Should I save now or save later?

Should I save now or save later?

Fact of the matter is, the longer you put anything off, harder it is to get started on it later. Though you may feel that today’s expenses are a lot to take one with your current salary, there are still ways you can save for your retirement. if you wait to save for retirement, you risk not saving enough for retirement.

If you choose to save even a small amount each month, you may be able to save a great amount over time. One useful method is to choose a dollar amount or percentage of your salary every month to pay into your retirement savings. With this method, you will be essentially treating your retirement as a required expense.

Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for 10 years, after which he stops but lets his funds continue to accumulate. Leslie waits 10 years before starting to save, then starts saving the same amount on a monthly basis. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie, the procrastinator, would have accumulated a total of $50,646, less than half of what Chris, the early starter, would have accumulated ($112,415).

This example makes a strong case for an early start on saving so that you can take advantage of the power of compounding. Your contributions have the potential to earn interest and so does your reinvested interest. This is a great example of having your money work for you.

Suppose you have trouble saving money on a regular basis. Try savings strategies that take money directly from your pay check on a pre-tax or after-tax basis. Examples of this include employer-sponsored retirement plans and other direct payroll deductions.

Which ever method you choose, it’s extremely important to start saving now and not later. Even small amounts can grow to large amounts in the future. Another saving strategy you could try is to increase contributions by as little as 1% each year as your salary grows.

For more information on saving for retirement, click here or call us today at 201-342-3300. One of our associates will be happy to speak to you.

Refinancing Methods

Refinancing Methods

As you may know, fixed mortgages were almost at their lowest in almost 30 years. If you are one of the many people who took out mortgages a few years prior to that, you may be wondering if you should look into refinancing.

If you have a mortgage that was taken out within the past five years, it may be worthwhile to if you can get the financing at least one or two points lower than your current interest rate. You should plan on staying in the house long enough to pay off the loan transaction charges.

Based on your situation, you will have to see which type of mortgage suit you best. For example, if you plan on staying in your home for several years, and the current interest rate is rising, your best bet is a fixed-rate mortgage. Conversely, if you will be moving within a few years, an adjustable mortgage would be best. Please make sure that you will be able to cover the increasingly higher payments in the event that interest rates rise.

One way to use refinancing to your advantage is to take out a new mortgage for the same duration as your old one. The lower interest rate will result in lower monthly payments.

For example, if you took out a $150,000 30-year fixed-rate mortgage at 7.5 percent (including transaction charges), your monthly payment is now $1,049. Refinance at 6 percent with a 30-year fixed-rate mortgage of $150,000 (including transaction fees), and your payment will be $899 per month. That’s a savings of $150 per month, which you can then use to invest, add to your retirement fund, or do with it whatever you please.

Another option is to exchange your old mortgage for a shorter-term loan. Your 30-year fixed-rate payment on a $150,000 loan was $1,049 per month. If you refinance with a 15-year fixed mortgage for $150,000 — including transaction costs — at 6 percent, your monthly payment will be $1,266. This payment is only $217 more than your previous mortgage, but your home will be fully paid for several years sooner, for a savings of more than $150,000! And some banks around the country are beginning to offer 10- and 20-year mortgages.

If you are considering refinancing your home, please consider speaking to one of our financial advisors at Federal National Funding by calling 201-342-3300.

Effects of Inflation

Effects of Inflation

If you have long term savings goals such as saving for your children’s college education, or retirement, you’ll want to read today’s blog on the effects of inflation.

To put it simply, inflation is the increase of the price of products over time. The rate of inflation fluctuates over time, sometimes it can run high, other times, it’s so low we don’t notice. But all these fluctuations are generally short term, what we need to focus on is the long term.

Over the years, inflation can chew away at the purchasing power of your income and wealth. This means that even as you save and invest, your wealth buys less and less as time goes on. Those who put off investing and saving will feel this impact even more.

While one cannot deny the effects of inflation, there are ways to fight them. For starters, you should own at least some investments whose potential return is greater than the inflation rate. For example, if a portfolio earns 3% when inflation is at 4% the investment will lose purchasing power over time. While past performance isn’t an indicator of future results, stocks have provided higher long term returns than cash alternatives or bonds. Still, one has to be aware that even with that potential, there is greater risk and potential for loss. Because of this volatility stocks may not be the best option for the money you count on being available in the short term. You will also have to think about whether you have the financial and emotional capacity to ride out these ups and downs as you pursue higher returns.

Diversifying your portfolio — spending your assets across a variety of investments that may respond differently to market conditions — is one way to help manage inflation risk. However, diversification does not guarantee a profit or protect against a loss; it is a method used to help manage investment risk.

Remember, all investing involves risk, including the potential loss of principal. There is no guarantee that any investment will be worth what you paid for when you sell.

For more information about the effects of inflation, or for more strategies to fight against it click here, or call Federal National Funding today at 201-342-3300. One of our associates will be happy to speak to you.

How long will it take to double my money?

How long will it take to double my money?

The simplest way to figure this out is by utilizing the Rule of 72. The Rule of 72 is a tool that investors use to determine how long it will take for their investment to double in value.

How does the Rule of 72 work?

Let’s lay it out with an example, if you invest $10,000 at 10 percent compound interest, then the Rule of 72 states that in 7.2 years you will have $20,000. You divide 72 by 10 percent to get the time it takes for your money to double. The Rule of 72 is a rule of thumb that gives approximate results. It is most accurate for hypothetical rates between 5 and 20 percent.

I just figured out how long it will take to double my money with the Rule of 72. Is that all?

While to rule of 72 is a great ally to investors in helping them figure out how long it will take to double their money, one needs to remember inflation.

Compound interest is a good tool for investors, but it does not erase the effects of inflation. The real rate of return is the key to how quickly the value of your investment will grow. If you are receiving 10 percent interest on an investment but inflation is running at 4 percent, then your real rate of return is 6 percent. In such a scenario, it will take your money 12 years to double in value.

