ITINERIS FINANCIAL ADVISORS WORKBOOK: HOW TO KEEP YOUR FINANCIAL BOAT

Transcription

ITINERIS FINANCIAL ADVISORS WORKBOOK:
HOW TO KEEP YOUR FINANCIAL BOAT
AFLOAT DURING A CAREER CHANGE
Bill Pollak
Founder, Itineris Financial Advisors
Registered Representative
LPL Financial LLC
1350 Treat Boulevard
Suite 390
Walnut Creek, CA 94597
(925) 301-4086 Phone
(925) 937-6377 Fax
Email: bill.pollak@lpl.com
Website: www.yourmoneyjourney.com
LinkedIn: www.linkedin.com/in/wepollak
Facebook: www.facebook.com/yourmoneyjourney
Copyright 2012 Itineris Financial Advisors
1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597
(925) 301-4086 www.yourmoneyjourney.com
Securities offered through LPL Financial
Registered Investment Advisor and Member FINRA/SIPC
Page 1
TABLE OF CONTENTS
1.
WHY THINK ABOUT YOUR FINANCES DURING A CAREER TRANSITION?....................... 3
2.
INTRODUCTION TO CAREER TRANSITION AND YOUR FINANCES .................................... 5
3.
USING THIS GUIDE TO KEEP YOUR FINANCIAL BOAT AFLOAT ......................................... 6
4.
THE ITINERIS “TOP TEN” TRANSITION TIPS ............................................................................. 7
5.
CONGRATULATIONS AND TAKE THE NEXT STEP ON YOUR JOURNEY! ........................ 29
)
Page 2
1. WHY THINK ABOUT YOUR FINANCES DURING A CAREER
TRANSITION?
Congratulations on taking this important first step in securing your financial future! After
counseling and helping hundreds of people in the midst of professional change, I know that
looking at your finances during this time may not be on your “top ten” list! Your wise decision to
download this booklet shows diligence and the desire to pay attention to your financial welfare.
Nonetheless, I feel compelled to answer an important question that I am asked very frequently:
“Why look at my finances now? Should I not apply my entire
focus on finding the next professional opportunity or on
starting that new venture I have been thinking about?”
It seems to me that this question is important and quite valid, and by
not answering it, you might not obtain as much benefit from this
workbook. Interestingly enough, my philosophy about career
transition is rooted in my personal experience in changing
professions to become
) a financial advisor many years ago. One of
the best things I did was to use that time to get perspective and
bring back into balance the many priorities that lead to a happy and
healthy existence.
As is true for many ambitious people building their careers, my life had gotten seriously out of
balance when I worked in my former occupation as an executive in the enterprise software
industry. Euripides, the renowned ancient Greek poet and author, once said, “The best and
safest thing is to keep a balance in your life, acknowledge the great powers around us and in
us. If you can do that, and live that way, you are really a wise man.”
Although you should maintain the focus that you have toward your professional and/or
business endeavors, I know from personal experience that the transition process provides
abundant opportunities to look at and review many aspects of your life, including your finances.
Your professional aspirations are certainly important, but there are many other facets of our life
that continue to need care and attention!
In my opinion, that is one aspect of the “balance” that Euripides was writing about thousands of
years ago. I have always thought the best and most sustainable financial strategies are the
ones that simultaneously consider how you can live a better life while making good financial
decisions. After all, money is important, but your ultimate goal is to enjoy yourself!
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It is very natural to experience anxiety about money
during transition. The uncertainty of your situation
creates an understandable tendency to not pay any
attention to your finances. I know this to be true
after having worked with so many people through
the transition process. But, counter intuitively, a
career transition often provides a great moment to
look at your financial picture.
In fact, there are actually many opportunities to not
only avoid financial pitfalls but to enhance your
long-term financial position. Waiting until “things
settle down” may feel comfortable, but a wide range
of regrettable decisions may be made and some
may be impossible to unwind. Stepping back and
looking at your situation can not only lead to better
financial outcomes, but also reduce anxiety and
increase confidence in your short term and long)
term financial outlook.
In many respects, the time in between career
assignment provides you with the most precious commodity – time – to take a look at these
areas of your life. So, take advantage of this opportunity to connect with those who are
important to you, set up that appointment for your physical exam, and take advantage of the
information I have provided on the following pages - Euripides would be proud of you!
