Starting Monday, January 11 through Friday, January 29, eligible City of Tacoma employees have an opportunity to buy affordable additional long-term disability insurance coverage through the City. While this benefit may not sound too exciting, it represents essential insurance coverage that can protect your income in the unfortunate event that you become disabled.
City of Tacoma employees should sign-up and take advantage of this benefit.
Who am I? My name is Geoff, and I am a financial planner with Puget Sound-based Merriman Wealth Management, LLC. I got excited after seeing the special benefits notice my wife received as a City of Tacoma employee. I do not work for the City or the vendor, and I do not receive any personal benefit from you enrolling in this extra disability coverage. I am just passionate about helping families make the best financial decisions possible and wanted to provide additional information on a topic that can seem overly complicated or may often be overlooked.
The FAQ below illustrates just how important this additional long-term disability coverage is, whether or not you have dependents:
What is disability insurance?
This type of insurance is used to protect your income and financial livelihood in the event of an untimely illness or injury.
There are two types of disability insurance: short-term and long-term. Long-term disability coverage is the most valuable because it replaces a portion of your income starting 90 days after your disability until recovery or age 65, whichever is sooner.
Don’t I already have long-term disability coverage through the City of Tacoma?
You do. However, for most employees this basic employer-paid benefit only protects 60% of the first $1,500 in monthly pre-disability earnings. This means that if you earn $6,250 a month or $75,000 a year, you will only receive $900 a month in benefits. Will $900 a month cover your bills?
How much extra income protection will this additional benefit provide me?
Up to $4,100 of extra income per month of pre-disability earnings. Combined with the basic employer-provided benefit described above, you could receive up to $5,000 of income replacement (i.e., a total of 60% of $8,333 pre-disability earnings). The employee from question two above, earning $6,250 a month or $75,000 a year, would receive $3,750 a month in benefits, which would go much farther toward being able to cover bills.
Note:Employees earning $100,000 or more would receive the maximum benefit of $5,000 a month.
What is the difference between the 90-day and 180-day waiting period options?
This waiting period, otherwise called the elimination period, is how long you have to wait to start receiving long-term disability payments from the insurance carrier. Premiums are naturally higher for the 90-day waiting period option as you will start receiving benefits earlier. The difference in premium for choosing the 90-day waiting period over the 180-day waiting period is offset by starting to receive income 3 months earlier.
How much does this benefit cost and how is it paid?
The benefit costs 0.303% of pre-disability earnings up to the pre-disability earnings cap for the 90-day waiting period option. This means the employee earning $75,000 would pay an extra $18.94 per month or $227.28 a year (i.e., 0.303% X $6,250 pre-disability earnings). Employees earning $100,000 or more a year would pay an extra $25.25 per month or $303 a year. This extra benefit far outweighs the additional premium cost.
Note: This premium cost would be deducted via payroll as a post-tax cost.
What happens if I stop working at the City of Tacoma?
Generally, you cannot keep group disability benefits like this one offered through the City of Tacoma if you leave (i.e., not portable).
If I do become disabled, how does the benefit work? How long would the benefit last?
In the unfortunate event of an illness or injury that qualifies for disability insurance benefits, you would file a claim with the disability insurance carrier that includes medical evidence of your disability. If approved, you would start receiving the above-described benefits after the waiting period until recovering from the disability or age 65, whichever comes first.
Would the benefits received from this extra policy be taxable?
Because the premium is paid post-tax rather than pre-tax where you receive a tax deduction for the premium cost, the disability payment you would receive would be tax-free. SAID AGAIN: All of the income received from this extra long-term disability coverage would not be subject to taxation. The tax-free nature of the payments further helps replace your pre-disability income (as your pre-disability income is gross income or otherwise subject to taxes).
Note: Income received from the employer-paid basic long-term disability coverage (i.e., 60% of the first $1,500 in monthly pre-disability income) would be subject to taxation. This is because your employer pays the premiums for this benefit.