To learn more about the Rule of 72, click here. If you would like to learn more about us at Federal National Funding, click here, or call us at 201-342-3300. One of our associates will be happy to speak to you.

Difference Between Annuities

What is an annuity?

To put it simply, an annuity is a contract with an insurance company in which you would make one or more payments in exchange for a future income stream in retirement. Funds in an annuity accumulate tax deferred regardless of which type is selected. Because you do not have to pay taxes on any growth in your annuity until it is withdrawn, this vehicle is an attractive way to accumulate funds for retirement.

For more information on the basics of annuities, watch this video.

There are a several types of annuities, but for now we will focus on the four most common ones: fixed, immediate fixed, deferred fixed, and deferred variable.

Fixed Annuities

With a fixed annuity, you can fund it either with a lump sum (say, with the proceeds from a large gift) or with regular payments over time. In exchange, the insurance company will pay and income stream that will last a specified period of time.

Fixed annuity contracts are issued with guaranteed interest rates. Although this rate may be adjusted, it will never fall below a minimum rate that has been specified in the contract. This guaranteed rate acts as a “floor” to potentially protect a contract owner from periods of low interest rates.

Additionally, fixed annuities provide an option for an income stream that could last a lifetime. The guarantees of fixed annuity contracts are contingent on the financial strength and claims paying ability of the issuing insurance company.

Immediate Fixed Annuity

Usually, an immediate annuity if funded with a lump sum premium to the insurance and payments begin within 30 days or can be deferred up to 12 months. Payments can be made monthly, quarterly, annually or semiannually for a guaranteed period of time or for life (whichever is specified in the contract). Only the interest portion of each payment is considered taxable income. The rest is considered a return of principal and is free of income taxes.

Deferred Fixed Annuity

With this type of annuity, you can make regular payments to an insurance company over time and allow the funds to build an earn interest during the accumulation phase. During this process, taxes are postponed, and you get to keep more money to work and grow for you. This means that an annuity may help you accumulate more over the long term than a taxable investment. Any earnings are not taxed until they are withdrawn, at which time they are considered ordinary income.

Deferred Variable Annuity

Rather than fixed returns, a variable annuity provides fluctuating returns instead of the usual fixed ones. The key feature is that you get to choose how to control and invest your premiums by the insurance company. Therefore, you decide how much risk you want to take on and you also bear the investment risk.

Most variable annuity contracts offer a variety of professionally managed portfolios called “subaccounts” (or investment options) that invest in stocks, bonds, and other vehicles. A part of your contributions can be placed in an account that offers a fixed rate of return. Your premiums will be allocated with the subaccounts you select.

Unlike a fixed annuity, with pays a fixed rate of return, the value of a variable annuity contract is based on the performance of the investment subaccounts you choose. These subaccounts will fluctuate according to market conditions, in fact, the principle may be worth less than you the original cost of the annuity when surrendered.

Another great thing about variable annuities is that they have the double benefits of investment flexibility and potential for tax deferral. The taxes on all interest, dividends, and capital gains are deferred until withdrawals are made.

When you reach a point where you want to receive income from your annuity, you can choose a lump sum, a fixed payout, or a variable payout. The earnings portion of the annuity will be subject to ordinary income taxes when you begin to receive income. Annuity withdrawals are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59½. Surrender charges may also apply during the contract’s early years.

Annuities have contract limitations, fees, and charges, which can include mortality and expense risk charges, sales and surrender charges, investment management fees, administrative fees, and charges for optional benefits. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.

For an annuity quote, click here. If you would like to learn more about annuities, click here, or call us at 201-342-3300. One of our associates will be happy to speak to you. 

Depression in Seniors

Depression in Seniors

Is your elderly loved one more tired or irritable than usual? Are you noticing that they are eating less than normal? Have they lost interest in things they would normally enjoy and indulge in?

These are not typical signs of old age. These are common signs of depression.

Depression among seniors is unfortunately, more common than you might think. About one in five seniors in America have either full blown depression or a form of depression.

You may be asking yourself, what is depression? Depression is a common but serious mood disorder that effects millions of people around the world. It causes people to be less active in many areas of life, (eating less, going out less, sleeping more) and it can also be coupled with worry and anxiety. Depression is often considered synonymous with sadness, but it is a stretch. Often, people who are depressed often cannot pinpoint why they are depressed, because it’s caused by an imbalance of chemicals in the brain.

Sometimes symptoms of depression in seniors are confused with that of dementia. For example, slow movements and memory might be off with both dementia and depression affected elderly people. However, seniors with depression have no problem with remembering dates, places or things.

As for treatment, there are options. First off, there’s psychotherapy. This is where a social worker, or psychologist worth in hourly sessions with the client with proven methods to overcome the depression and to develop healthy coping mechanisms. Depending on the cause of the depression, solutions might vary. For example, if the depression is caused by loneliness, the solution might be to visit friends and family and community involvement. Another option is medication. Antidepressants are designed to regulate the chemical imbalance in the brain.

Unfortunately, there is a stigma associated with mental illness that is a greater among older people. Thus, many seniors will refuse to initially admit that they have depression. But if left untreated it can deteriorate the quality of life for a person. If you suspect that your loved one may have depression we recommend that you see a geriatric health care specialist.

College Financial Aid

College Financial Aid

If you are getting ready for college or have children who are nearing the end of high school, today’s blog will be well worth the read as we will discuss financial aid for college.

Financial aid can consist of the following: loans, grants, scholarships and work study. Grants and scholarships are preferred because they do not have to be paid back, unlike student loans which does have to be paid back with interest or work study which requires a work commitment. In general there are three main sources for college grant aid: the government, state higher education agencies, and colleges.

To be considered for any type of grant aid, you or your child should file for the federal government’s financial aid application (FAFSA). In addition private colleges, usually require the CSS Profile form of their own individual aid form. The FAFSA and CSS Profile can be filled out and submitted online (is free but the CSS Profile has a fee). Please note that these forms do take some time to fill out, but it will be worth it. Not only are these forms a prerequisite to various types of grant aid, but some colleges may require them in order for students to be eligible for college merit scholarships. Keep in mind that students must reapply for financial aid annually.