Page 4
2. INTRODUCTION TO CAREER TRANSITION AND YOUR FINANCES
Changes in mid-life represent an important inflection point – personally, professionally and
financially. You have important short-term goals such as keeping your short-term finances on
track as you embark on your career strategy. And don’t forget other goals which may include
helping fund your children’s higher education and/or graduate school, or any other important
objectives.
You also should think about your eventual retirement,
but this is a hard thing for most people to do. The word
“retirement” may create all kinds of images like days on
the Golf course, traveling, or just plain relaxing!
Although these are wonderful thoughts, they are hard
to relate to because you may not yet be approaching
that point in your life. That being said, mid-life
professionals need to think about retirement because
their lives are moving closer to a future time when they
will lack the physical or mental capacity to work, regardless of their financial situation or
personal preferences. Becoming informed about) how to prepare for that time can help frame
important financial AND career decisions that you will make in the months and years ahead.
There is a surprising aspect about retirement that can actually help your planning. More people
now actually work during some of the years they are “retired”, which means they really have
two “retirements”. The first one may include consulting in your current field, pursuing a
professional passion, or even working in a new occupation. The “second” retirement then
includes the retirement we often think about – the time when we really have no earned income
and are pursuing interests/activities not at all related to work.
More people are choosing this two-phased approach to retirement planning. With the recent
challenges in the economy, most surveys indicate there are more people not financially ready
for retirement. However, the decision to keep working may not be at all related to financial
considerations. Many people, even those who can afford to retire, want to continue making
professional contributions and remaining active in their work! But you might now want to work
in a way that is different from what you did in the past, while still generating income to preserve
your financial resources until you decide to retire or can no longer perform work.
The purpose of this guide is to help you think about many parts of your life, figure out your
goals (even retirement!), and provide actionable steps to help you not only navigate your
career transition, but to just as importantly, integrate your life goals with all of the financial
decisions that you need to review.
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3. USING THIS GUIDE TO KEEP YOUR FINANCIAL BOAT AFLOAT
You have now reached the part of this guide that is really the “main event”. It includes ten
sections that are intended to help you think about your life goals, your finances and many
transition-related considerations. You can review each part of the guide, start working on the
activities we have outlined, and further consider matters that you are not quite sure about.
Each of the “top ten transition tips”, as I call them, provides questions for you to answer and
potential action steps to follow.
My goal is to make it easy for you to determine what you should do
now and to monitor your progress! There are no strict rules about
how to use this workbook, but I do recommend that you read the
guide in sequential order the first time. The exercises in each
section build upon each other, and you will get the full benefit of
the workbook by completing each section as best you can, in the
order presented.
I have also provided additional space in each section to make notes based on what is
)
important to you. I think this workbook can act as your financial “journal” so that you can refer
back to it to understand your previous decisions and situation. Those notes will be inspirational
as you see your progress and will help you in making the inevitable adjustments that will occur
on your new journey!
Page 6
4. THE ITINERIS “TOP TEN” TRANSITION TIPS
Tip #1 - Finalize Any Loose Ends from Your Previous Employment
If you will soon leave or have recently left your employment, be sure to remember a
variety of important financial matters that should get your immediate attention:
If you are offered a
severance package, don't
sign without reading it first,
and consider having a
lawyer review it as well. Be
sure you understand the
terms. Are you giving up
any rights? Are you signing
a non-compete clause?
There are important laws
both at the State and
Federal level designed to
protect your rights so make
sure you get advice about
how to best protect your
interests.
)
Determine when your insurance benefits will end. Some employers will continue
coverage through the end of the month. Others will terminate the insurance
immediately. If your coverage continues through the end of the month, make
arrangements to get your prescriptions filled and see your providers before your
coverage ends.
➾ Action Item: Contact your former employer to determine coverage ending date
File for unemployment insurance.
➾ Action Item: Submit application for unemployment insurance
Page 7
Most companies provide COBRA
coverage so take advantage of
these rights. COBRA is a federal
law that allows you to continue
your health care coverage, under
most circumstances, after you
leave your job for up to 18 months.
The employer must send coverage
information to you within 30 days
and you have up to 60 days to
decide whether to elect COBRA
coverage.