What if I earn more than $100,000 a year? Do I need additional income protection beyond this extra benefit offered by the City?
Maybe. Start by asking these questions:
Does my contribution to covering household expenses exceed $5,000 a month?
Do I expect these expenses above $5,000 a month to continue for at least another year?
Do I expect my income and expenses to increase in the future?
If you answered YES to these questions (and be conservative on this), then it makes sense to consider buying an additional individual disability policy outside of your City benefits. This is especially important for households with a single earner.
An advisor can get quotes through an insurance broker to help you make an informed decision. It is also important to evaluate this decision through the lens of your overall financial plan, taking into account all of your goals and resources.
If you have questions about how much disability insurance coverage you need to protect your income or any other financial planning topics, like whether you are on track to achieve your financial goals, feel free to contact me directly at email@example.com.
Disclosure: The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax or legal advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; past performance is no guarantee of future performance. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman Wealth Management unless a client service agreement is in place.
Why is it that when the words “children” and “finances” are mentioned in the same sentence, parents brace themselves like they are about to hear the punchline to a really bad joke? Well, it may be because children and finances are often characterized as two major topics that can cause stress and frustration.
This stress and frustration may be a roadblock, preventing parents from having an open dialogue about finances. Being a financially smart family is so important.
We want to tear down that roadblock and give you a road map to help you, your teens, and even young children develop great financial habits. When every member of your family understands basic finances and sets financial goals together, everyone feels more financially confident and accomplished.
An American Psychological Association survey questioned parents on their relationship with their children and finances. The results revealed that only 37% talk often with their family members about the subject of finances.
Why is it that the vast majority of parents don’t talk about finances with their kids? Maybe most don’t know at what age to begin. Maybe they don’t know what to say. Or maybe they think talking about finances as a family isn’t important
Whatever the reason, you may find yourself as a parent in one of these three categories, needing an extra push to establish some basic familial financial habits. For you and all your children, let’s take a look at some ways to help everyone under the same roof get a better handle on the family finances without feeling the need to be an accounting professional.
Financial Tips for Young Kids: Show How Far Their Dollars Go
Do you often find yourself with your kids at the store having to say “no” to the many toys and candy bars that they have pulled off the shelf? Maybe you want to reward your kids with a little something, but they don’t always understand why that $40 limited edition Lego set may not be in the budget.
That’s because they are used to you being the gatekeeper of their spending. Instead, teach them how to be the gatekeeper of their own spending by giving them a bit of financial freedom under your supervision.
Financial freedom for an elementary- or middle-school-aged child should be exercised through simple, intentional actions. It can be as simple as giving them a small amount of money with the intention of letting them have the final say in how they spend it.
This simple action encourages thoughtfulness and awareness about the cost of something they want, which helps them feel a sense of financial freedom while still under your supervision.
Example: Say you want to reward your child by giving them $5 to spend at the store however they would like. Point them over to the dollar section or by the checkout, making note of the price tags that are displayed. Weigh the options of getting several small things versus one larger item.
They will feel empowered by the challenge of seeing how far their dollar can stretch. This sort of freedom helps them develop the habit of thoughtful spending, and it keeps Mom and Dad from always having to say, “No!”
Practical Goal: Take your child to a store of their choosing at the end of the week (if they’ve earned it) and give them a set amount of cash to spend however they would like. Help them weigh their options and select something that they are happy about.
Financial Tips for Teenagers: Responsibility Comes with Freedom
It’s time to make the pivot from the gatekeeper of all of your teenager’s expenses to a partner in their expenses. Teens are now at that stage of life where they are capable of earning a bit of income, and they need some extra help learning how to manage it.
Whether you and your spouse decide to give them a bit of weekly allowance or encourage a summer job, teens are entering the arena of earnings and need help with spending. It is important to establish basic habits now to help them feel confident in their spending habits in the future.