U.S. Government Grants

There are two main federal grants for college; Pell Grants and Federal Supplemental Educational Opportunity Grants (FSEOGs). Both are based on financial need.

The Pell Grant program is the United States’ largest financial aid grant program. Pell Grants are made available to undergraduate students with exceptional financial need and are the foundation of every undergraduate student’s financial aid package (for those who qualify). Graduate students are not eligible. Pell Grants are administered by the federal government and awarded on the basis of college costs and financial need. Financial need is based on factors such as family income and assets, family size and the number of college students in the family.

The second largest program is the FSEOG and it is available to students who present the greatest financial need. Priority is given to Pell Grant recipients. The FSEOG is a campus based program, meaning the financial aid office of each college administers it. Every college receives a certain amount of FSEOG funding from the federal government every year. Even if a student is eligible based on their financial need, the college may have already used up all the funds for that year.

State Grants

Many states offer programs as well, each one is different, and they tend to prefer state residents attending in-state schools. For more information, please contact your state’s higher education agency.

College Grants

Many colleges offer specialized grant programs. This is true for older schools with many alumni and large endowments. These grants are usually based in scholastic ability or financial need.

For more information on college financial aid, college funding click here or call our office at 201-342-3300. One of our associates will be happy to speak to you.

Avoiding Probate

Avoiding Probate

Many people will have their estate go through probate after they pass on. But what is probate? Why should we be concerned about it? And how can we avoid probate? On today’s blog we will answer all these questions and more.

Probate refers to the court proceedings that conclude all of your legal and financial matters after your death. The probate court distributes your estate according to your wishes—if you left a valid will—and acts as a neutral forum to settle any disputes that may come up regarding your estate.

There are a number of problems with the probate process that make it worth avoiding.

First off, the probate process may take a great deal of time. Often, it will take months or even more than a year—complex or contested estates can take even longer. With few exceptions, your heirs will have to wait until probate is over to receive their inheritance.

As for the cost of probate, it can vary from state to state depending on where it is carried out. Though all states require the payment of the court fees (which may only be a few hundred dollars), attorney fees will add significant amounts to this cost. Typically, attorney fees are based no what is reasonable for the tasks at hand. These fees can go up dramatically if the will is contested or when something extraordinary arises.

Depending on your state, probate and administrative fees can take up between 6 and 10 percent of your estate. That percentage is calculated before any deductions or liens are taken out.

Fortunately, there are strategies you can use to help avoid the probate process altogether. A trust may enable you to pass your estate on to your heirs without ever going through probate at all. While trusts offer numerous advantages, they incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisers before implementing such strategies.

To learn more about avoiding probate, click here, or call our office at 201-342-3300. One of our associates will be happy to speak to you.

What is Asset Allocation?

What is asset allocation?

Asset allocation is about not putting all your eggs in one basket. It is a systematic approach to diversification that can help you determine the most efficient mix of assets based on your risk tolerance and time horizon.

What asset allocation seeks is to manage investment risk by diversifying a portfolio among the major asset classes (stocks, bonds, and cash alternatives). Each one has a different level of risk and potential return. At any given point, one asset may be increasing in value while another may be decreasing. Diversification is a way to help manage investment risk. And although asset allocation and diversification do not guarantee a profit or protect against a loss, it can help cushion the blow when one asset class drops in value.

You may protect your portfolio from a major loss from a single asset and ride out market fluctuations by dividing your assets this way. It is also important to understand the risk versus the return trade off—the greater the potential return, the greater the risk.

As a result, your portfolio should be based on your risk tolerance. Generally, you should not place all your assets in those categories that have the highest potential for gain if you are concerned about the prospect of a loss. It is essential to find a balance of asset classes with the highest potential return for your risk profile.

Other important factors to consider creating an asset allocation strategy are investment goals and time horizon. Ask yourself: what do I want to accomplish? Do you want to buy a new house or car soon? Do you want to pay for your children’s college education? When you retire, do you aspire to travel or buy a vacation home? You should consider all your aspirations when outlining an asset allocation strategy.

If you would like to learn more about asset allocation, click here, or for a more personal assessment to see what’s best for you, call our office at 201-342-3300. One of our associates will be happy to take your 

Auto Insurance

Today’s article on the types of auto insurance may serve as a great tool to learn about the types of car insurance available. There are four main types of auto insurance: liability, uninsured or underinsured motorist, collision and comprehensive and personal injury. It is required by most states to carry certain types of auto insurance.

Liability Insurance

Liability insurance is usually considered a necessity and many states have a minimum legal requirement for liability coverage. This type of insurance helps protect against injury claims and property-damage suits (up to policy limits) brought by other drivers, pedestrians or property owners if you are at fault in an accident. Your liability policy helps pay for injuries suffered by others and the cost of damage to other people’s property, as well as legal costs if necessary, up to a dollar limit.

You can choose a policy with an overall limit for all liabilities or you can select one with separate limits for (1) individuals injured in an accident, (2) all injuries in the same accident, and (3) property damage.

Uninsured or Underinsured Motorist Coverage

A policy with an uninsured motorist provision will pay damages if an uninsured motorist or a hit-and-run driver injures you and/or your passenger(s). you cannot buy more coverage against an uninsured driver than you carry yourself in liability. For example, if you carry $25,000 coverage per person and $50,000 per accident, you can buy only up to those amounts of coverage against an uninsured driver. You can also add protection against inadequate insurance coverage by another driver who injures you or damages your property in an automobile accident. This provision means that your policy will pay for injuries or damage that the other driver's policy does not.

Collision and Comprehensive Coverage

Collision insurance reimburses you for repair costs to your vehicle that were caused by a collision. While this coverage is great, please note that it can also be the most expensive. Comprehensive coverage helps pay for damage due to fire, storm, vandalism, or theft. If a lender holds a lien on your car, the lender will likely require you to pay for both collision and comprehensive insurance. To lower the cost, of this insurance, you may choose a higher deductible. Although this increases your out of pocket expenses in the event of an accident, it may result in lower premiums.