➾ Action Item: Contact your former employer and enroll. However, if your spouse
is employed and has medical coverage through work, enrolling in your spouse’s
medical plan will likely be more cost effective than COBRA. Make sure to review
your spouse’s plan and determine if you are eligible. Compare the expenses of
the COBRA plan to your spouse’s plan by looking at both the premium and your
projected out-of-pocket medical expenses
for both. If your spouse’s plan offers
)
good coverage, provides access to your current doctors and is more costeffective, you should strongly consider using that plan in lieu of COBRA
coverage.
If you want to retain life insurance or disability coverage provided from your previous
employer, contact your benefits department to find out whether you will be offered
“portable” coverage. Portable insurance would allow you to retain these types of
insurance at your own expense, but taking advantage of lower “group” rates
negotiated by your employer. This is a great option if you still need the coverage but
are unsure whether these benefits will be available at your next career destination.
By taking advantage of portability, you would also not have to worry about qualifying
for new coverage – very important if your health situation might make it hard for you
to qualify for individual insurance.
➾ Action Item: Contact HR department and review portability information if
available
Page 8
Tip #2 - Think about Your Career Transition, Life Goals and Your
Desired Lifestyle
Your financial plans and decision-making should be
framed by where you have been both personally and
professionally, and where you want to go in the future.
When you are in transition, you should keep in mind
that what is important to you now may be different than
how you thought about things in the past. In particular,
consider the following:
Career transitions occur due to a variety of circumstances. Although we often think
of transition as occurring as part of an organization’s restructuring or downsizing
event, there are other types of transitions. Some may have voluntarily left their
employment because their companies offered financial incentives to do so as part of
a voluntary downsizing program. And other individuals may have decided on their
own accord to move away from traditional employment, pursue a professional
passion and start a new venture or even an entirely new profession. You should
think about the nature of your specific) transition, as well as your future career goals,
as you approach your financial decision-making.
As you begin to consider your finances, it is also important that you think about you
and your family’s lifestyle and qualitative objectives.
What goals are important to you and your family, as you think about your new
circumstances?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Are there certain aspects of your lifestyle that are important to you or that you want
to change?
__________________________________________________________________
__________________________________________________________________
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__________________________________________________________________
__________________________________________________________________
Are there new goals or objectives that you want to consider?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
___________________________________________________________________
Are there goals that are no longer important?
__________________________________________________________________
)
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
___________________________________________________________________
These questions are the most important because the money is nothing more than
the enabler for the life you want to lead! Remember, your time of change is a
great opportunity to think about a new chapter in your life and what is important
to you and your family members (if you are married or have children). Knowing
what you and your spouse want for your life now and in the future sets the
context for your finances and your decisions about money.
Page 10
Tip #3 - Take Stock of Your Current Financial Situation
It is now time to take a quick inventory of your finances!
This will help you understand you where you stand
today and to think about what you might change.
First, take a close look at your short term finances.
Add up all of your monthly expenses and compare
that figure to the total of your monthly income
sources such as unemployment, severance pay
and/or any other income available to you. Don’t be
surprised if your expenses are greater than your income – you can use this exercise
and the next chapter to begin to think about how you can fund that difference.
Income Sources:
Severance
Unemployment Insurance
Investment Income
Rental Income
Income from Spouse
Part-time Employment Income
Consulting/Self-Employment Income
Amount
$
__
$
__
$
__
$
__
$
__
$
__
$
Projected
$
__
$
__
$
__
$
__
$
__
$
__
$
__
Total Income
$______
$
__
Lifestyle Expenses:
Mortgage/Rent
Insurance
Property Taxes
Utilities
Automobile Expenses
Medical Expenses
Food
Clothing
Education
Leisure
Personal
$______
$______
$______
$______
$______
$______
$______
$______
$______
$______
$
$
$
$
$
$
$
$
$
$
$
$
__
__
__
__
__
__
__
__
__
__
__
Total Lifestyle Expenses
$______
$
__
Net Surplus/ (Deficit)
$______
$
__
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➾ Action Plan: Notes about anything that you want to change
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
List and calculate the total of all of your financial assets such
as checking and savings accounts, investment accounts,
and any retirement plans, including employer-sponsored
plans such as 401(k)s and pension plans. Similarly, you
should list your liabilities which will include mortgage debt,
loans, and credit card balances. After you calculate your
total liabilities, you can calculate your net financial position.
