Even if you spend wisely, save regularly and invest strategically, you are not adequately
managing your finances — or your retirement investments — if you have not taken the following steps:
- Protected your retirement and other assets, your earning potential, yourself and
your family with insurance, wills, powers of attorney and letters of
instruction for survivors. These financial instruments will help you avoid
the negative effects on your retirement plan from losses associated with vehicle
accidents, fire, illness, theft or death.
- Learned how to recognize and avoid common types of investment fraud.
- Protected your online financial and personal information from identity theft.
Insurance
Make sure you are covered with adequate insurance for you, your family and your possessions.
Consult a financial planning professional for guidance. Before purchasing insurance:
- Carefully assess what you need to protect. Your insurance needs will change over time.
- Determine the level of coverage you require.
- Compare several companies’ premiums, services and reputations.
- Consult consumer publications, A.M. Best and other reputable insurance company reports
(available in most libraries) and your state insurance department.
Types Of Insurance
Auto Insurance
Auto insurance is usually the first form of insurance you need. Premiums vary by state.
Generally, auto insurance does not cover personal possessions that
may be stolen from your vehicle. For that, you need property insurance, either a renters or
homeowners policy. Most personal property will be covered;
however, coverage for some property, such as CD players and digital audio players, may be limited.
Property Insurance
You need renters or homeowners insurance to protect your personal possessions
if they are stolen or damaged. These policies may also pay damages if someone
is injured on your property or through your negligence. A homeowners policy also
covers the cost of repairing or rebuilding your home in the event of a covered loss such as fire.
Umbrella Insurance
You may want to consider umbrella liability insurance as extra protection
above your auto and homeowners liability policies.
Health Insurance
Health coverage protects your finances from health costs associated with an unexpected
accident or major illness.
- Take advantage of employer-sponsored/group employment benefits if they are available to you.
- Purchase an individual insurance plan if you are in school, between jobs, self-employed or
work for an employer who does not provide health insurance.
- Carefully review the outline of coverage by the insurance company, which should describe
the plan’s benefits.
Disability Insurance
Disability insurance provides you with income if you are unable to work due to
injury or illness. Many employers provide disability coverage, often at little
or no cost to employees; however, coverage may be limited. If your employer provides
limited coverage, you can supplement your employer coverage by
purchasing an individual plan.
Life Insurance
You need life insurance if a spouse, family member or other individual
depends on your income. If you are single with no dependents, you should generally
purchase enough life insurance to pay for your debts and final expenses.
Because premiums increase with age and declining health, if you need this coverage,
you should generally purchase life insurance while you are young and in good health.
Long-Term Care Insurance
You should consider long-term care insurance during pre-retirement planning. Like
life insurance, you are likely to qualify for better rates when you are
younger and in better health. Long-term care insurance is often considered by
individuals who have already addressed their needs for health, life and
disability insurance. You should also discuss long-term care insurance with
your parents, as this care can be financially devastating for those who have not
adequately prepared to pay for it.
Wills
In addition to insurance, a will is essential to good financial management.
Without a will, a state court generally appoints a personal representative of
your estate to finalize your affairs upon your death and charge your estate for the expenses.
Your remaining assets are divided among your relatives
according to state law. If you are unmarried and have no blood relatives,
the state may take your property. With a will:
- You can designate one or more executors of your estate.
- You can designate who receives your property when you die.
- You can appoint a guardian for your minor children.
- You can provide financial security for your spouse and children.
- You can leave money to a worthy cause.
You should update your will at regular intervals and whenever an event occurs,
such as marriage, divorce, birth, adoption, change of your residence to a
different state or death. Seek the advice of an attorney if you should have any questions about
your will or your particular financial situation.
Powers Of Attorney
A power of attorney allows you to give another individual the legal authority to act
on your behalf for a designated purpose. You have several options for
authorizing another individual to act on your behalf. You must be of sound mind and
have the legal capacity to prepare and execute the following
documents:
- A power of attorney allows an agent to act on your behalf regarding financial matters.
- A health care directive to physicians or living will designates medical procedures you want
taken if you become too ill to state your preferences.
- A durable health care power of attorney or health care proxy allows you to appoint
someone to make health care decisions on your behalf should you become incapacitated.
To ensure the above documents conform to state laws, have them prepared by an attorney
specializing in this field.
Letters Of Instruction
Your letters of instruction is a list of essential information to help your survivors cope
during a difficult time. Consider including the following information:
- Funeral instructions, including whether you wish to be cremated or buried.
