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Volume 14, Issue 12

Savings Tips for Young Adults

Young adults today face a variety of challenges in their quest for financial independence. Some of these obstacles are similar to those faced by previous generations, while others are unique to the times. If you are a young adult, here are five financial tips to help you manage your money and prepare for your future.

1) Invest in your future. Ongoing technological changes in various fields may require continuing education. You may wish to make ongoing career education a priority to enhance your skills and increase your professional potential. The more varied and flexible your skills, the more attractive you may be to prospective employers.

2) Open an emergency savings account. The uncertainty of the workplace may mean that your professional life will be interrupted by career changes. If you need to return to school full-time to change career paths, you may face periods of time without stable income. Creating an emergency fund to cover several months’ worth of living expenses can help you manage work-related transitions. This savings fund can also be used for opportunities, such as starting your own business.

3) Save early and continuously for retirement. Saving for your retirement is your responsibility—so apply discipline and diligence to this ongoing objective. You cannot necessarily depend on the government to provide future Social Security benefits. With employer-sponsored 401(k) plans, the responsibility of saving rests on your shoulders. Although you may be years away from retirement, the key is to make time and compound interest your allies.

4) Let retirement funds accumulate. If you change jobs early or often in your working years, consider rolling over your account into an Individual Retirement Account (IRA) or new company retirement plan. It may be tempting to cash in the account, especially if you have accumulated only a small amount, but doing so would make it immediately taxable and you may also incur an early withdrawal penalty. Perhaps a greater concern, however, is that you may be unable to make up for time already spent to accrue these savings.

5) Use credit wisely. Credit card companies frequently target young adults with the lure of “easy money.”While credit cards offer convenience (it’s virtually impossible to conduct some transactions, such as reserving airline tickets, without one), they also have the potential to create debt problems. Because payments can be stretched far into the future, overspending on credit can create an illusion of wealth. Paying off the full balance each month is the best way to control your use of credit.

Plan Now for the Future

Remember, the funds you accumulate during your working years may be your primary source of retirement income. Although inflation may threaten your nest egg, a little discipline and common sense over time may help you better manage your current and future financial affairs.

When Women Remarry: Finding Financial Balance

In previous generations, men traditionally handled the family finances. While these arrangements may have worked well during the husband’s lifetime, the consequences of the wife’s lack of involvement often became clear when she was suddenly on her own. Today, more women are actively directing the outcome of their future financial independence. And for good reason.

Women need to plan for a time when they may be on their own. Through divorce, widowhood, or the single life, the odds are high that a woman will be independent at some point in her lifetime. According to the Women’s Institute for Financial Education (WIFE), an incredible 87% of those living in poverty are elderly women (WIFE, 2008). Financial preparedness is essential for women throughout life, but it becomes especially important in the event of remarriage, since financial arrangements may be needed for ex-spouses and children. If you are in a second marriage or are about to enter one, you and your spouse may need to consider the following:

Bank Accounts. Joint accounts may help solve any mysteries about how family income is spent. Many couples who maintain separate accounts decide to split expenses evenly; however, seriously consider having the higher wage earner pay the larger portion of the bills.

Prior Debt. Will each spouse be responsible for the other’s debt incurred before the marriage, and if so, to what extent? Keeping the indebted spouse’s prior debt separate will help ensure the other spouse’s property remains safe from creditors.

Property Acquired before Remarriage. Keeping previously acquired property in your own name can prevent the risk of losing personal property to your spouse’s potential creditors. Also, doing so may have estate tax benefits. In 2008, every individual may exclude up to $2 mil-lion from estate taxes ($3.5 million in 2009). Estates valued in excess of this amount may be taxed as high as 45%. Keeping your own property in your own name can help ensure that you minimize estate taxes while providing an inheritance for children from a previous marriage.

Home Ownership. The majority of married couples choose to title property jointly as tenants by entirety. When one spouse dies, the home passes to the surviving spouse tax free. When the surviving spouse dies, up to $2 million in 2008 ($3.5 million in 2009) may be excluded from taxation.

Retirement. Saving enough for retirement is a major financial objective for married couples, and women have unique concerns when considering this goal. First, women typically live longer than men, so their retirement funds need to last longer. In addition, women often spend more time out of the workforce than men as a result of care giving responsibilities. Therefore, they are less likely to have pensions and full Social Security benefits. According to statistics from the National Family Caregivers Association (NFCA, 2008), women average 14 years out of the paid workforce, primarily for care giving duties. When they do work, women typically earn 77.5% of the amount earned by their male counterparts, according to the 2007 American Community Survey conducted by the U.S. Census Bureau.

Furthermore, according to the U.S.Census Bureau’s Current Population Survey, women age 65–74 had an average income of $14,021 in 2007, compared to $24,323 for men. Consequently, it is especially important for women to prepare for retirement.

Insurance. Disability income insurance can provide financial protection in the event you are unable to work because of an accident or an illness. These policies can provide a portion of your income to help ensure that funds will continue to be available for bills and expenses. Similarly, life insurance can provide a measure of financial security upon death. Life insurance can help ensure that children from a prior or current marriage will have the funds to attend college, the mortgage will continue to be paid, and the surviving spouse will have some replacement income.

