Finance Made Simple

Congratulations! You’re an executive and you now qualify for deferred compensation plans. But what does that mean?

You might have heard the term “deferred compensation plan” before. If not, you might be more familiar with the idea than the term, so this definition might ring some bells when you put it in context: A deferred compensation plan is one in which a portion of an employee's pay is held until a specified date, usually (though not always) retirement.

Go onto the IRS website or any financial planning site and start looking up retirement plans. Assuming you don’t work in investing or human resources, we can almost guarantee you will be tilting your head and asking, “What the…?” by the time you hit the second or third paragraph. No, it’s not just you. The way this information is presented is daunting at best.

Welcome to A Deeper Look series. One of the ways of understanding finance is understanding many of the terms you are not used to hearing every day. These terms may sometimes be confusing, so it helps to get some background and perspective.

Today, I would like to share the term “asset allocation.” Asset allocation is an investment strategy that incorporates the risk tolerance and investment time horizon of the investor. It may sound simple, but there are many ways to allocate assets within an investment portfolio. Most approaches consider three main sets of asset classes: equities, fixed-income and cash or cash equivalents.  Each class has a different level of risk and expected return, and each will generally perform differently than the other. There are additional classes such as “alternatives,” real estate and precious metals that can also be considered as part of an allocation.

Years ago, in many junior and senior high schools, our youth attended classes about basic budgeting and finances. And often, the only classes were part of a Home Economics track as Life Skills. Sadly, along came budget cuts, and these classes were removed. During my career, I have spent some time in classrooms as a guest teacher, sharing insights and tips for students to become more financially savvy.

One of the many facets of my financial advisory services is helping clients evaluate and choose to participate in their employer’s executive benefits.  Many of these benefits supplement an executive’s overall income, now and in the future.  But there are pros and cons as well as tax considerations that go along with them.

After every national election cycle, the world of financial planning changes in some way. It may be big changes coming down the pike, or changes in the details. Advisors work to field through the changes to make sure clients are getting the best advice they can offer. This election cycle is no different and looks to have big changes coming your way. The first area targeted for change is the Healthcare Law. With reference to Health Savings Accounts being proposed as a significant component, it may help to refresh our memories on what these are and how they’re used.  

Health Savings Accounts (HSAs) were introduced in 2004 and were coupled with High Deductible Health Plans (HDHPs).  It’s always important to verify that the insurance plan is HSA-eligible. The HSA is a separate account that an employee, employer or private policy holder contributes money to during the year. The premise of these accounts was to help curb the growing cost of health insurance and to put the insured patient more in control of their healthcare. The pre-tax contributions are much like a traditional 401(k) or IRA. The account can then be tapped to pay for qualified medical expenses. If money is used to pay for non-qualified medical expenses, it will be taxed and will include a 10% penalty.

In order to make a living wage today in the U.S., employees are required to have at least a four-year degree. At the same time, the cost of tuition has been on a continuous rise. So for generations X and beyond, student loan debt makes up a large chunk of their total debt. Four short years at college could potentially take decades to pay off if you’re just making minimum payments.

There is hope, however. There are options to pay off debt quickly, get lower interest rates or in some cases, have the debt forgiven. Here are some of your options to chip away at student loan debt so that you can have a little more breathing room in your budget.

We know each generation is unique, and that doesn’t change when it comes to money management. Technology changes, the economy changes and attitudes change. It makes sense, then, that Generation X (ages 35-50) and Millennials (ages 18-34) sometimes think differently about finances. Here are some trends we’ve seen with these two younger generations.

Do you remember the first time you had to balance a checkbook or apply for a credit card? Were you confident in what you were doing, or did you feel like you were setting foot on an alien planet for the first time? In school, the topic of financial literacy is often neglected, even though it is so critical to everyday adult life. Parents can help prepare their children – especially as children near the end of high school and face heading off to college or living on their own for the first time – by giving them an education in financial literacy. Here are some tips parents can use to help prepare their kids for the world of money management that awaits:

Living debt free sounds like a dream come true to most of us. Once upon a time, retirees paid off their mortgages and held mortgage burning rituals upon retirement. But times are changing and pension plans, health insurance for retirees and gold watches are becoming relics of the past.

Retirees today have a much different financial picture. Many retirements are funded by 401k plans with minimal employer contributions, Traditional and Roth IRAs and other self-funded retirement plans. This means planning for retirement looks much different than it did 30 years ago, and the answer to whether or not you should pay off your house upon retirement is not so cut and dry.

Credit is an important part of our financial lives. While it is most important to live within your means and not overextend yourself, some things are necessarily bought over time, such as residences or cars. Other reasons to use credit (wisely) are to take advantage of cash back deals, air miles or other rewards that come with the cards.

By now, most consumers and business owners know that having good credit is key to financial stability. If your score is low, you may have difficulty obtaining credit or pay higher interest rates whenever you need to borrow money for a house or car, or get a loan or credit card. Credit can also affect everything from the ability to rent to job security. Employers, lenders and even auto insurers look at credit reports before they will extend offers. That’s why it’s so important to fully understand what goes into making a credit score, so that you can stay on top of it and ensure you have the highest score possible.

