Letter to Our Clients - July 2016

July 2016


Dear Clients and Friends,

We have some exciting news! For those of you who I have not spoken with recently, I wanted to share with you that my wife Lindsey and I are expecting our first child, a boy, on July 31st! Lindsey and I are very excited to become parents, and it would be an understatement to say that Bob and Dorothy are thrilled to be grandparents for the first time!

Our lives have been very busy lately, preparing for the stork to bring us our new arrival. We have been working on the traditional things, like preparing the nursery, taking infant care classes, and reading a million different product reviews as we shop for baby supplies. However, this upcoming major life change also prompted us to revisit our own personal financial plan (literally practicing what we preach!).

While most of you are not currently expecting a visit from the stork, the financial planning topics I will outline below are ones that everyone should revisit periodically, and then especially during a major life event or change. I hope that this summary helps you think about how you might improve your own financial plan, or how you might be able to help a friend or a loved one who is experiencing a major life event address these issues.

Budgeting - We sat down to review our household budget, and discussed how our reduced income over the coming months will affect our financial life. We talked about what changes we need (and want) to make in how we spend and save. For example, we anticipate new expenses that we have not yet had in our budget (such as diapers!), but also we expect other expenses to decrease (we will probably be exploring fewer new restaurants!). We wanted to make sure we were on the same page and had a plan to be able to live comfortably while still saving for our future.

Estate Plan - We had previously created simple wills, but we updated our legal documents to make sure that our child would be cared for according to our wishes should anything happen to both of us. These are often emotionally difficult and unpleasant scenarios to consider, but are nonetheless issues that should be addressed. We worked with our attorney to decide how our assets would be managed for the benefit of our child (and any other future children), who would care for our son, who would take care of our pets, and other such details. We also reviewed our Advance Directives (healthcare and end-of-life decisions) and updated our Powers of Attorney (documents that allow others to help with your financial affairs, if you are unable to do so). Estate plans in general and especially Powers of Attorney should be reviewed periodically to make sure they are up to date, even if you have not experienced a major life change.

Life Insurance - We had smaller policies in place before, but we both applied for new term policies with larger death benefits. We went through the same process that we help clients with, and considered our current living expenses, future education, retirement, and healthcare costs, inflation, and other factors, to determine an amount of coverage that we are comfortable with for now. In our opinion there is no formula that dictates the correct amount of coverage you should have, but it was important for us to consider how much would be needed in order to provide for our son if both of us were to die, and to think about how one spouse or the other would be able to replace the lost income if just one of us were to pass away.

Beneficiary Updates - If something were to happen to both of us, we want to make sure that our assets would be well-managed for the benefit of our baby boy. Since our old beneficiary designations did not direct anything to benefit future children, we looked at all of our accounts/assets that have beneficiaries listed and updated all of them. It is important to think through all the different places you may have beneficiaries named, including investment accounts, retirement and pension plans, life insurance policies, bank or credit union accounts, and even real estate in some situations.

College Planning - It is too early to know if baby Haley will become an Oregon Duck, but it is not too early to start planning for college expenses. We looked at the various ways to finance college, and decided that we will open a 529* college savings plan to start saving for his education. We anticipate that the higher education landscape will be vastly different in 18 years, given the unsustainable student debt situation and rising cost of college. However, since we can't predict the future, we plan to start saving now to give him and ourselves as many options as possible as we approach that point in his life. This is an area that grandparents and other family members can get involved in by making contributions on a regular basis or for birthdays, holidays, and special occasions.

Other Considerations - There are, of course, many more topics we have considered that will not all fit in this letter. We looked into things like our disability insurance and health insurance, planning for childcare, home improvement projects, auto maintenance, and other tasks that we proactively addressed, knowing that we would have less time to take care of them after his arrival.

Now that our due date is one month away, as the stork flies, actually having a baby is becoming much more real, and we are very glad that we have been working on all these issues for months now. I hope that walking you through our process has helped you think about your own financial plan, and to think about your friends and family that might need to give their plan another look. It is important for us all to revisit our past decisions whenever we experience a major life event, such as a birth or a death, marriage or divorce, a new job or a layoff, starting a business or entering retirement, starting school or finally paying off loans, or when there are any other shifts in the goals, concerns, or assumptions that contributed to our current financial plan.

We hope you are all well, and enjoying your summer. We will look forward to talking with you soon, and will be back in touch with news about the newest addition to our family when he arrives! Until then, enjoy the 4th of July weekend!

Best Wishes,

Theodore R. Haley, CFP®, AIF®


*The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.