Retirement is a term that means something different to everyone, with the definition

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1 Fiacial Toolkit

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3 Retiremet is a term that meas somethig differet to everyoe, with the defiitio largely depedet o a perso s age, career status, bak accout, family makeup, ad other factors. While the meas by which we prepare for ad live throughout retiremet may vary from perso to perso, opportuities ad strategies exist for all Michigaders to live comfortably i our later years. May of the old truisms have chaged throughout the years, requirig us to adapt, to better pla for our future to reivet retiremet. Reivetig Mi Retiremet: Tools ad Resources to Achieve Fiacial Security is a comprehesive, easy-to-read referece guide desiged to help Michigaders of all ages pla for a secure fiacial future. As you thumb through sectios of this toolkit, you will fid resources such as tools ad products to help make soud fiacial decisios, strategies for orgaizig fiaces, iformatio o preparig for uexpected life evets, ad guidace o how to avoid idetify theft ad other forms of ivestmet ad fiacial fraud. Itroductio The iformatio provided i this toolkit was created through the efforts of govermet ad private sector experts who worked together i its developmet. This project would ot have bee possible without the support ad expertise of AARP, the Michiga Associatio of Certified Public Accoutats, Michiga Bakers Associatio, Michiga Credit Uio League & Affiliates, Commuity Bakers of Michiga, Hutigto Bak, Bak of America, My Checklist System TM, ad our state govermet colleagues at the Office of Services to the Agig, Military ad Veteras Affairs, ad the Departmet of Licesig ad Regulatory Affairs. From iformatio o how to orgaize your fiaces, makig soud fiacial decisios, protectig your moey, to preparig for retiremet, we hope you will fid this guide useful as you pla for a secure fiacial future. Additioal copies of Reivetig Mi Retiremet: Tools ad Resources to Achieve Fiacial Security are available from: Michiga Departmet of Isurace ad Fiacial Services Office of Cosumer Services P.O. Box Lasig, MI This publicatio is also available electroically at

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5 Fiacial Educatio Fiacial Tools Checkig Accout... 3 Savigs Accout... 6 Cash, Debit ad Credit... 7 Fiacial Products Isurace... 9 Kow What You Are Gettig Whe You Buy a Auity Prepaid Fueral Cotracts Mortgages Reverse Mortgages Deferred Presetmet Payday Loas Table of Cotets Ivestmet Kowledge* IRA ad 401(k) Overview Retiremet Pla Distributio Optios Uderstadig Your Brokerage Accout Statemet Asset Allocatio How to Evaluate ad Select a Fiacial Services Advisor Crowdfudig Ivestmet-Related Terms Fiacial Decisios The Cost of Credit Maagig ad Reducig Debt Developig a Savigs ad Spedig Pla Uderstadig Social Security Fiacial Orgaizatio Fiacial Ivetory Talkig With Family Members About Fiaces Maagig Fiacial Affairs *Disclaimer: The iformatio, aalysis ad opiios cotaied herei: (1) do ot costitute professioal ivestmet, tax or legal advice; (2) are provided solely for iformatioal or illustrative purposes ad therefore do ot costitute a offer to buy or sell ay security or pursue a specific ivestmet strategy; (3) are ot warrated or represeted to be correct, complete or accurate. (cotiued)

6 Table of Cotets (Table of Cotets, cotiued) Reivetig Retiremet Preparig ad Livig Through Retiremet Pre ad Post-Retiremet Checklist Covertig Wealth to Icome Matchig Your Ivestmets to Your Moey-Related Goals Fiacial Crisis Maagemet Hadlig a Credit Crisis Preparig for Fiacial Crisis i Retiremet Miimizig the Fiacial Impact of Losig a Spouse Actio Steps to Take Whe a Loved Oe Dies Home Loa Modificatio Home Foreclosure Bakruptcy Fiacial Protectio Recogizig Scams Natioal ad Local Scams Idetity Theft Cosumer Tips o Idetity Theft Prevetio Ivestmet Scams ad Fraud Commo Ivestmet Threats How to Spot a Co Artist Fiacial Resources Emergecy Fiacial Resources ad Seior Services (Directory) Resources for Veteras (Directory)

