Quantum Partners LLC

How much life insurance protection is enough? It's a common question that has a number of answers. While a lost life can never be replaced, life insurance is a good way to protect the lifestyle you've built for you and your loved ones.

Whether you are a corporate leader or a homemaker, you are a cash resource to your family. Life insurance gives you the ability to help continue your income and gives you the comfort of knowing that your family's financial needs can be taken care of in the event of your untimely death.

What to Consider
Typically, you need life insurance if someone (spouse, children, parents, loved ones) is relying on you or your income and would be financially affected by your passing.

Many factors must be considered when determining the amount of insurance protection you need, such as your age, your medical condition, your number of dependents, your income and your current financial standing. You must also look at the big picture and consider how the loss of your income would impact the financial live of your spouse and children. In the event of your sudden death:

• Could your spouse/loved one pay the mortgage? Child care expenses?
• Would your family's living expenses (food, clothing, utilities, transportation, emergency fund, etc.) be covered?
• Could your debts be paid?
• Would there be enough money to pay for your children's college education?
• Will your financial expenses (such as funeral costs, medical bills, attorney fees, probate costs) be a burden to your family?

Determining How Much Protection You Need
There are several ways to determine the amount of life insurance protection you may need. Some formulas are broad while others are specific and require you to evaluate your finances and calculate your beneficiaries' future financial needs.

• Multiply your annual income between seven and 10 times. This is a basic industry rule of thumb to help you calculate the amount of life insurance you may need. While it's important to provide life insurance for people who bring in an income, it's equally important to have the proper amount of insurance for a spouse or loved one who doesn't draw a salary, but has a financial impact on your family. To determine an appropriate insurance level, for example, of a spouse who stays at home with children, you should consider how much it would cost to cover your loved one's responsibilities, such as child care and housekeeping, and multiply this number by seven to 10 times. This is a simple way to calculate coverage, but it may overlook certain individual financial factors that require you to buy more or less insurance.
• Calculate salary levels from now until retirement. Using a rate of interest that shows projected salary increases, you can approximate how much income you will draw from now until retirement and insure yourself for this level. While this is an option, this method does not account for the specific needs of your beneficiaries (such as college funding, etc.).
• Perform a Needs Analysis. Working with a licensed insurance professional, you can get a better picture of your financial strategy and the amount of life insurance you need through a needs analysis. While no method of calculating the amount of insurance you need is exact, this detailed method is based on a simple formula: Short-term Needs + Long-term Needs - Resources = Amount of Life Insurance Coverage.

Short-term Needs: These are the costs that will cover your beneficiaries' responsibilities in the event of your death. This includes outstanding debts (credit card balances, auto and student loans, etc.); emergency expenses (approximately six months of living expenses); and financial expenses such as funeral costs, medical and hospital bills, taxes, attorney and executor fees and probate costs.

Long-term Needs: Includes items such as the balance of your mortgage, college costs for your children, daily necessities for your family such as food, clothing, child care, medical expenses and coverage, and transportation (cars, etc.).

Resources: Includes liquid assets (assets that can be converted quickly to cash) such as savings, investments, (stocks, mutual funds, etc.), Social Security income, and existing life insurance (i.e., if you have a policy through work).

The figures you get using any one of these formulas may be significant, but don't be intimidated. If the cost is too high, re-evaluate where you can allocate less money and make adjustments, but don't put off life insurance planning altogether. Life insurance is a good way to help replace your income in the event of your death and maintain your family's lifestyle as best as possible. A qualified and licensed insurance professional can help you determine what direction may be right for you and your family.

When it comes to saving for a college education, we all know we should do it, but when and how are common questions. In short, the sooner, the better. Even modest savings can make a difference if you give it enough time to grow. Assuming an 8 percent average annual return, an investment of $100 a month for 18 years can yield a savings of $48,000(i) .

With college tuition for many schools increasing nearly 250%(ii) in the last 15 years, whether you are saving for your child's or grandchild's education, it's never too early to start. There are many funding options available. Not every option is right for every family. Some options may affect your child's ability to qualify for financial aid. Sit down with a financial professional to weigh the pros and cons of what's right for you and your future.

529 Plans(iii)
A 529 savings plan may be a good way for you to save for college and get a great tax break. 529 plans are administered by individual states to help people set aside savings for qualified higher education expenses. Most state 529 plans have open enrollment, which allow both residents and non-residents to participate. Plans differ from state to state and many states may offer different contribution limits and investment strategies depending upon the account holder's investment goals.

Currently, qualified withdrawals are now free from federal tax and most plans let you save around $200,000 per beneficiary(iv) . Keep in mind that there aren't any income limitations or age restrictions, which means you can start a 529 plan no matter how much you make or how old your beneficiary is. Under the Economic Growth and Tax Relief Reconciliation Act of 2001, this will be the case through the year 2010. At that time, pending any United States Congress action to keep this existing provision permanent, this taxation benefit is subject to change. In addition, contributions of more than $11,000 may be subject to gift tax. Earnings and withdrawals may be subject to state tax.