Personal Injury Protection

Residents of states with “no fault” insurance, must buy personal injury protection. Personal injury insurance will pay your medical expenses in the event of a car accident, regardless of who was at fault. When you purchase this protection, you agree not to sue for any suffering or injury you may sustain.

If you would like a quote for auto insurance, click here.

For more information on auto insurance, click here, or call our office today 201-342-3300. One of our associates will be happy to speak to you.

Life Insurance for Business Owners

Did you know that life insurance is not just for individuals? Life insurance can be bought by a business owner to insure the business in the event of the death of a key employee. On today’s blog we would like to discuss life insurance policies for business owners and what one can do with the benefit money.

Purchase a buy-sell agreement

Generally, with a buy sell agreement it is determined before hand what will happen if the owner or a key person dies, or leaves due to a personal decision or disability. The death benefit from a company-owned life insurance policy can be used to purchase the decedent’s interest in the company from their heirs.

Replacing lost income

In the event the business continues, there may be a time where the business closes doors for a bit while survivors make a new plan to move forward. If this were to happen, the death benefit could be used to replace lost revenue or pay for costs associated with keeping the doors open it may also help the surviving owners avoid borrowing money or selling assets.

Replacing lost income

Most likely, any business owner has family members that are dependent on income from the business. If they were suddenly gone, the proceeds from the death benefit could replace the family’s lost income for a little while until they figure things out.

For a more in-depth article about life insurance for business owners, click here, or for personalized attention, please feel free to call out office at 201-342-3300. One of our associates will be happy to speak to you.

529 Plans

If you’re like most parents, chances are you would like to find the most suitable way to save for your children’s college education. On today’s blog, we at Federal National Funding would like to introduce you to the 529 plan.

A 529 plan (also known as a qualified tuition plan) is a popular way to save for higher education. Perhaps you have heard of the original form of the 529, a state operated prepaid tuition plan that allows you to purchase units of future tuition at to today’s rates with the plan assuming the responsibility of investing the funds to keep pace with inflation. Many state governments guarantee that the cost of an equal number of units in the sponsoring states will be covered regardless of investment performance or the rate of tuition increase. Remember, each state has different rules and restrictions. Prepaid tuition programs will typically pay for future college tuition at any sponsoring state’s eligible colleges or university—some will even pay an equal amount for out of state or private institutions.

The other type is the savings plan. It’s close to an investment account but the funds accumulate tax deferred. Withdrawals from state sponsored plans are free of federal income tax as long as they re used for qualified college expenses. Many states also exempt withdrawals from state income taxes for qualified for higher education expenses. Unlike prepaid tuition plans, contributions can be used for all qualified college expenses (tuition, fee, books, equipment, supplies, room and board) and the funds can be used at all post-secondary schools in the United States. Remember that there is a risk associated with this plan—investments may not preform as well as anticipated and may even lose money.

In many cases, 529 plans place investment dollars in a mix of funds based on the age of the beneficiary with account allocations becoming more restrictive as the time for college draws closer. Recently, states have hired professional money managers to actively manage and market their plans, so a growing number of investors can customize their asset allocations. Some states enable account owners to qualify for a deduction on their state tax returns or receive a small match on the money invested. Earnings from 529 plans are not taxed when used to pay for eligible college expenses. And there are even consumer-friendly reward programs that allow people who purchase certain products and services to receive rebate dollars that go into state-sponsored college savings accounts.

An advantage to the 529 is that contributions are considered gifts to the beneficiary, meaning that anyone can make contributions of up to $14,000 a year without facing gift tax consequences. Additionally, contributions can be made in monthly installments or be paid in a lump sum.

For more information about 529 plans click here or call us today at 201-342-3300. One of our associates will be happy to help you.

Long Term Costs

If you have been meaning to learn about long-term care costs, today’s blog is just for you.

The majority of Americans don’t have a plan when it comes to paying for long-term care. In fact, many Americans simply live their lives hoping they won’t need it. But in the event that you or your loved ones do need long-term care, there are options for covering the costs.

Self-Insurance

When a person self-insures, they pay for the costs themselves and have sufficient income to cover the costs. Keep in mind that although a person may be able to pay for long term care out of pocket now, they may not be able to in the future due to rising costs.

Medicaid

Medicaid is a joint federal and state program that covers medical bills for the needy. If you qualify, it may help you pay for long-term care costs. But, to qualify for Medicaid, you need to have few assets or have to spend down your assets. The state laws determine income and resource limits.

To get Medicaid assistance, you may have to transfer your assets to meet those limits. But this can be complicated because there are laws made to discourage asset transfers for the purpose to qualifying for Medicaid. We highly suggest meeting with an advisor such as us at Federal National Funding to discuss new Medicaid rules. If you would like to learn more about Medicaid, click here.

Long-Term Care Insurance

This type of policy can help transfer some of the economic liability of long-term care to an insurance company in exchange for regular premiums. Long-term care insurance can help pay for skilled care, intermediate care, and custodial care. Most policies pay for nursing home care, and comprehensive policies may also cover home care services and assisted living. Insurance can help protect your family financially from the potentially devastating cost of a long-term disabling medical condition, chronic illness, or cognitive impairment.

A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the policy.

Long-Term Riders on Life Insurance

A number of insurance companies have added long-term care riders to their life insurance contracts. For an additional fee, these riders will provide a benefit — usually a percentage of the face value — to help cover the cost of long-term care. This may be an option for you.

To learn more about long-term care costs, Medicaid, or long-term care riders on life insurance, click here or call us at 201-342-3300. One of our associates will be happy to speak to you.

Homeowner's Insurance

Your home is one of your greatest assets, thus, you should make sure it is protected. This is where homeowner’s insurance comes into the picture. Homeowner’s insurance can protect against liabilities—when someone is injured on your property—damage to the structure of your home, and/or personal belongings and theft.