)
Assets:
Financial Assets
-Checking Accounts
-Savings Accounts
-Mutual Fund Accounts
-Education Accounts
-Investment Accounts (Non-Retirement)
-IRA Accounts
-401(k) Accounts
Real Estate Assets
-Primary Residence
-Second Home Rental Properties
Total Assets
$______
$
__
$______
Liabilities:
-Mortgage
-Home Equity Line/Second Mortgage
-Credit Card Debt
-Student Loans
-Other Debt
Total
$______
$______
$______
$______
$
__
$______
Net Worth
$______
Amount
$______
$______
$______
$______
$______
$______
$______
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➾ Action Plan: Make notes about anything that you want to change regarding your
assets and liabilities
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
)
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Tip #4 - Develop Your Transitional Financial Plan
Now that you have a clearer picture of your current financial status, you can decide
what changes, if any, you want to make in your financial life. Your time in transition may
lead you to consider a new set of financial strategies, such as suspending savings
goals, drawing income from real estate or financial investments, or relying on your
savings to sustain your lifestyle expenses.
As you look at your situation and your options, write down how you will be financially
impacted in the short-term, medium-term and long-term finances. Think about the
extent to which your transition will make it difficult to meet your financial goals or for
you to remain on a sustainable path.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
)
__________________________________________________________________
___________________________________________________________________
Is there a different way you can balance your financial outlook with the various goals
and lifestyle you want to lead?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
___________________________________________________________________
If you want to pursue an entirely new field or starting a new business, you will need
to consider the likelihood that you will need more time to attain the income level you
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previously earned. How could a combination of lifestyle changes and/or new,
alternative income help until your income returns approaches normal levels?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
___________________________________________________________________
Adjust career strategies or professional choices depending on your circumstances. If
you have adequate savings that will sustain your short-term and long-term financial
position, then it probably makes good sense to pursue that new venture or
profession. Conversely, if you will require several months, or perhaps years, to earn
sufficient income, you will likely need to find a way to earn enough money while you
try pursuing your career aspirations.
)
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
A potential pitfall is underestimating the time required to move through your change.
Be realistic by considering that your career plans might require more time than you
think. Make prudent income projections and err on the side of having a more
conservative plan. Remember, if you do better than what you have projected, it is
always easy to make changes. On the other hand, if you are too optimistic, you
might compromise your situation at a most difficult time.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
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Tip #5 - Look at Ways to Make Your Money Work Harder for You
Unless you have attained financial independence, you will
probably make adjustments in order to bridge the gap from
today’s situation to the time when your income returns to a more
typical level. Making changes to your finances and spending
does not have to feel scary when approached with the right
mindset. Look at the process in terms of making your money
work harder from you, as opposed to immediately considering
radical or difficult changes in your lifestyle which may not be
appropriate or necessary.
First, take a look at your financial and real estate assets and assess whether they
can help produce income for you. Did you know that there are investments which
can generate investment income? Look at your portfolio (see Section 10 of this
guide for a comprehensive discussion about how to approach your investments) and
consider the possibility of owning stocks that pay dividends or purchasing fixed
income instruments which produce interest income.
)
Many people are not aware that such investments
exist, but they actually do! You can research these
investments yourself (if you have the time and
interest) or work with a financial advisor to help you.
Always remember to become informed about the risks
of investing and what level of fluctuation you would be
comfortable with before you decide that incomeproducing stocks and bonds are appropriate for you.
Note: General risks of stock investments include the fluctuation of market prices and the possibility
that the price of a stock may be more or less than the initial cost. In addition, changes in the price of a
stock may be exacerbated due to potential illiquidity of the investment in a falling market. Even
though dividends may be scheduled to be paid on a certain interval, there are no guarantees that
dividends are always paid on time, if at all. Bonds are subject to market and interest rate risk if sold
prior to maturity. Selling bonds prior to maturity may make the actual yield differ from their advertised
yield and may involve a loss or a gain. Bond values will decline as interest rates rise and are subject
to availability and change in price.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
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Second, take a close look at all of the products and services you buy. You might
discover that there are items you are not fully utilizing and that can be reduced or
eliminated without changing your lifestyle. This is particularly common if months or
years have gone by since you last took a look at how you spend money. Most of us
are pretty busy so it is very easy for many parts of your financial life to go on
“automatic pilot.”