There are several different credit agencies, and they all score slightly differently, but they have a few major factors in common. FICO is the agency most banks turn to. FICO scores range from 300 to 850. Here’s a breakdown of what goes into a FICO credit score.

The cost of long term care is on the rise, and with all the things you have to save money for — college, retirement, buying a home, life insurance, investments, emergency funds and more — it’s a good idea to learn more now about long term care insurance coverage.

Long term care coverage is a type of insurance policy that generally reimburses you for the cost of home healthcare, assisted living or skilled nursing facilities. Unlike Medicare insurance that covers primarily skilled medical care, long term care insurance typically covers unskilled care that provides assistance with basic “activities of daily living.”  There is a wide range of options for coverage, and you often have to go through medical underwriting. This means you want to have coverage in place before you actually need to use it so that you will qualify.

Make sure you do your research and know what you’re paying for when you choose a long term care policy. Carefully read you policy so you know how it operates, what is covered and what isn’t covered.

Scam artists are getting more stealthy and sophisticated with their ploys to get your money and steal your identity, especially when they pose as the IRS. Currently, these scam artists claiming to be IRS representatives are using intimidation as their weapon of choice, a tactic that is, unfortunately, often successful with the more vulnerable. We’re putting this article out not to scare you, but to arm you with information so you can be prepared if you receive one of these phone calls.

How Scam Artists Operate

  • They make unsolicited phone calls. If you receive a call during which someone claims to be from the IRS and demands that you pay a tax bill, beware. Scammers will try to con you into sending them a wire transfer or prepaid debit card. The IRS will never call you to demand an immediate payment. If you genuinely owe taxes, you will receive a bill in the mail first.
  • They try to scare you. Scam artists will try to threaten and intimidate you into giving them money. They may say that they are calling the police to arrest you, deport you or take away your driver’s license. A true IRS agent will never use threats or intimidation or demand you pay a tax bill without you first receiving it in the mail. The IRS will also not threaten you with calling the police or any other government agency.
  • They use software to make their caller ID number look legitimate. Some scammers can alter what your caller ID says to make it look like a real IRS number being called from. They can also use fake badge numbers or IRS titles. They might even have bits of your personal information, like your name, address or the last four digits of your social security number. Don’t be fooled. Go with your gut. If the call sounds suspicious, it probably is a scam. If the caller is legitimately from the IRS, they won’t mind if you disconnect the call and try calling the real number back on your own. The IRS will never ask you for a credit or debit card number over the phone or require that you pay taxes in a certain way (like with a prepaid debit card).
  • They invent new tricks all the time. Some scams will send you an email with a very legitimate looking tax bill. Other scammers are so brazen they even give you a legitimate IRS mailing address. Scam artists are very good at creating fake letterhead for emails and standard mail to make their documents look authentic.
  • They try to take advantage of people who they think will be easily intimidated. Scammers particularly target older people, new immigrants to the U.S. and women. If you’re in one of these groups, be extra vigilant.

What You Can Do

  • If you don’t owe taxes, hang up immediately. Contact the Treasury Inspector General of the Tax Administration (TIGTA) and report the call. Then report it to the Federal Trade Commission (FTC).
  • If you know you owe taxes, call the IRS at 800-829-1040 to discuss.

Please share this information with your loved ones, especially those you think might be more vulnerable to scam artists’ tactics. We at Wood Smith Advisors want your identity and your assets to remain safely in the right person’s hands – your own.

Wood Smith Advisors, a Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals.


Like anything else in life, planning is key to being financially on track. It often is not a focus until a life event triggers a concern or wish, such as a marriage, divorce, birth, death or upcoming retirement. Here are some things to think about to help you identify the holes in your financial plan.

Address Retirement Savings Gaps

As you examine your financial plan, at the end of the day, you want to have enough money to cover all of your needs. If you’re coming up short, here are a few options you can keep in mind:

  • Work longer – If you haven’t saved enough money for retirement, it may be inevitable that you have to delay retiring. While staying in the workforce could be less than ideal, it is still an option to make sure you are set when your time to retire finally arrives.
  • Save more money – There may be circumstances, such as health issues that may prohibit you from being able to delay retirement. Learning to live with less today so that you can be financially set tomorrow is well worth tightening your belt. Track your expenses for a month or two and identify things that you can reduce.  More disciplined spending will allow you to tuck money away for expenses down the road.
  • Earn more on your investments – You may need to address the risk-reward of investing to ensure that you will not outlive your money.  This is best done with the help of a trusted financial advisor.                                                                                          

Make Sure You Are Adequately Insured

If there are gaps in your insurance coverage, you may need to address those to have a healthy financial picture. Getting more insurance coverage relies on the cost, coverage and underwriting.

  • Life insurance – If you need more coverage, you must decide which type of insurance makes sense for you. There are a variety of products, including Term, Universal Life and Whole Life. Whole Life insurance accumulates cash value and pays a benefit upon the insured person’s death. Term life insurance pays a benefit on the insured person’s death during a specified term. Universal Life insurance is a permanent policy, and any excess payments made are credited to the cash value of the policy. Depending on the cost and coverage, you need to decide which makes sense for your budget and gets you the coverage you need. Insurance underwriting  


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