Though policies vary, a typical homeowner’s policy covers damage from certain “perils”. However, you may need to purchase a separate endorsement or policy to cover disasters such as floods, earthquakes, and tornadoes if you live in a high-risk area.

When reimbursing you for a loss, an insurance company will use one of two methods to determine the value of the property: replacement cost and actual cash value. With replacement cost, the insurance company pays you the cost of replacing the damaged property; there is no deduction for depreciation, but there is a maximum dollar amount. With actual cash value, the insurance company pays you an amount equal to the replacement value of damaged property minus a depreciation allowance. Keep in mind that before you are reimbursed, you'll need to satisfy a deductible.

Additionally, the typical homeowner’s policy includes liability protection that provides coverage damages caused by your negligence. Medical expenses to third parties your legal costs to any lawsuit brought against you are also included. Most policies provide a standard amount of liability coverage (usually $100,000) per accident.

If you re looking for a quote on homeowner’s insurance, click here.

For more information about homeowner’s insurance click here, or call us today at 201-342-3300. One of our associates will be happy to speak to you.

Diversification

As a financial firm, we consider it our duty to educate the public on various topics. Today we would like to discuss the benefits of diversification in one’s investment portfolio.

But what is diversification?

Diversification is an investment strategy used to manage risk by having investment money spread across various investment vehicles. Such investment vehicles may include stocks, bonds, real estate, and cash alternatives. Please note, diversification does not guarantee a profit or protect against loss.

The main philosophy of diversification is as follows: don’t put all your eggs in one basket. You can spread the risk among investments, as well as over different industries—this can help offset a loss in any one investment.

Likewise, the power of diversification may help smooth your returns over time. For example, as one investment goes up, it covers for one that may be going down. This may allow you to ride out market fluctuations which is helpful for more steady performance under various economic conditions. Diversification can be very helpful as it can bring you more comfort as you invest.

For a modest initial investment, you can purchase shares in a diversified portfolio of securities. You have “built-in” diversification. Depending on the objectives of the fund, it may contain a variety of stocks, bonds, and cash vehicles, or a combination of them.

If you want to start with a more modest investment, a good start would be to purchase shares in a diversified portfolio of securities. With securities, you have “built-in” diversification. And depending on the objectives of the fund it may contain stocks, bonds, and cash vehicles, or a combination of them.

Whether you are investing in mutual funds or are putting together your own combination of stocks, bonds or other investments vehicles it is a good idea to keep in mind with the importance of diversifying. The value of stocks, bonds, and mutual funds, change along with market conditions. Shares when sold, may be worth more or less than their original cost.

If you are interested in starting your investment portfolio, you can start by reading this article on annuities here, or read up on mutual funds here. Or if you would like personalized attention, feel free to call our office at 201-342-3300. One of our associates will be happy to speak to you. 

How Much Do I Need To Save For Retirement?

How much do I need to save for retirement?

Fact of the matter is, it depends on several factors, and there is no one size fits all answer. But today we are going to review important factors when calculating how much you need to save for your retirement.

Retirement Age

The first step will be figuring out when you will retire. Keep in mind that the reality is that many people retire earlier than they expect. The reason for this is because unexpected issues such as new disabilities, work place changes or health problems may get in your way of working as long as you like. Thus, it’s best to keep that in mind when calculating how much you need to save.  And remember, the earlier you retire, the more money you will need to save.

Life Expectancy

We know you can’t know for sure how long you will live. However, you can check your family history and see how long your relatives lived and what diseases are common among your blood relatives. On the other hand, consider that with medical advances many more people are living past their seventies, eighties and even nineties.

Future Health Care Needs

Another important factor to keep in mind is the cost of health care. Costs for healthcare have been on the rise faster than general inflation and less employers are offering benefits to retirees. Consider Long Term Care Insurance.

Lifestyle

Take a few moments to imagine the retirement lifestyle you want. Was it your dream to travel in your later years? Do you plan on working part time? What are some hobbies you’d like to pursue? Would you rather live a simpler life and donate large amounts of money every now and then? Are you going to remain living in the same place you are now?

Consider the expenses needed to live the life you want, when adding up expenses for retirement.

Inflation

If your savings do not keep up with the rate of inflation, the value of your savings might not fully cover your retirement costs. This is because with inflation the purchasing power of your savings will gradually go down as the years go on. If your retirement savings are based on an investment vehicle, make sure that the interest rate is greater than the inflation rate.

Social Security

The reality is, Social Security is in a bit of a strain—more baby boomers rely on it and there are fewer people available to work to pay for their benefits. Additionally, Social Security pays about 40% of the total income of Americans aged 65 and over, which leaves around 60% to be paid in other ways.

The Grand Total

After considering all these factors you should have a much better idea of how much you should have to save for retirement.

For more information about how much you should save for retirement, click here. For a cost of retirement calculator click here. Please note that the calculator alone cannot factor in everything in your personal situation. It is only meant to illustrate a rough estimate.

If you are still unsure of the dollar amount you should have saved for retirement, feel free to call us at Federal National Funding at 201-342-3300 and set up an appointment or teleconference with our financial advisors. 

Property and Casualty Insurance

Today we at Federal National Funding would like to discuss property and casualty insurance.

For starters, property and casualty is designed to help protect your possessions from theft or destruction and your assets from being used up in the event of a disaster or litigation claims brought against you.

The side that handles property side of a policy insures physical items, such as your home, commercial buildings, vehicles, personal items or business inventory. Some forms of property insurance include homeowner’s insurance, fire insurance, flood or earthquake insurance, and automobile insurance.

Insurance contracts such as these may include “open perils” or a “named perils” clause. An open perils clause covers losses for reasons that are not specifically listed in the policy. Typical exclusions are earthquakes, floods, and acts of terrorism or war. A named perils clause on the other hand, requires the actual causes of the loss to be listed in the policy.

Also called liability insurance, casualty insurance covers losses that you may cause to other individual or business. For example, if you have liability insurance on your car and another party is injured in a collision caused by you, your liability insurance will take care of the other person’s medical and repair costs. In addition, if someone sues you because of harm you may have caused to him or to his possessions, your casualty insurance may cover the cost.