7 Fiacial Educatio Fiacial Tools Checkig Accout Savigs Accout Cash, Debit ad Credit Fiacial Products Isurace Kow What You Are Gettig Whe You Buy a Auity Prepaid Fueral Cotracts Mortgages Reverse Mortgages Deferred Presetmet Payday Loas Ivestmet Kowledge IRA ad 401(k) Overview Retiremet Pla Distributio Optios Uderstadig Your Brokerage Accout Statemet Asset Allocatio How to Evaluate ad Select a Fiacial Services Advisor Crowdfudig Ivestmet-Related Terms Fiacial Decisios The Cost of Credit Maagig ad Reducig Debt Developig a Savigs ad Spedig Pla Uderstadig Social Security Fiacial Orgaizatio Fiacial Ivetory Talkig With Family Members About Fiaces Maagig Fiacial Affairs 1

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9 Fiacial Tools Checkig Accouts A checkig accout is a service provided by fiacial istitutios (baks, credit uios, etc.) which allows idividuals ad busiesses to deposit moey ad withdraw fuds from a accout. The terms of this type of accout vary from istitutio to istitutio; but, i geeral, it s a accout where you ca use persoal checks i place of cash to pay for your purchases. May checkig accouts allow the use of electroic debit cards or Automated Teller Machie (ATM) cards. These allow you to purchase items at a retail store or make cash withdrawals without havig to write a check or make a withdrawal from the istitutio. Most fiacial istitutios offer some form of checkig accout service. Some istitutios may require a miimal iitial deposit before establishig a ew accout, alog with proof of idetity ad address. A typical checkig accout is hadled through careful postig of deposits ad withdrawals. To use your checkig accout you first must purchase a supply of checks which cotai all of the essetial routig ad mailig iformatio. Whe a check is filled out correctly, the recipiet treats it the same as cash ad completes the trasactio. After this check has bee deposited ito the recipiet s ow accout, the recipiet s fiacial istitutio files the check electroically ad the check writer s istitutio receives the cacelled check ad amout to be debited (withdraw) from your accout. This process cotiues for every check writte agaist your accout. Thigs to kow about your checkig accout: Shop aroud for the best deal, preferably a accout without a mothly maiteace fee. Most fiacial istitutios offer several accouts to choose from with differet features, fees, iterest rates, ad opeig balace requiremets. Keep your checkbook ledger up to date by recordig all trasactios, icludig ATM withdrawals, fees, purchases you make usig a debit card, ad ay other deductios or deposits. As the ower of the checkig accout, you are ultimately resposible for keepig track of your available fuds. Compare your checkbook balace to your mothly statemet immediately. Most istitutios allow 60 days from the day you receive your statemet to dispute ay uauthorized or fraudulet activity. Avoid overdrawig your accout, which ca happe if you write a check, authorize a debit, or attempt to withdraw (by mistake) more moey tha you have i your accout. Please uderstad fiacial istitutios charge fees whe this happes. Cosider Iteret (olie) bakig. This service allows you to make paymets or move moey from oe accout to aother through your fiacial istitutio s website istead of writig or mailig paper checks. This will save you moey by avoidig postage charges ad the purchase of paper checks. Olie bakig allows you to moitor your accout without havig to wait for the statemet. Overdraft protectio helps avoid overdraft fees whe you do t have eough moey i your accout. You should cotact your fiacial istitutio to obtai a copy of its policy ad/or agreemet explaiig how this product works ad the associated cost. 3Fiacial Educatio