One of the most valuable skills that can help teens feel more confident with their money is helping them develop financial observational skills. This includes being aware of how much things cost, keeping track of where their money goes, and planning on how to save towards something they want.
This sounds basic, but these observational skills can help them become more thoughtful in their spending. The simple act of slowing down and thinking about how they should use their money will instill confidence and prevent impulsiveness.
Plus, you’ll be able to set financial boundaries with your teens while still giving them freedom to do what they want with their money.
Here is a list of different things you could do to help your teens become more financially observant and responsible.
#1 – Create a Savings Plan for Something Expensive
If your teen has their heart set on buying a more expensive item, brainstorm ways to make it happen. Help them make a savings plan or even suggest splitting the cost with you. Remember, you are their partner; you are there to encourage them, not control them.
#2 – Think of Their Money as a Budget, Not a Limit
Each week, take a few minutes at dinner to ask your teen about what they’ve spent that week. This will help them start thinking of money as a budget, not a limit. Ask them if they were happy with how they spent their money or if they wish they had used their money in a different way. All answers are great for learning.
#3 – Start Off with an Allowance at First
If your teen does not yet have any sort of income, consider giving them an allowance each month—an allowance that is contingent on something that you and your teen decide together. There is a sense of satisfaction that comes from earning money and choosing how to spend it that teens should begin to experience.
Practical Goal: Read these three examples together with your teen. Talk through how these examples can establish good spending habits, then select at least one of the examples to implement in the following week together.
Financial Tips for Parents: Take Charge of Your Finances and Give Wisdom
As parents, you and your spouse are in charge of leading financial conversations. Including your children in certain financial decisions can help you and your children be on the same page when it comes to money.
It’s not necessary for them to be aware of all financial decisions between you and your spouse. Kids and teens won’t understand high level concepts yet, but you can help your kids be more conscious of money when they have a say in casual, familial financial decisions.
A familial financial decision could be something like comparison shopping for family car insurance plans, but think of ways to involve the kids in that process that is appropriate for their level.
The first step to create an open dialogue with your children is to help them understand how their financial actions make a difference. When your kids feel like their voices are being heard and taken seriously, they will be more likely to actually want to talk about financial matters.
Just talking about how to spend your Saturday night together, weighing options and assessing price points of different activities, can help them better understand why sometimes the decision to do something is “no” and other times “yes.” Familial financial unity begins with frequent, honest discussions.
Example: Let’s say that you and your family decide to save up for a family vacation. Each member of the family decides how they are going to help contribute to this family goal.
Your youngest one may choose to eat at home instead of getting that after-school Happy Meal. Your teenager may volunteer to babysit the younger kids longer once a week so that a parent can get a few more hours in at their part-time job.
The parents can include a vacation savings allotment in the family budget as a way to slowly work up to the goal. With everyone playing a part in the goal, each family member can feel like they are contributing to the vacation.
Goal: Pick a family activity that appeals to everyone, figure out the estimated cost, then list out ways that everyone would be capable of contributing. Each week, check in on everyone’s progress to see how close you and your family are to that specific goal.
Now call your family together and set your goals in motion!
Written exclusively for Merriman.com by Madison Smith
Madison Smith is a personal and home finance expert at BestCompany.com. She works to help others make positive financial strides in their lives by providing expert insight on anything from credit card debt to home-buying tips.
COVID-19 has impacted jobs across all sectors, and State Unemployment Agencies are reporting an unprecedented backlog of claims. We have been hearing from our clients of a desire to assist their adult children financially. Many of the questions include how and what kind of support to provide and if it makes sense. If you are in this situation, here are some ideas on how to temporarily assist your adult children during a financial emergency.
Start an emergency cash fund for your child.
Make a one-time deposit or smaller, more frequent deposits to a high-yield savings account (like Flourish).