Individuals and businesses alike can purchase property and casualty insurance. Personal policies include homeowner’s insurance, renter’s insurance, and automobile insurance. Meanwhile, commercial policies are written specifically for businesses and other organizations.

If you are interested in protecting your assets with property and casualty insurance and wish to learn more, click here or call our office at 201-342-3300. One of our associates will be happy to speak to you. 

Effects of Inflation

If you have long term savings goals such as saving for your children’s college education, or retirement, you’ll want to read today’s blog on the effects of inflation.

To put it simply, inflation is the increase of the price of products over time. The rate of inflation fluctuates over time, sometimes it can run high, other times, it’s so low we don’t notice. But all these fluctuations are generally short term, what we need to focus on is the long term.

Over the years, inflation can chew away at the purchasing power of your income and wealth. This means that even as you save and invest, your wealth buys less and less as time goes on. Those who put off investing and saving will feel this impact even more.

While one cannot deny the effects of inflation, there are ways to fight them. For starters, you should own at least some investments whose potential return is greater than the inflation rate. For example, if a portfolio earns 3% when inflation is at 4% the investment will lose purchasing power over time. While past performance isn’t an indicator of future results, stocks have provided higher long term returns than cash alternatives or bonds. Still, one has to be aware that even with that potential, there is greater risk and potential for loss. Because of this volatility stocks may not be the best option for the money you count on being available in the short term. You will also have to think about whether you have the financial and emotional capacity to ride out these ups and downs as you pursue higher returns.

Diversifying your portfolio — spending your assets across a variety of investments that may respond differently to market conditions — is one way to help manage inflation risk. However, diversification does not guarantee a profit or protect against a loss; it is a method used to help manage investment risk.

Remember, all investing involves risk, including the potential loss of principal. There is no guarantee that any investment will be worth what you paid for when you sell.

For more information about the effects of inflation, or for more strategies to fight against it click here, or call Federal National Funding today at 201-342-3300. One of our associates will be happy to speak to you. 

Withdrawing Before Age 59 1/2

What happens if I withdraw money from my tax deferred investments before age 59½?

Generally, withdrawing from a tax deferred retirement account before age 59 ½ triggers a 10% federal income tax penalty on top of any other federal income taxes due. However, there are certain situations where you can make early withdrawals from a retirement account and avoid the tax penalty. Before we list the types of distributions, please note that you should check your specific plan to ensure that such withdrawals are allowed.

IRAs and employer sponsored retirement plans have various exceptions though the rules are generally similar.

IRA Exceptions

•          Death of the IRA owner: distribution to your designated beneficiaries after your death (beneficiaries are subject to annual required minimum distributions).
•          Disability: distributions can be made due to a qualifying distribution. 
•          Unreimbursed medical expenses: distributions equal to the amount of your unreimbursed medical expenses that exceed 10% of your gross income in a calendar year.
•          Medical insurance: distributions made to pay for health insurance if you lost your job and are receiving unemployment benefits.
•          Substantially equal periodic payments (SEPPs): Distributions you receive as a series of substantially equal payments over your life expectancy, or the combined life expectancies of you and your beneficiary. You must withdraw funds at least annually based on one of three rather complicated IRS-approved distribution methods. You generally can't change or alter the payments for five years or until you reach age 59½, whichever occurs later. If you do, you'll again wind up having to pay the 10% penalty tax on the taxable portion of all your pre-59½ SEPP distributions (unless another exception applies).
•          Qualified higher education expenses: these distributions can be made for you and/or dependents.
•          First home purchase: this distribution can be up to $10,000 (lifetime limit).
•          Qualified reservice distributions: certain distributions to qualified military called to active duty.

Employer Sponsored Plan Exceptions

• Death of the plan participant: upon your death, your designated beneficiaries may begin taking distributions from your account. Beneficiaries are subject to annual minimum required distributions.
• Disability: distributions made due to your qualifying disability.
• Part of a SEPP program (see above): distributions you receive as a series of substantially equal payments over your life expectancy, or the combined life expectancies of you and your beneficiary. You generally cannot modify the payments for a period of five years or until you reach age 59½, whichever is longer.
• Attainment of age 55: distributions made to you upon separation of service from your employer. The separation must have occurred during or after the calendar year in which you reached the age of 55 (age 50 for qualified public safety employees).
• Qualified Domestic Relations Order (QDRO): payments made to an alternate payee under a QDRO.
• Medical care (see above): distributions equal to the amount of your unreimbursed medical expenses that exceed 10% of your adjusted gross income in a calendar year.
• To reduce excess contributions: distributions made to correct excess contributions you or your employer made to the plan over the allowable amount.
• To reduce excess elective deferrals: distributions made to reduce amounts you deferred over the allowable limit.
• Qualified Reservist Distributions (see above).

To learn more about withdrawing before age 59½ click here, or for personalized attention, feel free to call the office at 201-342-3300. One of our associates will be happy to speak to you. 

Unforgettable Birthdays

While we like to think and treat every birthday as special, there are special, there are certain birthdays later in life that can affect your tax situation, health care eligibility, and retirement benefits. On today’s blog, we would like to list them and outline what happens as you reach certain birthdays.

Age 50

If you are a qualified public safety employee, you can begin to take out penalty free withdrawals from your qualified retirement plan after leaving your job if your employment ends after of the year you turn 50.

Age 55

If you're not a qualified public safety employee, you can take penalty-free withdrawals from your qualified retirement plan after leaving your job if your employment ends during or after the year you reach age 55.

Age 59½

At this point, all withdrawals from qualified retirement plans are penalty free after you reach this age regardless of whether you are still employed or not.

Age 62

When you reach age 62 you are eligible for a reverse mortgage. For more information on reverse mortgages, you can click here. You may also start collecting Social Security Benefits, though please note that they will be reduced by 30%. For full benefits you must wait until “full retirement age”, which can range from 66 to 67 depending on the year you were born.