10 4Fiacial Educatio Joit Accouts A joit accout is a accout shared by two or more idividuals. Ay joit accout ower ca make deposits to or withdrawals from the accout without authorizatio from the other joit accout holder. Joit accouts are riskier tha two idividual accouts but may people fid that poolig their icome ito a joit accout makes payig bills easier. Keep i mid that oce fuds are co-migled i a joit accout, there is othig the bak ca do to protect either party if the other withdraws all the fuds from the accout. Oe beefit from a joit accout is if two people ope a accout together ad oe dies, the other party is able to access the remaiig balace i the accout. BillPay Accouts BillPay is aother optio may fiacial istitutios offer to assist you with makig mothly paymets to your creditors. This is geerally hadled through a third party but you would cotact your fiacial istitutio to set up this program. You will be required to provide your fiacial istitutio with all the creditor s iformatio (ame, accout umber, amout, etc.). You ca either set this as a reoccurrig debit or you ca maually schedule it each moth. Basically, BillPay allows you to electroically make paymets to your creditors i lieu of writig a check. Parts of a Check Check Number. Every check i your checkbook has a uique umber. The purpose of this is so you ca track each check ad balace your accout. 2. Date. This is where you fill i the date that you are writig the check. Several variatios of dates are acceptable icludig: Jauary 1st, 2012, 1/1/12, or Ja. 1, Istitutio s idetificatio code. These umbers are specific to your istitutio ad are used by other istitutios whe a check is deposited so they kow where the check is comig from. 4. Pay to the Order of. Write the ame of the perso or orgaizatio to whom you are writig the check i this space. For example, if you re writig a check to Joh Doe, put his full ame here. Make sure to accurately write the ame of the perso or orgaizatio or they wo t be able to deposit the check. 5. Declare the amout of the check. This is the total dollar amout you are payig someoe usig umbers. For example, if you are writig a check for five hudred dollars, put $ Clearly prit or write the check amout. Use words for the dollars ad cets. For example, for $500 use Five Hudred Dollars ad Zero Cets. 7. The memo space is optioal, but ca serve as a good remider. As a example, if you re payig your ret you may wat to put ret i this space. 8. Sig the check with your ame. Without the check holder s sigature, aother istitutio wo t accept the check. The payee sigs the back of the check before depositig it

11 9. Routig umber. This umber helps the depositig istitutio idetify the istitutio the check is comig from. 10. Your uique accout umber. Whe the depositig istitutio seds the request to your istitutio for the withdrawal, this umber idetifies which accout the moey is comig from. 11. Check umber. This is your check umber displayed agai. Easy Steps for Balacig Your Persoal Checkig Accout 1. Eter your checkbook register balace. 2. I order to balace your checkbook register to your bak statemet, first add ay credits (+) such as deposits or iterest which are ot already recorded i your checkbook register. Do ot iclude checkig reserve trasfers. Write your ew checkbook balace o Lie Now subtract ay debits (-) such as checks, debit card trasactios, ATM withdrawals, ad ay other fees ot recorded i your checkbook register. Do ot iclude checkig reserve paymets. 4. Eter the edig balace from the Checkig Accout Summary sectio of your bak accout o Lie I the box provided, list ay deposits you have made that are NOT listed o your bak statemet. Write the total o Lie 5. Be sure to iclude cash advaces or trasfers from aother accout. Do ot iclude checkig reserve trasfers. 6. Add Lie 4 ad Lie 5. Eter the total amout o Lie I the box provided, list ad total all checks ad withdrawals icludig debit card trasactios, ATM withdrawals, BillPay paymets, automatic paymets, ad trasfers from the accout that are ot listed o your statemet. Write the total amout o Lie Subtract Lie 7 from Lie 6. Eter the amout o Lie Eter zero o lie 9 if you do ot use o-checkig reserve. If you use checkig reserve, eter the amout show as the edig balace o the checkig reserve statemet page. If there has bee o checkig reserve activity, you will have o checkig reserve statemet page. 10. Subtract Lie 9 from Lie 8. Eter the amout o Lie Compare your adjusted accout balace (Lie 10) to your adjusted checkbook register balace (Lie 3). They should be the same. If they are ot the same, review the process. Commo checkbook errors iclude additio, subtractio, ad traspositio errors. Checkbook Register Balace (1) Adjusted Checkbook Balace (Credits) (2) Adjusted Checkbook Balace (Debits) (3) Statemet Edig Balace (4) Total of Ulisted Deposits (5) TOTAL (6) Total of Outstadig Checks/Withdrawals (7) TOTAL (8) Checkig Reserve Balace (9) Adjusted Accout Balace (10) (5) Ulisted Deposits Date Amout $ $ $ $ $ Total $ (7) Outstadig Checks/ Withdrawals Check # Amout 5Fiacial Educatio