Fun idea: Many banks or credit unions offer change deposit programs. They’ll round up your debit card purchases and transfer the extra change to a savings account. Think of it as a “Change Jar.” It adds up quicker than you think!
When your child encounters a financial emergency, make one-time distributions or loan them the money. Anything they payback can be put back into the savings account for future needs.
Gift them highly appreciated shares of stocks or mutual funds from your Non-Retirement accounts.
It could potentially benefit you by helping you avoid the capital gains tax if you sold the shares while they were still in your account.
After the shares are gifted to your child, they can choose when to sell the assets, and they will incur any capital gains tax on what is sold. Structuring your giving this way can potentially reduce taxes for the family.
Discuss this option with your Merriman Wealth Advisor to make sure it fits into your Financial Plan.
Offer small cash loans to cover emergency expenses.
Discuss a payment plan that can start once your child’s financial situation improves.
If mutually agreed upon, an interest-free loan with a small monthly payment is still more helpful than anything any bank could provide to them.
It never hurts to have the agreement in writing and signed by both parties.
If you can’t provide an infusion of cash, little gifts can still make a big difference!
Give gas or grocery store gift cards when you can.
Meal prep large casseroles or frozen meals that can be heated quickly and serve many portions.
Offer childcare when you can.
Help them review all options in their own financial life.
They may be able to take a special distribution from their own IRAs or 401(k)s for hardships due to COVID-19.
Do not co-sign a loan for your child. As much as you want to help them, you could become liable for the loan, and it can negatively impact your credit history.
Do not ignore the tax ramifications of using retirement assets such as IRAs or annuities to give cash to your child. These assets can be taxed as ordinary income and have the potential of significantly increasing your income tax liability.
Do not stretch your own finances too thin. You need to protect your financial security first. We always recommend discussing large gifts with your Merriman Wealth Advisor, whether they be to charity or a loved one.
As parents, it can be extremely difficult to watch our children struggle financially and equally as hard to balance helping and overreaching. When making these types of decisions, we find that an objective third party like our advisors can help you make a decision that works for everyone. We encourage you to reach out if you need guidance with how best to help. We are here for you and your family.
The idea of losing ourselves to dementia is a distressing prospect that people often don’t like to consider, let alone plan for. When we think about retirement we like to imagine the fun things: grand vacations, new hobbies, travelling to visit family, and spoiling the grandkids – not the exponentially rising cost of medical care and long-term care facilities. It’s an unpleasant reality that many financial advisors don’t like to address with clients, because they don’t want to be the bearer of bad news and they don’t have any easy answers.
I might not address these difficult considerations if Alzheimer’s didn’t run in my family. I lost my father earlier this year. He no longer knew who I was before he passed away, just as his father forgot him when he was my age. As a financial planner, I think about my own finances and eventual retirement more than the average person, and along with my retirement planning, I must ask myself uncomfortable questions and plan for a future I hope not to have. I help my clients tackle these concerns too, because one in three seniors currently die with some form of dementia and there are steps we can take to ease the burden on ourselves and our families.
Developing a comprehensive plan with a financial planner is one key step that is better taken sooner rather than later. Waiting until dementia has taken hold, like my father did, can lead to uncertainty and lingering doubts during an already stressful time. A comprehensive plan will include estate planning, investment recommendations, insurance coverage, and a cash flow analysis that incorporates factors such as the rising cost of medical care. These are all important factors for anyone who plans to live into old age, whether dementia is a specific concern for you or not.
Nearly as important as looking at the numbers is building a relationship with a financial planner you meet with regularly. The more I am able to get to know my clients and their unique situations, the better I am able to identify concerns and help make sure their wishes are carried out if they can’t advocate for themselves. Having dementia also puts people at greater risk for elder abuse, which regular meetings with a trusted financial planner can help uncover or prevent.