Estate Planning. Blended families have unique estate concerns, so it is important to plan for the final disposition of your assets. Trusts can be a valuable tool to minimize estate taxes and to help ensure that your assets are distributed to your heirs according to your wishes. For example, at death your assets can pass to a trust, from which your surviving spouse will receive income without access to the assets themselves. At the death of the surviving spouse, the assets can then pass to children from your current or previous marriage. This gives the surviving spouse financial independence and provides an inheritance for your children, as well. In addition if the surviving spouse later remarries, the trust precludes your assets from their marital or community property.

Every woman who remarries needs to balance her financial past with her financial future. By addressing your financial situation as soon as possible, you can avoid disputes and build financial independence for your extended and blended families.

Working with Your Estate Planning Team

Estate planning often involves the coordinated efforts of an estate planning team consisting of your attorney, accountant, and financial professional. However, whether establishing a new estate plan or revising an existing one, only you can provide the guidance, direction, and information needed to develop an effective plan. Most estate planning teams begin the process by requesting that you complete a questionnaire and asset inventory. Although this may seem an arduous task, the more information you provide, the more your team will be able to help you achieve your goals.

Although some questions may seem intrusive, each has a specific purpose.When formulating an estate plan, you may be asked to provide any or all of the following information:

Family and Other Beneficiaries

  • The names, ages, relationships, and special needs of family members and other beneficiaries.
  • Copies of property settlements, other financial agreements, and court decrees relating to your family.


  • Information on your current health and the health of your beneficiaries.
  • The average health and life spans of your ancestors.

Assets and Liabilities

  • A list of your assets, their estimated net value, and documentation of their ownership.
  • Identification of your liabilities and those of your spouse.

Existing Plans

  • A copy of your current will, including information on contractual or legal restrictions on the disposition of your assets.
  • Documentation of survivorship provisions and beneficiary designations on insurance policies,retirement plans, employee benefit plans, business buy-sell agreements, and other such assets.

Objectives and Purposes

  • Your goals and aspirations for yourself and each beneficiary.
  • An assessment of each beneficiary’s ability to manage assets.

Benefits of Estate Planning

Once fully informed, your estate planning team can help you accomplish the following:

  • Analyze your assets to determine which should be disposed of during your lifetime and which should be retained, as well as whether any special expertise will be required to value and dispose of your assets.
  • Identify which assets will be subject to probate and estate taxes, and estimate the potential costs to your estate.
  • Estimate and plan for the liquidity needs of your estate, your surviving spouse, and other family members and beneficiaries to cover estate taxes, probate costs,and future living expenses.
  • Guide you in selecting the best domicile, if applicable, to help reduce the net effect of taxes on your estate.

No Plan Is Final

Bear in mind that no estate plan is final. Marriages, remarriages, births, deaths, professional changes, and new legislation may necessitate adjusting an existing plan or creating a new one. Also, the composition of your assets may change over time. To keep your estate plan up-to-date, notify your estate planning team of any relevant changes as they occur, and work with them if they alert you to any relevant legislative changes.

When Giving, Get a Receipt

Charitable donations allow you to give and take—you give money or property to a qualified charity and then take an income tax deduction. By supporting an organization or cause, you may be able to lessen your tax bill. As you plan your giving, remember it’s important to keep accurate records in the event that you need to substantiate such gifts. Receipts for your charitable donations can confirm your contributions should the Internal Revenue Service (IRS) require documentation.

If you make a donation to a charity of cash or property, you need to obtain a bank record or written acknowledgment from the recipient charity that specifies the amount and date of contribution, as well as the name of the charity. For IRS purposes, a canceled check for a donation of cash no longer suffices as a receipt. For property, the acknowledgment must describe the gift and provide an estimated valuation. It is important to note that donations of clothing and household items must be in “good condition” in order to qualify for a tax deduction. Bear in mind that non-cash contributions exceeding $5,000 require a qualified, written appraisal within 60 days of the date of the gift, and you must submit the appraisal when filing your taxes.

In addition, the donation statement from the recipient charity must specify if any considerations (e.g., meals, clothing, concert tickets, trips, or books) were given in exchange for the contribution. (Honoring contributors with a symbolic gift of appreciation is a common practice, especially with television fund-raising.) Your tax deduction is reduced by the amount of the consideration.

While receipts and other acknowledgments are not filed with your annual federal income tax return (Form 1040), these should be carefully stored with other tax documents for the year in which the donations were made. As a general rule, you should keep tax records, including all tax forms, investment statements, bank statements, proof of deductions, or any receipts associated with a particular return, for at least six years. Preparation and organization can help ensure that you have the records you need, when you need them.

The information contained in this newsletter is not written or intended as tax, legal, or financial advice and may not be relied on for purposes of avoiding any Federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. The publisher is not engaged in rendering legal, accounting, or financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA, COPYRIGHT 2008.



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