12 6Fiacial Educatio Savigs Accout Savigs accouts allow you to keep your moey i a safe place while earig a small amout of iterest each moth. Iterest o savigs accouts is usually compouded daily ad paid mothly. Iterest compouded daily meas that if your accout ears oe percet iterest, the each day 1/365th of that oe percet of the amout of moey you have i your savigs accout is added to your total. Here is the calculatio: Daily compoudig = Pricipal (1 + iterest rate/365)365 = (daily compouded amout) Whe you ope a savigs accout you will receive a small book called a register where you write your begiig balace (the amout you origially deposit) ad all of your future deposits ad withdrawals. This tool helps you keep track of how much moey you have. Each moth, your fiacial istitutio will sed you a statemet of your accout either by mail or by if you prefer. The statemet will list all of your trasactios, as well as ay fees charged to your accout ad iterest your moey has eared. You should review each etry i your register ad compare it with the statemet as they should match. This process is referred to as recocilig your accout. If the balaces do ot match, you will eed to determie where the error occurred ad correct it i your register. If you caot fid the error you may wat to cotact your fiacial istitutio for assistace. Certificates of Deposit A certificate of deposit (CD) is similar to a savigs accout, but it has a higher iterest rate ad you do t have access to your moey for a period of time. Whe you purchase a CD from a fiacial istitutio, you ivest a certai amout of moey for a specific period of time. Iterest will accrue periodically throughout the term of the deposit util it reaches its maturity date (the date i which it will o loger accrue iterest). CD s ca be purchased through baks, credit uios, or ivestmet firms ad are typically offered at fixed rates, although some ivestmet istitutios may offer adjustable iterest rates. Moey Market Deposit Accouts A moey market accout is similar to a geeric savigs accout; however, it requires a higher miimum balace. Moey market accouts are usually based o the curret market rate of iterest which meas you will have a higher rate of retur tha a typical savigs accout. I most cases, you have similar access to your moey as with your basic savigs accout allowig you to withdraw without pealty. You should check with your idividual fiacial istitutio for a copy of its accout agreemet which outlies the terms.

13 Cash, Debit ad Credit Kowig which paymet method to use ca be difficult. These tips ca help you determie the optio that best suits your eeds. With all the optios for makig purchases ad paymets, it ca be difficult to kow which paymet method to choose. Is there really a best way to pay for thigs? Should some methods be avoided altogether? If you ve bee poderig these questios, the followig should help you determie which paymet methods best suit your eeds. Whe decidig whe to pay by cash, debit or credit, cosider your spedig habits (carryig cash ca help you maage daily spedig) ad how well you keep track of your fiaces (payig with debit or credit gives you easy access to a record of your purchases). Cotrary to popular belief, it is ot always best to pay with cash. Debit ad credit cards ca be a better paymet method i certai situatios. You might be lookig to build your credit score, you might wat to keep better track of your weekly/ mothly spedig or you might be i a situatio where carryig cash is t safe. Here are some tips to help you decide which paymet method is best for you: Payig by Cash Keepig cash o had ca be a great way to avoid overspedig. You ca choose exactly how much cash you re willig to sped, carry it with you, ad stop spedig whe you re out of cash. For some people, cash ca bur a hole i their wallet meaig the temptatio of easily accessible cash ca lead to udesired spedig. Carryig cash also carries the risk that it could be stole or lost. If these factors are cocers, cosider usig a debit or credit card which, i most cases, offers you protectio agaist fraudulet use. Choosig Debit Debit cards provide easy recordkeepig ad are accepted at may merchats which makes purchasig coveiet. Ulike a credit card, which requires you to pay the bill later, the moey comes directly out of your checkig accout. This is a great way to avoid spedig more moey tha you have available. Before you use your debit card, make sure you kow your checkig accout balace. If you try to sped more tha you have, your purchase may be declied or the istitutio might charge you a extra fee, also kow as a overdraft fee. It is importat to recogize that certai istitutios do ot allow you to overdraw your accout, while others will allow you to overdraft. Please make sure to check your istitutio s policy so you are aware of ay potetial fees you could icur by spedig more tha you have available i your accout. Look ito your istitutio s fraud liability protectio program so you have a good uderstadig of your debit card s security. Some debit cards offer protectios similar to a credit card; so, if your debit card is lost or stole, you wo t be o the hook for fraudulet purchases. Some istitutios also offer debit cards that iclude photo ID to help esure o oe but you ca use your card. Payig by Credit Card Resposible use of a credit card ca be a safe ad easy way to build up your credit ratig. If you choose to make a purchase with a credit card, you ca avoid payig iterest o purchases by payig your bill i full each moth. You ca reduce the amout of iterest you pay o your purchases by payig more tha your miimum paymet each moth. May credit cards come budled with rewards programs that allow you to ear poits that are redeemable for thigs like travel ad merchadise. There are also cash-back credit card programs that allow you to ear a certai percetage of moey back for each purchase you make with the 7Fiacial Educatio

14 8Fiacial Educatio card. The ability to ear poits or cash back o purchases may make usig your credit card the right choice for some trasactios. Some credit cards offer a certai amout of protectio o purchases. For example, some credit cards provide protectio if you buy merchadise that turs out to be defective. May credit cards also come with fraud liability protectio, meaig the card provider wo t hold you resposible for fraudulet charges o your card as log as you report them promptly. Time to Take Actio You are the oe who makes the decisio whether cash, debit or credit (or a combiatio) best suits your lifestyle ad habits. Carefully cosider the beefits of each paymet method before makig a purchase. Decidig your paymet methods ahead of time ca help you keep better track of your moey, ad you wo t be stumped at the checkout lie whe the cashier asks cash, debit or credit.