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Use this opportunity as a time to look at both big expenses and
small. For example, how many of us have the time to have
reviewed our homeowner’s/ renters and automobile
insurance? Combining coverage with a single carrier and/or
increasing deductibles can sometime) lead to substantial
savings. Take to your insurance agent about what’s
appropriate for your situation! Insurance is one example, but
be sure to look at all of your expenses to find more of these
opportunities. Mobile phone plans and cable TV with unused
options are other potential areas where you might be able to
reduce costs without really changing your lifestyle.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Try to reduce the cost of your debt by refinancing. This may not be an easy goal to
accomplish while your income is lower, but you should review the interest rates you
are paying on your mortgage or on credit card debt. In today’s environment, you may
not qualify for a refinance, but it is worth looking when you consider today’s historic
rates. A mortgage professional can advise you about whether you would qualify and
on whether a refinance is appropriate for your situation.
Page 17
If you have credit card debt for which you pay
high interest, make sure to explore reducing or
re-financing this debt. You can try to negotiate
with your current credit company or seek out
alternative credit card companies that offer low
rates. Use the internet to shop for attractive
rates. If you think it will become difficult to pay
back this debt, refer to the consumer section of
the US Federal Trade Commission website
(http://ftc.gov/bcp/menus/consumer/credit.shtm)
for helpful information about your rights, credit
card counseling and other helpful options.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
)
___________________________________________________________________
Whatever you decide, make sure your plans keep your financial situation on a
sustainable path. You want to make sure you consider the possibility that your
transition may require more time than you anticipate. Depending on your situation,
you might need to be very cautious about discretionary spending and consider
spending less on non-essential items.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Page 18
Tip # 6 - Review Your Health Insurance Coverage Options
No matter how challenging your particular cash flow
situation, you should never let your medical insurance
lapse. Keeping this coverage is vital and will protect you
and your family from a financial catastrophe in the event
of an unexpected serious illness or injury that could be
very expensive. In addition, you are more likely to be
able to access routine and preventive care if you have
health insurance.
COBRA coverage, almost always available to you from your former employer, is the
most common option that people use. But if COBRA coverage is not subsidized by your
former employer, the premiums are usually very expensive. You should consider the
following options:
If your spouse is employed and has medical coverage through work, enrolling in
your spouse’s medical plan will likely be more cost effective than COBRA. Make
)
sure to review your spouse’s plan and
determine if you are eligible.
➾ Action Item: Compare the expenses of
the COBRA plan to your spouse’s plan
by looking at both the premium and your
projected out-of-pocket medical
expenses for both. If your spouse’s plan
offers good coverage, provides access
to your current doctors, and is more
cost-effective, you should strongly
consider using that plan in lieu of
COBRA coverage.
As a second alternative, you can explore other coverage options such as “High
Deductible Health Plans” (HDHP) which are sometimes less costly, perhaps
substantially so, than COBRA coverage.
➾ Action Item: Obtain quotes for High Deductible Health Plans and compare to
COBRA coverage
There are many factors to consider before deciding to change to such a plan,
because the high deductible means that you could incur significant out-of-pocket
expenses before you use up your deductible. But sometimes these plans can
Page 19
make a great deal of sense and can save you money, especially if you are in good
health. A Financial Advisor or Life/Health Agent can help you decide.
➾ Action Item: Factor into your decision the potential of higher “out-of-pocket”
expenses if you were to switch from your COBRA coverage to a “HDHP” plan.
If you decide to pursue self-employment, you
can augment this type of medical plan with a
Health Savings Account (“HSA”), which is a
tax-advantaged savings account. The money
you put in tax-deductible, and withdrawals are
tax free when used to pay for qualified medical
expenses. Some of these tax benefits are
more generous than a 401(k) plan which
requires you to pay taxes on all distributions. If
you are interested in this account, remember
that you can only get the tax advantages of an HSA by enrolling in a “High
Deductible Health Plan (“HDHP”).
)
➾ Action Item: Talk to your tax advisor about whether you may benefit from a
Health Savings Account (HSA).
Page 20
Tip #7 - Set Goals and Periodically Monitor Your Progress
By its nature, career transition is often a journey, so you
will need to make sure you stay on course. You will
probably come upon twists and turns along the way, but
you want to make sure you do not veer too far off the
itinerary you have planned!
