Memorialize your Online Logins

This blog addresses ways to minimize angst and stress after a death or incapacitation.

A simple housekeeping tip: make sure that others (S.O., family) have a spreadsheet with your account logins for online banking, investment accounts, the mortgage, etc. The spreadsheet should have the name of the financial institution, a short description of the account, the login URL, and your ID and password.

I also like to review each account every quarter and post the amounts in that same spreadsheet, but that's optional. (Excel tip: if you highlight all the amounts in one column and click the Sigma/Autosum icon, it'll add them all up, and you can get a sense of your net worth.)

My friend Sarah hipped me to this service as well -- for a fee, they'll house your financial info as well as all kinds of other online logins, email, photos, videos, and the like:
http://www.washingtonpost.com/wp-dyn/content/article/2010/01/24/AR2010012402886.html

Roth IRAs rule

You may have seen references to this thing -- what is it?

For 2010, a person who is under 50 years of age is allowed to contribute up to $5000 in a Roth IRA. A person who is 50 or older may contribute up to $6000.

However, one's modified adjusted gross income (MAGI) can limit the contribution -- in essence, if your income is too high, you can only contribute a smaller amount, or none at all. These limitations start to kick in at $105,000 MAGI for individual filers and $167,000 MAGI for married filing jointly.

The huge benefit to the Roth IRA is that it grows tax-free, and that you can take money from it (most often, having reached age 59 1/2, or using it for certain first-time home buying expenses) tax-free. There are very few investment vehicles that allow such tax benefits.

And, regarding estate planning issues, you can designate a beneficiary for your Roth IRA. The beneficiary designation allows for instant transfer upon death; the Roth is free from probate -- the lengthy, costly, yet often necessary process of wealth transfer upon death.

The money in a Roth is often invested in the stock market. Let's assume a modest 5% growth each year and do the math:

Contributions starting at age 30 and ending at age 60 = 30 years of contribution. (If you are older than 30, don't let this throw you; just start ASAP. You'll still see incredible results.)

Let's also assume you contribute $5000 each year, although the maximum rate is adjusted upward every few years -- so you might be putting even more money in as the years pass.

This means that you will have, over 30 years, contributed $150,000 to the Roth.

Compounding by that modest 5%, you will, by age 60, have $347,000. Congratulations, you have more than doubled your money -- and you get all of it, with no obligations to the IRS!

You can open an IRA online -- just go to the Fidelity, the Vanguard, the Wells Fargo websites and take a look.

Review of Mint.com

It's easier to manage your money if it's all viewable in one place. If you conduct online banking, Mint.com allows you to pull together your accounts and view them, as well as prepare a budget structure.

Mint is a cool solution with some nice features, but it's not perfect. When you create your Mint.com account, it asks you to input your login information from your bank(s), your broker, your credit cards, your mortgage holder, etc. so it can present a grid of your assets and debts. Persistence will help. Bank of America and Chase worked right away, but it took days to get Mint to recognize my ING login, and I'm still trying to get Mint and Wachovia/Wells Fargo to talk to each other, probably due to the all the merger and acquisition activity between those two and AG Edwards. Unfortunately, without that Wells Fargo mortgage information, Mint thinks that I own my home outright. (I probably never will.)

Expounding on that last point, if you have a mortgage on your home, you can input its address, and Cyberhomes.com will incorporate your estimated home market value. I don't need to tell you how depressing this can be, but it's crucial information, so, onward.

The most critical information comes from your everyday bank and your credit cards because Mint is able to view all your spending transactions and compile them in a meaningful way. It's pretty good at correctly characterizing purchases as groceries, restaurants, gas, shopping, etc., but you can manually re-characterize anything that it gets wrong. Then it shows you how much you've spent in these categories, which can be an incredible eye-opener. If you've set a budget for these categories, it will show you how much money you have left to spend, or how much you've gone over the limit. You can also view this information over time (monthly, year to date) and generate trending reports for expenditures, income, net worth, assets, and debts.

And, setting a budget is not so painful and mystifying as it can be. Because Mint is able to view what you've spent, it can generate numbers that are suggested by your previous activity. If you wish to spend less, simply adjust the number downward and see if you can make it work.

Because Mint is linked to your accounts, it can generate real-time numbers. This is very helpful, except that pending transactions are not taken into account, so you still have to log into those accounts on occasion to get a truly accurate picture of how much you really have in your checking account.

And of course Mint and its third-party affiliates try to sell you stuff. Credit cards, insurance, CDs, brokerage accounts. However, I don't find it terribly intrusive.