15 Fiacial Products Isurace Havig the right isurace coverage provides critical fiacial security for you ad your family. Below is a list of isurace coverages that you may be required to purchase or should cosider purchasig to provide you with the security you eed. Coverage you may be required to purchase: Auto Isurace No-fault automobile isurace is required by law i Michiga. Every car ower must buy certai basic coverages i order to register a motor vehicle i Michiga. It is agaist the law to drive, or let your car be drive, without o-fault isurace. The madatory o-fault policy has three parts: Persoal Ijury Protectio (PIP), Property Protectio Isurace (PPI), ad Residual Liability Isurace. The PIP portio of your policy pays for ecessary care if you are hurt i a auto accidet. PIP represets a sigificat portio of the premium you pay for your policy. Your premium may be reduced if you desigate your health or disability coverage to pay first for ay auto accidet ijuries. This is referred to as coordiatio. However, you may ot coordiate PIP coverage with Medicaid, Medicare or a Medicare supplemet isurace policy. If you are age 65 or older, the law requires a compay to offer you a reduced premium if you drive your vehicle less tha 3,000 miles per year. A retired perso age 60 or over, who does ot have icome from work, must also be offered the optio to waive coverage for PIP work loss beefits. Doig so will reduce your premium but will ot elimiate the coverage altogether. This is because your auto isurace policy covers others who may be ijured i a accidet ivolvig your auto. PPI will pay up to $1 millio for damage your vehicle does i Michiga to other people s property, such as buildigs ad feces. This coverage will also pay for damage your car does to other people s properly parked vehicles. The o-fault law protects isured persos from beig sued as the result of a automobile accidet, except for certai special situatios. The Residual Liability Isurace - Bodily Ijury ad Property Damage (BI/PD) portio of your policy will pay up to your coverage limits if you are foud legally resposible for damages as the result of a auto accidet i these situatios: You cause a accidet i Michiga i which someoe is killed or seriously ijured. You are ivolved i a accidet i Michiga with a o-residet who is a occupat of a motor vehicle ot registered i Michiga. You are ivolved i a accidet i a state other tha Michiga. The miimum limits of BI/PD coverage that everyoe must purchase are: $20,000 per perso who is hurt or killed i a accidet $40,000 for each accidet if several people are hurt or killed $10,000 for damage your vehicle does to property i aother state These miimum limits are ofte referred to as 20/40/10. Courts sometimes award more tha these amouts. If this happes, you would be resposible for payig the amout ot covered by your policy. To protect themselves, may people purchase higher limits of liability coverage. 9Fiacial Educatio

