Joining us today is ChaChanna Simpson, author of Life After College: What Your Parents and Professors Never Taught You. This is a jam-packed book filled with everything twentysomethings need to make the big transition from college life to the real world. Not that I want to scare any of those twentysomethings reading this blog, but I've asked ChaChanna to write up an article about retirement planning, wills, and insurance. As much as I've tried to teach our son about these things, it might be easier for him to take advice from a complete stranger, so maybe you can direct your children this way too.
RETIREMENT, WILL AND INSURANCE
Now that you are living on your own, working and managing your own finances, you have to prepare for your financial future and unfortunately, your death. It’s crazy, you just got in the race and already you have to prepare for the finish. That’s just how it goes. Right now, I want to get you thinking about creating and protecting your financial assets, which includes setting up a 401k, taking out a life insurance policy and more. It’s very important for you to start working on this now because in most cases the earlier you start the better off you’ll be later on in life. So let’s just dive in, shall we?
Retirement aka 401k
Of all of you twentysomethings out in the working world, how many of you have started thinking about retirement? I know you’re thinking: “Whoa, ChaChanna, that’s a long time from now. I have plenty of time to plan and save.” But nowadays people are retiring earlier and earlier. According to Social Security Online, for people born after 1960 the retirement age is 67. You only have a little over 40 years left to save. Is no one else feeling pressure? The way I see it, we’re working to make sure that when we’re old and retired we won’t be on the street or eating cat food. If you screw it up now, you could be the old person working at the local fast food joint because you have to, not because you’re bored.
What’s 401k?
401k is an employer sponsored retirement plan for employees. It was created in 1978 because the government wanted to encourage people to save for retirement. Contrary to popular belief social security is not and was never intended to provide sufficient funds for retirement. So if your company offers a 401k, jump on it.
How much of your yearly salary you contribute is really up to you and partly up to your employer. Your employer might contribute to your 401k as well, but they are not required to. The money that is taken out of your check is not kept by your employer, which is good because if the company were to go belly up you don’t have to worry about losing your money. Companies hire financial brokers as administrators such as Fidelity, etc. to manage the 401k. The employee’s contributions are invested in their names in the funds offered through the 401k administrator. The mix of investments is determined by you. Your employer will provide you with a list of investment options along with guidelines for the level of risk you are willing to take.
Also I want to mention that if you take out money from your 401k before you’re 59 ½ years old, you’ll have to pay taxes on it plus a penalty fine to the IRS. By the time you do all that it won’t even be worth it anymore.
And while we are on the topic of protecting your financial future, how about protecting your family’s financial future, in the event of your death?
Life Insurance
Do you have a life insurance policy? I hope you do. You’re probably thinking: I’m too young to have life insurance, and only old people need those things. But if you have a mortgage, are in debt or have any children or anyone dependent on you, you need life insurance.
Do you have any idea how much it costs to have a funeral these days? I just calculated it and it runs up to $19,000 or more! Who do you expect to pay for that? Your loved ones could go broke trying to lay your body to rest.
Now that I’ve assured you that you need life insurance, you have to choose a policy. Of course it can’t be as simple as picking one. There are two different options for you to choose from: term and permanent. And under those choices are a number of different options.
Term Insurance
This type of policy can provide protection up to thirty years. You pay a monthly or yearly fee called a premium. It is the least expensive of the policies so if you are on a tight budget, term might be for you. If you die during your coverage period your beneficiary would be paid the amount of the policy. If you’re still alive when the policy ends, depending on the type of policy, you can get some or all of your money back.
Permanent Insurance
This type of policy will give you lifelong protection as long as you keep paying the premium. There are different types of permanent insurance. They offer a savings account (cash value) that you can borrow against, invest or add to increase your death benefit. Also the death benefit is usually tax-free to your beneficiary.
How Do You Get Insured?
When applying for life insurance you may be asked to take a medical exam. These tests are comprised of a basic physical exam, and a urine and blood test. Some of the things they are looking for are any signs of liver function problems, HIV antigens, diabetes or cholesterol, to assess your mortality rate. But don’t dismay if you fail the exam or are seen as a high-risk candidate. There are some insurance companies that specialize in high-risk insurance policies. Keep in mind that it will probably cost more. So stay healthy.
And don’t think that you can just lie to an insurance company about your medical history if another one turned you down. Oh no my friend, your information is turned over to the Medical Information Bureau, it’s like a credit bureau but it’s on your medical history.
Is Your Will Done?
I’m sure you’re thinking “Um, no. Why in the world would I be thinking of a Will now? I’m not old.” Up until recently I was thinking the same thing. But at anytime we could be struck by a stray bullet, swept up in a storm or trapped in a fire. So, if you care who gets your property and valuable assets when you pass away, then you definitely need a Will.
What Happens If You Don’t Leave a Will?
If you were to leave this universe right now without a Will, and had no living blood relatives, the state would collect your assets and determine how much would be paid for your funeral and anything left over the state would keep. If you were married it would most likely go to your spouse and children. But if you happened to be wealthy and your family wanted a piece of your estate, they could fight for it and maybe leave your spouse with less. In the event you have children and your spouse is seen as unfit, the state would determine where and with whom your children would stay. It could be your next of kin, but what if you don’t like them? If you were not married and had no children then your property would go to your parents, siblings and other family members.
What Goes Into a Will?
First, you need to appoint an executor of your Will. An executor is the person who is in charge of making sure your wishes are carried out. Whoever you choose doesn’t have to accept the position. So make sure that you either have a back up or alert your executor beforehand, because if they decline and you have no back up then the court will appoint a representative for you.
You can appoint anyone to be your executor that is over 18 years of age. Your executor doesn’t have to be a lawyer, knowledgeable about finances or familiar with legal jargon. They just have to be someone you trust, organized and have excellent communication skills. They should know where an original copy of your Will is located.
You can write up your own Will, with the aid of self-help books and software programs, but I strongly suggest you work with an attorney. Every state has different laws and you want to make sure your Will is in accordance with your state’s law. If it isn’t it may not hold up in court.
What Can’t I Put In My Will?
• If you’re married, you can’t disinherit your spouse. They may be legally entitled to fifty percent of your assets. So, if you are separated from your spouse (not legally divorced) and you die, they may collect half or more of your assets.
• Unlike all those Hollywood movies like The Bachelor, in real life, you can’t make certain conditions such as you will only leave money to this person if they marry or divorce a certain person or change religions. But you can leave money to lil’ Jenny for use if and when she goes to college.
• You can’t leave all your money to Smooches, your pet bunny. But you can leave Smooches to someone and set up a trust fund to pay for his expenses.
It is never too early to prepare for your future. We get so caught up in living that we can’t imagine the idea that we may not be around forever or that something might happen to us so we can’t work or we might outlive our savings for retirement. So please take this information and prepare for you and your family’s financial health.
The LIFE AFTER COLLEGE VIRTUAL BOOK TOUR '08 will officially begin on August 4 and end on August 29. You can visit ChaChanna's tour stops at www.virtualbooktours.wordpress.com in August to find out more about her and her book!
As a special promotion for all our authors, Pump Up Your Book Promotion is giving away a FREE virtual book tour to a published author with a recent release or a $25 Amazon gift certificate to those not published who comments on our authors' blog stops. More prizes will be announced as they become available. The winner will be announced on our main blog at on August 31!
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