Age 65

At age 65 you are eligible to enroll in Medicare. One should note that Medicare Part A hospital insurance benefits are automatic for those eligible for Social Security. Meanwhile, Part B benefits are voluntary and have a monthly premium. We recommend that to get coverage as early as possible, you should enroll about 2-3 months before turning 65.

Age 70½

You must start taking minimum distributions from most tax-deferred retirement plans or face a 50% penalty on the amount that should have been withdrawn. Annual required minimum distributions are calculated according to life expectancies determined by the federal government.

To learn more about important birthdays, click here, or call our office at 201-342-3300. One of our associates will be happy to speak to you. 

Biweekly Mortgages

Typically, homeowners will make monthly payments for their mortgage and are under the impression that there aren’t other options. But did you know that paying your mortgage biweekly can reduce the amount of interest you will pay over time?

It’s true! With a biweekly mortgage, instead of making one payment every month, you can pay half and half ever two weeks. For example, if your mortgage is $2,000 per month, you will pay $1,000 every two weeks under a biweekly system.

If you maintain the biweekly payment schedule you’ll end up making an extra month’s payment each year (26 payments per year, which is the equivalent of 13 full monthly payments rather than 12). You’ll also pay less interest because your payments are applied to your principle balance more frequently.

The effects of biweekly mortgages can be dramatic. For example, if you currently have a $150,000 loan at 8 % fixed interest, you will have paid approximately $396,233 at the end of 30 years. However, if you use a biweekly payment system, you would pay $331,859 and have it completely paid off in 21.6 years. You would save $64,374 and pay the loan off 8.4 years earlier!

For many, paying off their mortgage earlier can take a great financial load off their shoulders. Plus they can enjoy more of their income or even use the excess money to for investing.

If you are looking to save money and pay off your mortgage faster, call us at Federal National Funding at 201-342-3300 today to get started with setting up biweekly mortgage payments. One of our associates will be happy to speak to you. 

Wealth Replacement Trusts

Today’s blog is centered around wealth replacement trusts. You may find this blog helpful if you choose to gift your property to a charity after you’re gone.

Charity Remainder Trusts

To create a charitable remainder trust, you first have to transfer appreciated property to an irrevocable trust and list the charity of your choice as the remainder beneficiary of the trust. Later, the property is sold and reinvested to provide income. Generally, you can retain a lifetime of interest in the income generated by the trust, and when the trust expires at your death, the remaining property is transferred to the charitable organization.

While subject to certain limits, you are entitled to a current income tax deduction for the charitable gift. And because the property was sold within the charitable trust, you will not have to pay tax on any capital gains (although any distribution you get from the trust is generally subject to income tax). This allows the value of the property to be reinvested, which will increase the income generated by the trust.

One major drawback is that since the beneficiary is listed as a charity, any heirs you have will not be receiving anything.

Replacing Gifted Assets

Another solution to a gifting situation could be a wealth replacement trust.

When you use a wealth replacement trust, you use a portion of the income from a charitable remainder trust to buy a life insurance policy. Then you get to decide how much of the charitable gift tot replace. You may purchase enough insurance to replace only a portion of the property that will pass to charity, or you may prefer to replace all of the property in the charitable remainder trust.

If you are interested in wealth replacement trusts, learn more about them by clicking here, or call our office today at 201-342-3300. One of our associates will be happy to speak to you. 

HMOs and PPOs

Conventional health insurance is expensive, are there alternatives that cost less?

Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are types of managed health-care plans and can cost much less than comprehensive individual policies.

Through the use of managed care, HMOs and PPOs are able to reduce the costs of hospitals and physicians. Managed care is a set of incentives and disincentives for physicians to limit what the HMOs and PPOs consider unnecessary tests and procedures. Managed care generally requires the consent of a primary care physician before a patient can see a specialist.

What is an HMO?

HMO stands for Health maintenance organizations. And an HMO can provide a comprehensive health care services to the insured for a fixed periodic payment. With an HMO, you may also pay a nominal fee when you visit a health care provider. Generally, HMOs have various relationships with hospitals and physicians. Plan physicians may be salaried employees, members of an independent multi-specialty group, part of a network of independent multi-specialty groups, or part of an individual practice association.

One notable thing about HMOs is that since they combine heath care providers with insurance, they can provide better health care delivery. Often, this allows for lower costs of service.

What is a PPO?

PPO stands for preferred provider organizations. Much like an HMO a PPO has relationships with hospitals and doctors to provide healthcare services. However, a key difference from an HMO is that with a PPO you aren’t limited to these doctors. If you do choose to go with an out of network healthcare provider, you will have to pay more. Usually, PPO plans have a deductible, which is the amount the insured must pay before PPO starts to pay. At a certain point the PPO will begin to pay, but only at a percentage, you are responsible for paying the rest. This is called “coinsurance”.

Fortunately, most plans have an out of pocket maximum, meaning that per year, you will never pay more than a given amount. When you exceed the out of pocket maximum, the PPO will pay 100% of the costs for the rest of the year.

To learn more about HMOs or PPOs, click here, or call our office at Federal National Funding today. One of our associates will be happy to speak to you. 

Why Purchase Life Insurance

Why should I consider purchasing life insurance?

Life insurance is a way to financially protect children and other dependents in the event of the primary household earner’s death. The benefits from life insurance can not only pay for funeral and burial costs, it can also create a stream of income for dependents. Furthermore, the life insurance death benefit can pay for financial obligations such as state taxes, and a mortgage.

Many people purchase life insurance because they prefer to plan for risk. Most people, would rather be prepared and have their loved ones protected.

On our website, you can even get a quote for life insurance, just click here!

Please note that health, age, and type of insurance purchased will be factors in how much a policy will cost.

What types of life insurance are there?

There’s whole life, term, variable, and universal life insurance. These are all different and come with their own sets of pros and cons.