16 Fiacial Educatio Some optioal auto isurace coverages you may wish to cosider are: Collisio Isurace, Comprehesive Isurace, Uisured ad Uderisured Motorists, Limited Property Damage (or Mii- Tort ) Coverage, Auto Retal, Road Service, ad additioal higher liability limits. Should you wish to place the vehicle i storage, you may be able to purchase a comprehesive oly policy ( storage policy ). However, ot all compaies will offer this coverage. Because isurace compaies do ot all use the same characteristics to group idividuals for ratig purposes, the cost of isurace ca vary cosiderably betwee compaies. You should shop aroud ad compare policies amog differet isurace compaies i order to make sure you are receivig the best rate ad product for your idividual eeds. DIFS has created a guide, Your Guide to Automobile Isurace, to help cosumers better uderstad automobile isurace. This publicatio ca be foud at or requested by cotactig DIFS toll-free at Motorcycle Isurace Motorcyclists are oly required to purchase liability coverage, which protects motorcyclists agaist liability for property damage, bodily ijury or death suffered by aother perso arisig out of the use of a motorcycle. If a motorcyclist is ivolved i a accidet with a isured motor vehicle i Michiga, the isurace compay of the motor vehicle will pay medical beefits for the ijuries of the motorcyclist, regardless of who was at fault i the accidet. Each isurer who writes motorcycle coverage must offer medical beefits coverage. This medical beefits coverage provides beefits to a motorcyclist if they are ijured i a motorcycle accidet whe o other isurace coverage is available. Medical beefits coverage is ot madatory, ad a motorcyclist has the optio of choosig whether to purchase this type of coverage. Home Isurace (icludig Reters Isurace) Home isurace protects your house ad your possessios. While ot required by law, it is geerally required by the leder if you have a mortgage or loa o your property. A home isurace policy will also provide liability coverage agaist accidets i the home or o the property. Reters isurace will replace your persoal property that might be stole, damaged, or lost i a fire, as well as provide liability coverage for accidets. However, reters isurace will ot provide dwellig protectio for the retal uit, ulike a home isurace policy. Typically, there is a cosiderable differece i cost betwee a home isurace ad a reters isurace policy. Isurace compaies offer differet types of home ad reters policies to fit the idividual eeds of Michiga citizes. You should talk to your aget about the differet policies offered to verify the product you are receivig will meet your eeds. I additio, because isurace compaies do ot all use the same characteristics to group idividuals for ratig purposes, the cost of isurace ca vary cosiderably betwee compaies. You should shop aroud ad compare policies amog differet isurace compaies i order to make sure you are receivig the best rate ad product for your idividual eeds. DIFS has created Your Guide to Homeowers Isurace to assist cosumers with shoppig. This publicatio ca be foud at or requested by cotactig DIFS toll-free at Health Isurace Health isurace is a type of isurace coverage that pays for medical ad surgical expeses that are icurred by you ad your family members. Health isurace ca either reimburse you directly for expeses icurred from illess or ijury or pay the healthcare provider directly. There are several types of health isurace policies ad health care plas with may differet features that are available to cosumers i Michiga. Cosumers may get health coverage through: a employer; a govermet 10

17 program like Medicare or Medicaid; purchasig coverage directly from a health isurace compay; or purchasig coverage through the Health Isurace Marketplace. Uder federal law, idividuals who do ot have health coverage will be required to pay a federal tax pealty. Cosumers who curretly have coverage through Medicare, Medicaid, the Healthy Michiga Pla or a employer, are cosidered covered ad will ot pay a federal tax pealty. More iformatio o health isurace ca be foud o the DIFS website at Medicaid Medicaid is a federal program admiistered by the states that provides health coverage to those meetig certai icome requiremets: pregat wome, people with disabilities, people i eed of ursig home care ad others. Depedig o your icome, Medicaid may provide assistace with certai Medicare costs or home ad commuity-based health care services. For more iformatio, please visit or call your local Michiga Departmet of Huma Services office (DHS). For assistace i fidig your couty DHS office, call Fiacial Educatio Some Michiga residets may be eligible for the Healthy Michiga Pla, a ew health coverage program that bega o April 1, To be eligible for the Healthy Michiga Pla, you must be: Ages Not curretly eligible for Medicaid Not eligible for or erolled i Medicare Not pregat whe applyig for the Healthy Michiga Pla Earig up to 133% of the federal poverty level (The federal poverty level is adjusted aually. I 2013, 133% of the poverty level for a idividual was $14,856 or $30,657 for a family of four) A residet of Michiga For more iformatio, visit or call Medicare Medicare is the federal health isurace program for people who are 65 or older, certai youger people with disabilities, ad people with Ed-Stage Real Disease (sometimes called ESRD). Medicare has two mai parts: Part A (Hospital Isurace) ad Part B (Medical Isurace). Part A covers ipatiet hospital stays, care i a skilled ursig facility, hospice care, ad some home health care. Part B covers certai doctors services, outpatiet care, medical supplies, ad prevetive services. There are two mai ways to get your Medicare coverage - Medicare (Part A ad Part B) or a Medicare Advatage Pla (Part C). Oce you decide if you wat Medicare or a Medicare Advatage Pla, the you eed to decide if you wat to purchase prescriptio drug coverage (Part D) or a Medicare supplemet isurace policy (Medigap). More iformatio o these policies is provided below. You ca lear about all of your Medicare coverage choices, whe your Medicare coverage will start, ad other steps to help you decide how to get your coverage at or call the Michiga Medicare Medicaid Assistace Program (MMAP) at to speak with a couselor. Visit MMAP s website for assistace at Medicare Supplemet ( Medigap ) A Medicare supplemet isurace policy, also called Medigap, is health isurace that s desiged to supplemet Medicare. It helps to pay some of the health care costs that Medicare does t cover 11