- Instructions on whom to notify and what to do immediately following your death.
- Directions for handling important financial matters.
- An updated inventory of investments, insurance policies and other important
personal financial matters, such as any debts you owe or money owed to you.
- Locations of valuable documents such as wills, trusts, deeds, military records,
birth certificates, marriage certificates and divorce decrees.
Note: It is essential that you keep your letters of instruction
stored in a safe place accessible only to your survivors or executors. Seek the advice of an
attorney if you have any questions about your letters of instruction.
Investment Fraud
Make sure you understand how to recognize and avoid investment fraud. Generally, you
should follow these guidelines for protecting yourself:
- Be cautious of any opportunity that seems too good to be true.
- Always carefully review the details of any business agreement or contract.
- Investigate the company or individual you are considering
doing business with.
- Visit the business location.
- Consult the Better Business Bureau for any record of
improper business dealings.
- Avoid working with businesses that do not have a street address or direct phone line.
- Avoid unsolicited offers.
- Avoid offers that pressure you to act immediately.
- Check the state attorney general Web site for current consumer information.
- Check the Security and Exchange Commission Web site at www.sec.gov/investor.shtml for
updated information on investor fraud.
Common Types Of Investment Fraud
Pyramid Schemes
Also known as franchise fraud or chain referral schemes, this form of fraud offers
the opportunity to purchase a distributorship or franchise to
market a particular product. Profits are earned by the sale of new distributorships,
not by the sale of a legitimate product. The fraudster uses money from
new recruits to pay off early investors. The pyramid collapses when the fraudster
can no longer raise enough money from new investors to pay earlier investors.
Ponzi Schemes
A fraudster offers investors high returns not available from traditional investments.
Instead of investing the victims’ funds, the fraudster uses the
principal amounts collected from subsequent victims to provide initial investors
with artificial dividends for a time. The scheme may continue until no new
investors can be found to continue “dividend” payments, or the fraudster escapes with the proceeds.
Pump-And-Dump
Also known as “hype and dump manipulation,” these schemes often occur via telemarketing or
the Internet. Fraudsters make false and misleading statements
about a company’s stock (usually a low capitalized or microcap company) to create a buying
frenzy that artificially “pumps up” the share price. The
fraudsters then “dump” their own cheap shares for a big profit, and investors lose their
money when the share price falls.
Advance Fee Fraud
Fraudsters ask investors to pay a fee in anticipation of another item of greater
value, which is never given. Advance fee schemes may involve the supposed
sale of products or services, retrieval of unclaimed money, the finding of financing
arrangements or other artificial opportunities.
Offshore Scams
Fraudsters promise high returns for investing money in another country,
often as a way to avoid or lower taxes. Once money is sent offshore, it may be
impossible to retrieve. Victims not only lose their money, they may owe federal
income taxes, interest and penalties on the lost funds.
Free Investment Seminars
Some offers of free investment seminars are designed to sell financial products or
the speaker’s services. Although seminars are legitimate sales practices,
some incorporate fraudulent practices, such as selling fictitious products,
presenting misleading information or making exaggerated claims about returns.
Identity Theft
Take these steps to protect your financial information, personal identity and credit reputation from identity theft.
- Do not e-mail personal or financial information.
- Exercise caution when opening any attachment or file sent to you via e-mail, regardless of the sender.
- Do not reply to e-mail or Internet “phishing” scams, where Internet fraudsters posing as legitimate
businesses send electronic requests for personal information. If you need to provide personal
information to a business, call the phone number on your financial statement or on the back of your credit card.
- Legitimate businesses usually do not request personal or confidential information via e-mail.
- Malware, or malicious software, is often a precursor to an identity theft situation.
- An issue that often accompanies phishing is the problem of individuals not having or not using
current anti-virus software or firewall protection.
- Guard against becoming a victim of identity theft. Learn what it is, how it occurs and what you
can do to protect yourself. Make sure you know how to respond if your information is stolen.
Stay On Track
Retirement planning should begin while you are young, but it is an ongoing process. To stay on track:
- Manage your finances wisely.
- Periodically review your retirement goals.
- Adjust your savings and investment plan as needed.
- Increase retirement savings as your earnings increase.
- Update insurance to reflect changing stages of life.
The sooner you get started, the longer your money has to grow and work for you.
By planning and investing now, you will soon be well on your way to reaching your retirement goals.
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Basic Money Management
Basic Money Management
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