At Merriman, we regularly work directly with our client’s other professional advisors, such as accountants, estate planners, and insurance agents. Having a team of professionals that can work together on your behalf is valuable for everyone, but it’s vital for people who can no longer recall the specifics of their financial situation. We also help clients identify family members and other trusted individuals that we can contact in the event that they no longer seem able to make important financial decisions. Many people chose to proactively include their loved ones in financial planning meetings, so their loved ones develop a trusting relationship with their financial planner, and have the peace of mind of knowing who to call if they need help.
We at Merriman want our clients to know that families struggling with dementia have our support. If you have questions about how best to prepare yourself or your family, please don’t hesitate to contact us.
Have you ever been interrupted during something important by a phone call from an unknown number within your area code? The first one you let go, but in the back of your mind you come up with all the important messages that call could be trying to deliver. Is someone hurt and trying to call you? Has there been some emergency? While those thoughts stir in the background, the same number calls you again. This time you pick up, sure it is terrible or important news only to hear “Congratulations! You have won a free cruise to the Caribbean”. This kind of attempted exploitation is easy to stamp out, and all you have to do is hang up the phone. Unfortunately, attempts to steal your personal information and money can take on many, less obvious forms.
The term “financial exploitation” means the illegal act of taking economic advantage of someone for one’s personal gain. Examples of this include forging checks, bank account theft, and abusing a power of attorney authorization. Financial exploitation is on the rise today as the baby boomer generation reaches their 60s and 70s, and begins to rely more on caregivers and family members to help them manage their health and financial matters. According to the Senate Special Committee on Aging, senior citizens lost an estimated $2.9 billion from financial exploitation in 2018. Unfortunately, only 1 out of every 44 cases gets reported to local and federal law enforcement. It’s important to note that senior citizens are not the only adults at risk of financial exploitation. Any adult relying on others down the road to make financial decisions for them, can fall victim to this type of crime. This can happen when family members, “friends” and caretakers begin demanding personal loans after learning about the vulnerable state of health of the adult. If the vulnerable adult is dependent on the individual for health care services or other necessities, they may feel pressured to lend them the money.
Federal and state authorities along with financial institutions, have recognized this growing crime against vulnerable adults & senior citizens, and have passed laws and created new best practices for preventing this type of fraud. As a fiduciary, Merriman takes great pride in putting our client’s best interests first. If we suspect you may be the victim of financial exploitation, we will take the appropriate steps to protect you and your assets. That may mean reporting the incident to state authorities such as Adult Protective Services or working with your account’s custodian to prevent funds from being withdrawn.
Since this is an important decision, and one we do not take lightly, Merriman has recently created its own form that allows us to contact a designated individual(s) when we suspect our clients may be victims of financial exploitation and their health status is the primary reason. This allows us to be in touch with someone familiar to your specific situation who can give us additional information to dispute or validate our concerns.
We encourage you to be mindful of this growing risk, shield yourself from personal relationships that center around you giving them money, as well as designate a trusted contact for your advisor or custodian to reach if they suspect you may be the victim of financial exploitation. Please note that this individual will not be authorized to make financial decisions for you.
At Merriman, we believe it is important to help you do more than just grow your wealth. It is for this reason we share this concern as a way to help protect the wealth that you have worked countless years to accumulate, and to keep it away from those looking to exploit your hard work and discipline. We encourage you to ask your advisor about completing a Trusted Contact Form during your next review to ensure they know who to contact if they believe you may be the victim of attempted financial exploitation.
If you believe you would be a good Trusted Contact person for a close friend or family member, please feel free to use this article to start the conversation with them about placing you in that role. That way you can help to look out for them in the same way your Trusted Contact will look out for you.
With the arrival of our first child fast approaching, my wife and I in all of our excitement have been working through a to-do list to prepare for this lifechanging event. While we know we have many surprises ahead, taking the time to learn, ask questions and plan for what’s coming can only help us.
My focus has been planning for the next generation of our family, but this experience caused us to start asking our parents questions we hadn’t before. (more…)