18 Fiacial Educatio (referred to as gaps ), such as copaymets, coisurace, ad deductibles. You must have Part A ad Part B to buy a Medicare supplemet policy. The best time to buy a Medicare supplemet policy is durig your ope erollmet period. This period lasts for 6 moths ad begis o the first day of the moth i which you are 65 or older ad erolled i Medicare Part B. For more iformatio o Medicare supplemet plas, visit or Medicare Advatage (MA) Plas Medicare Advatage plas are offered by private compaies approved by Medicare. Medicare Advatage plas are solely uder the authority of the Ceter for Medicare ad Medicaid Services (CMS), a federal agecy. These plas are sometimes called Part C or MA Plas. Medicare Advatage plas actually replace Medicare coverage (Part A ad Part B) as these plas provide all of the same coverage except for hospice care. They are ot Medicare supplemet policies eve though they cover may of the same beefits as Medicare supplemet policies. For this reaso, idividuals do ot eed both a Medicare Advatage pla ad Medicare supplemet pla. You may oly eroll, switch or drop a Medicare Advatage pla durig certai times of the year. Oce erolled i a Medicare Advatage pla, you must stay erolled for the caledar year startig the date your coverage begis. There are limited circumstaces durig which you may be able to chage your coverage. For more iformatio, call MEDICARE ( ) or visit Medicare Advatage plas may require you to use doctors that are withi the pla s etwork of providers ad may require differet copaymets, coisurace ad deductibles tha Medicare. They may also offer extra coverage, icludig visio, hearig or detal coverage. May iclude Medicare Prescriptio Drug coverage. Medicare Advatage plas iclude: Health Maiteace Orgaizatio Plas (HMO) Private Fee-for-Service plas (PFFS) Preferred Provider Orgaizatio Plas (PPO) Special Needs Plas (SNP) Medicare Prescriptio Drug Pla (Part D) Prescriptio drug coverage is available to everyoe with Medicare ad is offered by Medicare Prescriptio Drug plas or Medicare Advatage Plas. Medicare Prescriptio Drug plas are solely uder the authority of the Ceter for Medicare ad Medicaid Services (CMS), a federal agecy. Health carriers will offer a variety of optios, with differet covered prescriptios, ad differet costs. Medicare Prescriptio Drug plas are volutary. If you wat prescriptio drug coverage uder Medicare, you must choose a pla offerig the coverage that best meets your eeds ad the eroll. You may oly joi, switch or drop Medicare Prescriptio Drug coverage durig certai times. Oce erolled, you geerally must stay erolled for the caledar year startig the date your coverage begis. If you have retiree health coverage, or are covered uder a employee group health pla, watch for ay iformatio that is set by the employer. You may or may ot have to make chages to your pla. If you do ot uderstad the iformatio you receive from your curret or former employer, cotact the compay s huma resources departmet or use the cotact umber provided o ay writte commuicatio you receive. Medicare Prescriptio Drug plas will charge a mothly premium that varies by pla. This premium is i additio to the Medicare Part B premium. Medicare Advatage Plas that iclude prescriptio drug coverage may iclude a amout for the prescriptio drug coverage i their mothly premium. 12