I recommend that you first create realistic and quantifiable
goals. Just as if you were going on a trip, you want to
establish sign posts so that you can feel secure that you are moving safely toward
your destination.
Create goals for each of the following components of your financial life:
Quarter 1
Monthly Income:
Severance
Unemployment Ins
Investment Income
Rental Income
Spouse Income
Part-time Work
Consulting Income
Total Income
$_____
$_____
$_____
$_____
$_____
$_____
$
$_____
Monthly Expenses:
Mortgage/Rent
Insurance
Property Taxes
Utilities
Automobile Expenses
Medical Expenses
Food
Clothing
Education
Leisure
Personal
Total Expenses
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$
$_____
Quarter 2
Quarter 3BB
$_____
$_____
$_____
$_____
$_____
$
$_____
$______
$______
$______
$______
$______
$______
$
$______
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$
$_____
$______
$______
$______
$______
$______
$______
$______
$______
$______
$______
$
$______
Ӥ
矠$_____
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In addition to setting the above-referenced goals for your income and spending, you
should also consider establishing goals for your cash reserve balances, the money
you want to maintain in your investments accounts, and your debts and liabilities.
You will want to make sure that the amounts in these categories are progressing in a
way that is consistent with your goals. You can use a chart like the one below to
track your progress:
Assets/Liabilities:
Cash Reserve:
Remaining Assets:
Debts/Liabilities:
Quarter 1
Quarter 2
Quarter 3BB
$_____
$_____
$_____
$_____
$_____
$_____
$______
$______
$______
Decide how you often you should monitor your progress. I
recommend that you check to see where you stand
versus your goals on no less than a quarterly basis. If you
feel more anxious or if you think your financial situation is
very challenging, you should monitor the above goals on
a monthly basis. Once your income 螀
returns
to a level that
Ӥ
will sustain your lifestyle expenses, you can choose to
review these goals on a less frequent basis, perhaps one
or two times per year.
It is also not uncommon that your objectives or goals can
change as you pursue your career plans. So, you should
factor in those changes and consider their impact as you
see how things are coming along.
Page 22
Tip # 8 - Consider a “Direct Rollover” of Your 401(k) Plan Assets
Over the years, many studies have shown that a
significant percentage of Americans leave a large
portion of their retirement assets in the 401(k) plans of
their former employers. By not consolidating your
retirement funds, you may be missing out on important
benefits such as simplified record-keeping, a more
straightforward way to monitor investment
performance, and a streamlined mechanism for
considering and implementing on-going changes to
your investment portfolio.
To take advantage of these benefits, you should
consider requesting a “Direct 401(k) Rollover” to
move money from your existing 401(k) plan into
another retirement account. The money is
transferred from one financial institution to
another, and you should not have錐Ӥ
to worry
about withholding rules, taxes, or penalties.
But, as with many things financial, the direct rollover decision may require further
analysis, especially for mid-life professionals who are in career transition. If you
are in this demographic, you should become informed about your options if you
find yourself in one or both of the following situations:
a) You have company stock in your 401(k) plan and/or
b) You are considering taking money from your 401(k) plan before attaining
age 59½.
For people in these situations, a direct 401(k) rollover may not be the best
immediate strategy, depending on your circumstances. The factors that you
should consider are too detailed to discuss in this workbook, but a financial
advisor and a tax advisor can inform you about these considerations and help
you decide on whether a rollover will make sense.
Always remember to get advice from your tax advisor and financial advisor about
your specific situation.
Consider distributing some of the assets in your 401(k) plan account to a Roth
IRA account. The money you distribute from your 401(k) will be subject to income
Page 23
taxes, but future distributions from the Roth IRA account are usually tax free after
a five year holding period, unlike distributions from a 401(k) plan or a Traditional
IRA account, which are subject to income taxes. A tax professional can help you
decide whether you qualify for a Roth IRA and whether it would make sense to
convert some of your retirement assets to a Roth IRA.
You should only consider a taxable distribution from your
401(k) plan as a last resort. You will usually pay income taxes
and penalties for distributions that occur before age 59½ and
lose the potential future investment growth of that retirement
plan money. Furthermore, since there are annual limits to the
amount you can contribute to a 401(k) plan, you can’t make up
for a previous withdrawal later, when you are on more solid
financial ground.