There are two types of 529 savings plans:
The Prepaid College Tuition Plan(iii): This plan allows you to prepay college tuition at current rates. For example, if the cost in current dollars to attend a four-tear public university is $35,000 and college costs increase six percent each year, the cost of attendance in 15 years will equal $83,880 annually, but your child can go to college at the lower rate. With this plan you can lock in the current cost of attendance by prepaying college tuition at today's prices. Keep in mind that most plans only guarantee 100 percent coverage if the beneficiary goes to a public in-state college or university. You can transfer prepaid tuition contracts to a private or out-of-state school, but you may not receive the contracts full value.

The College Savings Plan: This plan operates like a 401(k) plan, except it is funded by after-tax contributions. The plan will invest your contributions into mutual funds, stocks, bonds and CDs (may vary by state). Fund strategies differ from plan to plan, so do your research. Some funds may follow an aggressive growth strategy (stock funds) when the beneficiary is young and later convert to a conservative growth strategy (bond funds) when the beneficiary nears college age.

Consider the benefits of 529 plans. The named beneficiary can withdraw funds from the 529 plan tax-free to pay for qualified education expenses; i.e. tuition, room and board, books and fees. A federally mandated penalty of 10% applies to any earnings withdrawn for non-qualified expenses. The donor can also transfer the account to another beneficiary if the original beneficiary decides not to attend school. The donor maintains complete control over the account, naming the beneficiary and controlling how the funds may be used.

Coverdell Education Savings Accounts (ESA)
Once called Education IRAs, Coverdell ESAs are not retirement accounts, but investment accounts for education savings. Family members can set up a custodial account with a designated beneficiary who can take out funds to pay for qualified education expenses. Unlike the 529 plans that allow for larger contributions and have no age requirements, Coverdell ESAs permit a maximum contribution of only $2,000 per year and beneficiaries must be under 18 years of age(v) . While earnings from the account are tax-free, contributions must be made with after-tax dollars. Distributions are also tax-free as long as they are used for qualified education expenses (such as tuition, room and board, books, fees, supplies and equipment).

Unlike the 529 plans that are for higher education only, since 2002, Coverdell ESAs can be used to fund elementary and secondary school education. Coverdell ESAs also have income restrictions. Only individuals with a modified adjusted gross income of less than $110,000(v) or $220,000(v) filing jointly can make the maximum $2,000 per year contribution. If individual gross income is between $95,000(v) and $110,000(v) ($190,000(v) – $220,000(v) filing jointly), the donor is only eligible to make a reduced maximum contribution. Persons with incomes of more than $110,000(v) ($220,000(v) filing jointly) are not eligible to contribute to a Coverdell ESA. Also, unlike 529 plans where the plan is administered by the state, you, the Coverdell ESA investor, can select the fund manager for the account.

Traditional Investments
If you prefer a different means of investing, you may choose to use traditional investment vehicles to help with college expenses. You may decide to invest in mutual funds 3 . Investing in mutual funds puts a professional fund manager in charge of your savings so that as the investor, you are not involved in the day-to-day maintenance of the portfolio. As your child approaches college age, you can help protect your returns by converting them to bonds and cash, Keep in mind however, that depending on the investment strategy you choose, certain investments may be subject to taxation or tax penalties for early withdrawal.

Grant & Loan Programs
Don't be too troubled if you haven't saved enough to cover the entire cost of tuition for four years. Federal, state and private grants and loans can bridge the gap between your savings and tuition bills. During the years you are paying tuition you may be able to take two federal tax credits – the Hope Credit and Lifetime Learning Credit. There are income limitations to consider, but if your income level exceeds the maximum, you may qualify for a new higher education expense deduction that will be in effect from 2002 to 2005.

There are also ways to cut cost after graduation when payments on student loans begin. For example, instead of paying the minimum balance due, increasing your payment by even $10 per month can pay down your principle faster. Taxpayers with student loans are also eligible for a tax break. You may deduct the interest you pay up to $4,000(v) per year if your adjusted gross income is $80,000(v) or less if you are single; and $160,000(v) or less if you're married filing jointly.

Before you begin your college savings plan, do your homework. Explore all of your investment options, become familiar with all the grant and loan opportunities (federal, state and private) and stay abreast of federal education tax laws. Whatever means you choose to begin a college savings fund, remember that sooner rather than later is optimal, but that it's never too late to start planning for the future.