Give it a whirl.

Run One Mile for Your Kids in the New Year

Writing a will and planning your estate would be a huge, huge New Year's resolution. It's like resolving to run a marathon; it takes time, persistence, patience, a sense of humor, and soul-searching (indeed, what else is there to do at mile 22?).

But it all starts with mile one. Can you jog one mile? Any runner will tell you that that's the only thing you need to accomplish to build momentum.

Parents, start small. Run the first mile. If you haven't already done so: Decide who will take care of your kids if you're not around to do so. And memorialize it. Here are the steps:

1) Decide who you'd like to raise your children if something happens to you and your co-parent. Pick one person as the first option and then a second person as the second option. (Only designate a person, not a couple -- couples can split up, and then your kids can end up subject to a custody squabble after you're gone and can do nothing about it.)
2) Secure the agreement of these persons.
3) Open a new document on your computer, identify yourself in the document, and then type that, in the event of your death or incapacity, you want the first person, and if unavailable, the second person, to stand as guardian to your children until the children turn 18.
4) Take it to notary and sign it.
5) Make copies and give to affected persons so it can be located.

That's it! This document can be changed and re-notarized as circumstances warrant, and it can be incorporated into any future wills or estate plans.

Pick a Beneficiary for your Assets

Recall that probate is the court's administration of a will, once the testator (person who wrote the will) has passed away.

Not all assets must be administered through probate, however. Pulling those assets out of the probate process is fantastic because, the longer the probate process, the more expensive it is, and the more time it takes to distribute the remaining assets (those listed in the will).

Several types of assets have paperwork that allow for a designated beneficiary. When the owner dies, the asset passes directly and automatically to that beneficiary. Because a purpose of probate is to determine who gets an asset, an asset with a designated beneficiary is not subject to probate.

Another way to designate a beneficiary is to own property jointly, meaning that both names appear on the title. The legal term is "joint tenancy"; you'll also see "JT w ROS" which means "joint tenancy with right of survivorship". If one dies, the other becomes the sole owner of the property or the account and can manage or dispose of it however she wishes.

Here are some assets that allow for a designated beneficiary or joint tenancy. Remember that, if no beneficiary is designated, then the asset must go through probate.

1) Life insurance policies;
2) Bank accounts (the provision is often called POD or "pay on death");
3) Real estate;
4) Annuities;
5) Small businesses;
6) IRAs;
7) 401Ks (a spouse is, by federal law, entitled to be the 401K recipient, but he or she can waive that right, in writing, and another beneficiary can be chosen).

The Dean of Diversity

History is rife with poor fools who put all their eggs in one basket. And then the basket exploded, fell off a cliff, and was run over by a Mack truck.

Former employees of Enron, the defunct Texas energy company, lost much of their life savings because they loved their company so much that they bought only Enron stock to fund their retirement. This is stupid.

First, as we know, Enron's spectacular profits were proven to be entirely fabricated. For more read here: http://www.nytimes.com/2002/01/20/business/20WORK.html?pagewanted=1

And secondly, no one should ever, ever rely solely upon his or her company for support and stability. Businesses have one organizing principle, and it is not "Look out for employees at all costs." It is "Maximize profits".

More recently, we learned that Bernie Madoff took all the trust and loyalty folks handed to him, along with their millions of dollars, and stomped on all three of these things. He operated a pyramid scheme. Simply put, a pyramid scheme does not thrive by growing the value of its existing assets. The operator of a pyramid scheme thrives by convincing more and more people to make investments in the scheme; he then pays this newly-acquired money to the earlier investors, while lying that the value of the existing assets has grown. Repeat. For more, read here: http://online.wsj.com/article/SB124604151653862301.html

So how did all these rich, supposedly sophisticated investors get taken? In part, because their greediness allowed them to believe that a stock/bond investment account could credibly return 10 to 12 percent each and every year, even in down years. If the manager of the investment fund is on the level, this is highly unlikely.

The lesson is: find several places to put your money. Fortunately, there's no shortage of these.

Saving For Retirement

This should be the goal of each and every person.

Many, many things can be funded via loans -- mortgages, car payments, college educations, etc. etc. -- but there's no such thing as a loan for retirement.

And do not ever assume that you could work your entire life, even if you wanted to. People get sick and disabled. Skills become outdated. The job pool shrinks.

No matter what your financial obligations look like, and no matter how they expand and contract, always, always be thinking of how you can sock more money away for retirement.