➾ Action Item: Consider consolidating your retirement assets in an IRA
account
➾ Action Item: If you are approaching age 55 and/or you have company stock
ӣ
in a 401(k) plan, talk to a financial
advisor and tax advisor before you
proceed with a “Direct 401(k) Rollover”.
➾ Action Item: If you need to withdraw money from a 401(k) plan or an IRA
account AND if you are under age 59½, make sure to consult with a tax
advisor. Although such withdrawals are usually subject to taxes AND
penalties, you might be able to able to avoid the penalties under certain
circumstances (but you would usually need to pay income taxes). The
following withdrawals might not be subject to penalties if taken before you
attain age 59½:
-Payments for qualified higher education expenses
-Payments for deductible medical expenses
-Payments for health insurance premiums
-Payments if you are totally and permanently disabled
-Unpaid taxes to the IRS
-First time homebuyers
-Income distributions – you may be able to take substantially equal periodic
payments over time.
Consult with your tax advisor or financial advisor to learn about the specific
rules for any of these provisions from which you might benefit.
Page 24
Tip #9 - Don’t Forget About Taxes
We would all love to forget about income taxes, but
I strongly recommend that you actually pay close
attention to taxes during a transition! Check in with
your tax advisor, or if you do not have one,
consider looking for help. You may likely be in a
different tax bracket and need to plan accordingly.
Between the receipt of lump-sum severance
payments and receiving unemployment
compensation (for which there may not be
income tax withholding), there are plenty of opportunities to receive an unpleasant
surprise when you file your income tax return in the following year. Reviewing your
tax situation now will allow you to estimate what you will owe at tax time so that you
will not be caught short.
Another benefit: there may be opportunities to reduce income taxes while you are in
transition. If you consider going back潀to
Ӭ school as part of your career change, did
you know that you might be eligible for a tax credit? There are many opportunities
such as this one that might apply to you depending on your tax situation – talk to a
tax professional now to learn how you could use tax code to your benefit!
Finally, if you are considering self-employment or starting a business, there are a
number of valuable planning opportunities that a tax advisor can help you
understand and benefit from.
➾ Action Item: Set up an appointment to meet with your tax advisor
➾ Action Item: If you have withdrawn money from a retirement account, make
sure that your tax advisor is aware of the withdrawal, and the amounts, if any,
that were withheld for income taxes.
➾ Action Item: Update the transitional financial plan you developed in Section 4
to reflect any taxes that may be due when you file your income taxes. Make
sure you have cash set aside to pay that future tax bill.
Notes: _____________________________________________________________
__________________________________________________________________
__________________________________________________________________
Page 25
Tip #10 - Review Your Investments and Asset Allocation
Like other aspects of your finances,
a career transition provides a good
chance to think about your
investments. You have worked hard
over the years and have put money
away into a retirement plan at work,
IRA accounts, company stock
purchase plans, investment
accounts, money market funds, or
other types of saving vehicles. Very
well done!
While you were working, you may
not have been as focused on
monitoring your portfolio or keeping track of your investments. Now that your situation is
changing (or has already changed), it is important that you immediately review your
轰Ӥfollowing items:
investments. Make sure you evaluate the
Project your cash needs over the next 12 to 18 months and enter the amount here
$_________. Whether you use 12 or 18 months, you can estimate your cash
reserve by referring to Section 3 of the workbook where you estimated the difference
between your sources of income and your lifestyle expenses. Make sure that this
figure includes any estimated income taxes that may be due – see Section 9 of the
workbook for additional information.
Review the money you have outside of retirement accounts and see if you have
sufficient assets to pay for those expenses. Fill in this amount here $_______.
➾ Action Item: If you do not have enough money in non-retirement accounts
and you have no other sources of non-retirement funds or assets from which
to draw upon, meet with a tax advisor. He/she will help determine the most
tax-efficient ways to withdraw money from your retirement accounts. You will
need to withdraw sufficient money for both your cash reserve and any taxes
that will be due for the distribution itself.
Make sure that the money you will need over the next 12 to 18 months is fully
invested in cash or cash-equivalents. The money that you need for lifestyle
expenses during the next year should NOT be invested in stocks, bonds (also called
fixed income) or in any other financial products that will fluctuate in value. Estimate
Page 26
the dollar amount of stock and fixed income investments you will need to sell in
order to establish your cash reserve of $_________.