In general, having a whole life policy means that you will pay regular premiums as long as the policy is enforced or as long as you live. Then, in exchange, the insurance company will pay a set death benefit upon your death. Whole life insurance is popular because it builds cash value that is tax deferred. You can surrender the policy for its cash value or take out a loan against the policy. Under federal tax rules, loans taken out are free of income tax as long as the policy is still in effect until the insured’s death. Once a whole life policy is purchased, the terms are set and cannot be changed.

Term life insurance is less expensive than other types of insurance, especially when the insured is younger. Unlike other types of insurance, it only offers protection for a certain period of time. At the end of the period, the policy expires, and one does not receive a refund. The main drawback with term insurance is that premiums increase every time coverage renews. This can eventually make coverage too expensive for when you need it most—in later years. Still, there are versions of term insurance that offer level premiums for up to 30 years without proof of insurability (this is called renewable level term life insurance).

Variable life insurance gets its name for the variety of investment subaccounts you can have within your policy. A few examples of subaccounts include: stock; bond; and fixed interest options. These subaccounts allow you to build your investment portfolio as a bonus. A disadvantage of variable life is if your subaccount preforms poorly, your death benefit will not be as high as you might like. Fortunately, your death benefit will never go below a specified dollar amount.

Most universal life policies pay a minimum guaranteed rate of return. Any returns above the guaranteed minimum vary with the performance of the insurance company’s portfolio. The policyholder has no control over how these funds are invested; funds are managed by the insurance company’s professional portfolio managers. The big advantage with universal life is that coverage and premiums are flexible. For example, you can at any point choose to increase your cash value by paying higher premiums or if you happen to be at a financial strain, you can pay less for a while.

To learn more about whole, term, variable and universal life insurance, please click on the links provided below for a comprehensive article on each type. Or for one of our associates at the office to answer your questions, please call us today at 201-342-3300.

·         Whole Life

·         Term

·         Variable

·         Universal

Retirement Planning

 How much do I need to save for retirement?

That depends on several factors such as: retirement age, life expectancy, future healthcare needs, lifestyle, social security and inflation. 

For instance, the earlier you retire, the more money you will need. And although we all want to believe that we will retire and 65, that might not be your case. One reason you may retire earlier than planned is because you might develop a disability which may prevent you from working.

There is no one size fits all answer, everything is dependent on the factors of your life. However, once all factors are considered, we recommend you visit an experienced financial adviser to assist you further.

Though it is not intended to replace seeing a financial adviser, we do have a retirement cost calculator on our website here.

Finally, for more factors that can help determine how much you need to save, read our article here.

What are some living benefits to annuities?

In many cases and for an added cost, you can add guarantees regardless of the account value.

For example, adding a guaranteed minimum withdrawal benefit to a variable annuity contract could allow the contract owner to withdraw a fixed percentage (about 5% to 7%) of the premiums paid until 100% of the premiums paid had been withdrawn. This will still be possible even if the underlying investments were to lose money.

Another benefit available is the guaranteed minimum income benefit. When the contract owner is ready to collect retirement income payments, they would be based on a minimum payout. In the event of poor investments minimum payout would still be provided by the company.

Thirdly, a guaranteed minimum accumulation benefit can help ensure that the contract value will not fall below a certain minimum after a specified term. This is usually equal to the premiums made.

If you have questions about annuities or their living benefits, take a look on our articles here and here.

What is an IRA rollover?

If you leave a job, or you retire, you might want to transfer the money you’ve invested in one or more employer sponsored retirement to an individual retirement account (or an IRA). An IRA rollover is an effective way to keep your money accumulating tax deferred.

When using an IRA rollover, you transfer your retirement savings to an account at a private institution of your choice, with the bonus of choosing how to invest the funds. To protect the tax deferred status of your retirement savings, the funds must be deposited within 60 days of withdrawal from an employer’s plan. To avoid potential penalties and a 20% federal income tax withholding from your former employer, you should arrange for a direct, institution to institution transfer.

You are able to roll over assets from an employer-sponsored plan to a traditional IRA or a Roth IRA. Because there are no longer any income limits on Roth IRA conversions, everyone is eligible for a Roth IRA conversion; however, eligibility to contribute to a Roth IRA phases out at higher modified gross income levels. Keep in mind that ordinary income taxes are owed (in the year of the conversion) on all tax-deferred assets converted to a Roth IRA.

An IRA can be fitted to your needs, goals and can incorporate various investment vehicles as opposed to the limited options of many employer-sponsored retirement plans. Additionally, tax deferred retirement savings can later be consolidated.

Over time, IRA rollovers may make it easier to manage your retirement savings by consolidating your holdings in one place. This can help cut down on paperwork and give you greater control over the management of your retirement assets.

Lean more about IRA rollovers on our website here.

To learn more about estate planning or to find out about what options best suit you, please call our office at Federal National Funding, at 201-342-3300. One of our associates will be happy to speak to you and will schedule a free consultation. 

Roth IRA

What is a Roth IRA?

A Roth IRA is one of the many investment vehicles available to investors that aim to save for retirement. One key bonus that Roth IRAs have is that they are tax favored. This means they are not taxable, which is advantageous because you would then get to keep more of your money.

What are other advantages to a Roth IRA?

One advantage of a Roth IRA is that you can continue to make contributions after age 70½ as long as you have earned income. Additionally, you do not have to start mandatory distributions due to age as one has to with Traditional IRAs. However, beneficiaries of Roth IRAs must take mandatory distributions.

Roth IRA withdrawals of contribution can be made at any point for any reason. These are also considered tax free and not subject to the 10% federal income tax penalty typically associated with withdrawals. In order to make a qualified tax-free and penalty-free distribution of earnings, the account must meet the five-year holding requirement and the account holder must be age 59½ or older. If your withdrawals do not meet this requirement, they are taxed as any other withdrawal with some exceptions that include: death, disability, unreimbursed medical expenses in excess of 10% of adjusted gross income, higher-education expenses the purchase of a first home ($10,000 lifetime cap) substantially equal periodic payments, and qualified reservist distributions.

To learn more about Roth IRAs, or to learn how you can qualify, click here. Or for personalized attention, call our office today at 201-342-3300. One of our associates will be happy to speak to you.