One of the most common recommendations given to clients when discussing retirement and long-term financial security is to start planning as soon as possible. The sooner you start to invest in your retirement, the longer your contributions and the potential growth and income of those contributions can increase. Even modest amounts can compound to sizable sums over time. The longer your money has to grow, the better you will be able to weather the ups and downs of the economy.

But it's not enough just to start early. As with any journey, unless you have a destination you'll probably never arrive. So you must also set retirement goals.

Know Your Retirement Needs
Depending on your current income and standard of living, plan on saving between 60 and 80 percent of your pre-retirement income. Once you've set your income goal, try to estimate how much Social Security you may receive (you can find calculators to assist with this on the Social Security Administration website, www.socialsecurity.gov). Fortunately, it is rare that Social Security benefits are enough to fund a retirement. It is a good idea to research other vehicles for retirement savings.

Explore Options for Gathering Your Nest Egg
Find out if your company has a pension or profit sharing plan and check to see what your benefit is worth. Learn what benefits you may have from previous employment and before changing jobs, find out what will happen to your pension.

If your employer offers a tax-sheltered savings plan, such as 401(k), sign up and contribute all you can. Your taxes will be lower, your company may offer contribution matching and automatic deductions make it easy. With 401(k)s you can invest money that you haven't paid income tax on yet, which means your money works for you as your investment grows. Income tax is due later, when you finally use the money for retirement and may be in a lower tax bracket. Over time, deferral of taxes and compounding of interest make a big difference in the amount of money you will accumulate.

Retirement accounts can be set up by an individual, not only employers. The two most common types are the traditional Individual Retirement Account (IRA) and the Roth IRA. In both cases, it is up to an individual to set up an account and make contributions. IRAs have significant tax benefits – so much so that many people set up IRAs in addition to employee-sponsored plans. Refer to IRS Publication 590 for more information on IRAs.

Additional retirement income can also come from personal, non-retirement investments such as stocks (ii) , bonds (ii) , mutual funds (ii) , savings accounts, annuities (iii) , real estate or businesses. When choosing personal investments for retirement, consider these factors:

• how much risk is involved with the investment
• potential growth value
• how long you will own the investment
• the yearly cost of maintaining the investment
• potential income flow from the investment during retirement
• how easy you can liquidate the investment if necessary
• costs involved in converting the investment into cash
• tax benefits or costs involved with owning and selling the investment

Protect Your Nest Egg
Finding the right investments and managing them isn't easy. Review your retirement plan periodically to monitor the performance of your investments and ensure you're still on the path to meeting your retirement needs. Become familiar with income tax and estate tax consequences and benefits available to you.

Keep in mind that investing to meet your retirement needs is a lifetime pursuit. The sooner you start saving and having your investments grow in value, the longer your money can work for you. Remember, time is a great ally to help you meet your retirement goal – if you plan for it now. Make retirement savings a high priority, devise a plan and stick to it.

Where does all of my money go? This is a common question many people ask themselves every month. People are always looking for more money to save, but aren't sure where they could possibly find more money in their budgets. If you're trying to save money to invest in your future, consider these minor changes and watch your money grow.

Clip Coupons
Clipping coupons is a virtually effortless way to save extra money. Saving a dollar here and fifty cents there may not sound like much, but at the end of a grocery trip, they often add up to be substantial savings.

Brown Bag It
Instead of heading out for lunch, bring your own and enjoy the outdoors. Eating out for lunch five days a week can cost anywhere from $20 to $50 per week. By bringing items from home, you can pocket the savings.

Enjoy Dinner at Home
Restrict dining out to one occasion per week. Dining out quickly adds up, especially for families. Make dining out the exception, not the rule, and treat yourself to extra money each week.

Rent a Video
Skip the cinema and extra expenses that go along with it. A family of four going to a movie could spend approximately $45 for tickets and refreshments. Opt for an inexpensive night at home with the family for under $10 and catch up on the movies you've missed.

Veto the Vending Machine
Buying a drink and snack from the vending machine everyday on your break can break you. Skip the snacks and have an apple instead, or bring your own snacks from home. At $1.50 per day, your savings can quickly add up to about $30 per month.

Say Later to Latte
Grabbing your morning cup of Joe from the gourmet coffee shop can cost you about $10-$14 per week. Treating yourself to only one cup of coffee out each week can save you between $30 and $50 per month.

Create & Stick to a Budget
Create a monthly budget for yourself and/or your family that is realistic about how much it costs for everything from house payments to haircuts. Many items cost the same each month, such as a mortgage, car loan, etc. For those expenses that vary, such as utility and grocery bills, add up one year's worth of expenses in each area and divide by 12. This will give you an average monthly amount for your budget. On months that you are able to save in these areas, you will have some extra cash to save.

Once you know where all of your money is going, you can prioritize the most important ways to spend it. Small lifestyle changes can make a big difference at the end of a month and directly impact the amount of money you're able to invest in your future.