Review the asset allocation for the money you have left over after establishing your
cash reserve. Your situation is now different and your current allocation may no
longer be right for you. Your investment allocation should reflect your specific
goal(s). Use the following chart to quantify the goals in terms of how much money
you will need to meet the goal and when you will need that money:
Goal 1:_________
Amount: _________
Date: _________
Goal 2:_________
Amount: _________
Date: _________
Goal 3:_________
Amount: _________
Date: _________
Goal 4:_________
Amount: _________
Date: _________
These goals and timeframes will help you approach
your investment decisions and how you decide to
allocate your money across the broadg asset classes of
stocks, bonds and cash. Years of academic research
have proven that that the asset allocation decision is
the most important one and will have the greatest
impact on the potential risk and return of your portfolio.
Stocks offer the greatest potential for growth, but also
come along with the most risk. Bonds are generally
income producing investments which have less risk
than stocks, but they do not typically offer the same
opportunity for capital appreciation as stocks.
Select an asset allocation for each goal:
Goal 1: Stocks ___%
Bonds ___%
Cash ___%
Goal 2: Stocks ___%
Bonds ___%
Cash ___%
Goal 3: Stocks ___%
Bonds ___%
Cash ___%
Goal 4: Stocks ___%
Bonds ___%
Cash ___%
Combined Allocation – All Goals:
Stocks ___%
Bonds ___%
Cash ___%
Page 27
If your new allocation is different from your current
portfolio, you should determine the necessary investment
purchases and sales you will need to make in order to
bring your portfolio to the allocation you now want. Use
the chart to below to document the changes you want to
make:
Investment Sales:
Investment #1
$_______
Investment #2
$_______
Investment 3, 4, 5T..
Asset Class
Asset Class
Investment Purchases:
Investment #1
$_______
Investment #2
$_______
Investment 3, 4, 5T..
Asset Class
Asset Class
As mentioned in Section 5 of this chapter, consider allocating a portion of your
portfolio to generate income which can
ӥ pay for some of your lifestyle expenses.
Potential choices include owning stocks that pay dividends or purchasing fixed
income instruments which produce interest income.
Design your allocation so that a portion of your portfolio is invested in lower volatility
investments such as certain types of Short Term Bonds. You want to be able to
easily convert a portion of your portfolio into cash at a later time in the event you
need to replenish your cash reserve. The amount invested in these lower volatility
investments should be approximately equal to your cash reserve. This approach
would give you more flexibility if your career transition requires additional time
beyond the 12 to 18 months assumed in this guide.
You can do your own research and make investments if you have the time and
interest to understand investing. There are many free or low cost sources of
investment research. If you are not inclined to make your own investment decisions,
if you don’t have the time or if you have difficultly remaining objective about these
decisions, seek out the services of a financial advisor to help you.
Always remember to become informed about the risks of investing and what level of
fluctuation you would be comfortable with before you decide whether any investment
is appropriate for you.
Page 28
5. CONGRATULATIONS AND TAKE THE NEXT STEP ON YOUR
JOURNEY!
Congratulations for reviewing this guide and utilizing the
exercises. Most importantly, I hope that the guide has
empowered you to more thoughtfully approach your finances
during this time of change and that you feel more confident
about your ability to stay on track. Ultimately, my goal is to
help you experience less anxiety about money and to provide
tools and knowledge that can help you navigate this next
chapter of your life.
As a valued member of the Itineris community, I also invite
you to sign up for a complimentary consultation in the next
step of your money journey. If you need assistance, I can
conduct a no-cost review of your situation. Specifically, I will
review the exercises you have completed in the guide,
answer any ofөyour financial questions and help resolve any
uncertainties you may feel. I conduct these consultations
without any cost, obligation, or expectations.
➾ Action Item: Contact Bill at bill.pollak@lpl.com to schedule your session and
move forward confidently, or visit us at:
Website: www.yourmoneyjourney.com
LinkedIn: www.linkedin.com/in/wepollak
Facebook: www.facebook.com/yourmoneyjourney
Page 29

ITINERIS FINANCIAL ADVISORS WORKBOOK: HOW TO KEEP YOUR FINANCIAL BOAT

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