure brochure carefully before you invest or send money.

The post Note from the CIO: Ten Years since the Financial Crisis appeared first on Abacus Wealth Partners.

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It was a few days before Christmas and I had just gotten home to celebrate the holidays with my family. I was standing in the kitchen squinting at the picture John, my brother and his wife, Carolyn, were holding, when I quickly realized that I was going to be an aunt! I was ecstatic and could not have been happier for them. In the months that have followed, we have had fun conversations about whether they will have a boy or a girl (my official guess is a boy!), reminisced on things we remember from our own childhood, and brainstormed baby names.

In addition to the thrilling news that they were going to be starting a family, my brother also recently switched jobs from a Director of Admissions at Cornell University to a College Admissions Consultant for a company in New York. As his little sister, I felt only excitement for all the big changes going on in his life. However, the financial planner part of my brain, which never shuts off, couldn’t help but think about all the planning topics that come along with having a child and starting a new job – a big one being life insurance.

The most common question I am asked about life insurance is “Do I have enough?” While having adequate coverage is important, it is equally as important to know how it works. In my experience, most people don’t fully understand the ins and outs of life insurance offered as an employee benefit. That’s where I come in – let’s break it down!

Group Life Insurance

First of all, group life insurance (as opposed to individual) means that a single contract covers an entire group of people and the policy owner is typically an employer. This type of life insurance is then offered by the company to its workers as an employee benefit.

The Benefits of Employer-Offered Life Insurance

It’s easy. One advantage of enrolling in employer-sponsored group life insurance is the convenience factor. Most often policies guarantee coverage for all employees with very few, if any, obstacles. This is beneficial for older employees or employees with poor health who may have trouble finding affordable options through individual policies.

It’s cheap. Another huge advantage can be the cost, or better, lack of cost. Employees covered by group life insurance often pay very little, if anything, of the premium owed in return for a moderate level of coverage. Typically, a specific amount, such as $50,000 or one to two times an employee’s salary, will be provided for free. An employer may also provide the option to buy additional coverage for a relatively low cost.

The Downside

It’s limited. While the convenience of group life insurance is appealing, not understanding the limitations could be disastrous. As previously mentioned, an employer may cover a specific amount for free with the option to purchase more, however there is a maximum amount an employer can offer. The standard rule of thumb for coverage is that the death benefit should be seven to ten times an employee’s annual salary – in many cases, group life insurance alone will not be adequate. Employees often assume that they don’t need to purchase their own additional individual policy because they don’t fully recognize the limitations.

It’s not guaranteed. Not only is group life insurance coverage often not enough, but it is also not guaranteed. Employers are not obligated to offer group life insurance as part of their benefits package and can decide to terminate the policy at any time. In addition to coverage potentially being discontinued, group life insurance is also not portable, meaning that once an employee leaves the company, they are no longer covered.

It becomes harder to get. If an employee were to switch to a new job in which their new employer did not offer group life insurance, they most likely would need to buy an individual life insurance policy. However, the cost for coverage increases as people get older and applying for an individual policy often requires an Evidence of Insurability (EOI) form be completed. Therefore any medical conditions that may have developed could significantly increase rates or even make it impossible to find coverage.

Like many financial planning topics, life insurance can seem intimidating and complicated. But understanding how group life insurance works allows you to take advantage of the employer-offered benefit and still seek out the coverage you need to feel safe. For many, life insurance is a key element to instill financial peace of mind for those that will be left behind. So, ask questions – find out what your employer is offering, what coverage is available, and find a professional you trust to guide you through these big life decisions.

The post Understanding Employee Benefits: Group Life Insurance appeared first on Abacus Wealth Partners.

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