19 Medicare Prescriptio Drug plas may have yearly deductibles that must be met before the pla begis to pay its share of your covered drugs. They may also have copaymets ad coisurace that must be paid after the deductible has bee met. Medicare Prescriptio Drug plas also have a coverage gap commoly kow as the dout hole. This meas after you ad your Medicare Prescriptio drug pla have spet a certai amout of moey, you the have to pay all of the out-ofpocket costs for your prescriptios up to a yearly limit. Federal law will reduce the coverage gap i Medicare Prescriptio Drug plas over the ext te years. There are additioal savigs each year i the coverage gap through 2020 whe the coverage gap will be elimiated. You ca visit our website at where you will fid our publicatio Michiga Cosumer Guide to Health Isurace with more iformatio o health isurace. For more iformatio o prescriptio drug plas, visit ad look for the followig publicatios: Guide to Medicare Prescriptio Drug Coverage Thigs to Thik About Whe You Compare Medicare Drug Coverage Closig the Coverage Gap-Medicare Prescriptio Drugs Are Becomig More Affordable Fiacial Educatio Or, call MEDICARE ( ) for Medicare ad prescriptio drug coverage iformatio. If you eed help makig health beefit decisios, couselors are available at the Michiga Medicare Medicaid Assistace Program (MMAP) by callig Coverage you may cosider purchasig: Life Isurace Life isurace provides moey to a beeficiary after a isured perso passes away. There are differet types of life isurace icludig: term, whole, ad uiversal life. Term life covers a idividual for a certai time period or to a certai age. Whole life isurace provides lifetime coverage at a premium that does ot icrease after you buy it. Uiversal life isurace has premium paymets ad death beefits that are flexible. You ca chage the amout ad frequecy of your paymets ad/or death beefit after buyig. As you age, the policy s cost of isurace icreases. It is importat to discuss your eeds ad policy questios with your isurace aget. Additioal iformatio regardig life isurace ca be viewed uder Publicatios ad Guides at Log-Term Care Isurace Log-term care isurace policies provide beefits for home health care, respite care, hospice, ad adult day care. Care may be received i a ursig home, assisted livig facility, hospice facility, or i your ow home. Rather tha pay for those expeses etirely out of pocket, log-term care isurace ca cover a major portio or eve all of those costs. To receive beefits from the policy, you have to meet the policy s criteria, typically defied as ot beig able to perform two or more activities of daily livig (eatig, bathig, dressig, toiletig, cotiece, ad trasferrig). To order a free copy of A Buyer s Guide to: Log-Term Care Isurace published by the Natioal Associatio of Isurace Commissioers, please visit or call Additioal iformatio regardig log-term care isurace ca be viewed uder Publicatios ad Guides at 13

20 Fiacial Educatio Travel Isurace No isurace policy ca prevet the uexpected from ruiig your vacatio, but isurace ca provide you the optio of recoverig some of the moey you might otherwise lose due to uforesee problems. However, it is importat to read a copy of the policy closely. The isurace policy may exclude cacellatios which result from pre-existig medical coditios. By readig the policy, icludig the small prit, you ca verify if the policy covers most of your worst-case scearios. Trip cacellatio policies cotai a laudry list of covered reasos or amed perils. If your reaso is ot o that list, your claim will be deied. Fialize your itierary before buyig the policy, as itierary chages you make may affect coverage. You may also wat to check the coverage of your existig homeower, auto ad medical policies. If your health isurace does t cover you overseas, ad Medicare geerally does ot, the you probably eed medical travel isurace. To fid out if a isurace compay, agecy, or aget is licesed, or if you have other isurace questios, please cotact DIFS toll-free at or visit the website at 14

21 Kow What You Are Gettig Whe You Buy a Auity A auity is a fiacial product sold by a isurace compay. It ivolves a cotract betwee you ad the isurace compay that outlies the terms ad coditios of the auity. Auities are geerally used to accumulate tax-deferred savigs uder which you make a lump-sum paymet, or series of paymets, to the isurace compay. I retur, the isurer agrees to make periodic paymets to you begiig immediately or at a future date. This sectio will provide you with iformatio o various auity products ad what you should kow before buyig a auity. Thigs to Cosider Whe Buyig a Auity May isurace compaies offer auity products, ad the auity offerigs betwee isurace compaies ca be quite differet. The fiacial stregth amog isurace compaies ca be quite differet, too. So a importat first cut i evaluatig a auity is the fiacial stregth of the issuig compay. Compaies such as Stadard & Poor s ad AM Best provide idepedet ratigs o the fiacial stregth of isurace compaies. These ratigs are available through the isurace compay or through a fiacial services provider. Fiacial Educatio Auities are typically purchased through a fiacial services provider who is licesed ad registered to sell auities ad other isurace-related products. They are cosidered experts o the auity products they recommed ad sell to their customers. The followig are types of auity products: Fixed-Rate Auity The isurace compay agrees to pay the cotract holder o less tha a specified rate of retur for a pre-determied period. Idexed Auity The isurace compay credits the cotract holder with a retur that is based o chages i a idex, such as the S&P 500 Idex. Idexed auity cotracts also provide that the cotract value will be o less tha a specified miimum, regardless of the performace of the uderlyig idex. Variable Auity A variable auity offers sub-accouts or mutual fuds through which the cotract holder ca ivest i the stock ad bod markets. The rate of retur, ad the value of the auity, are variable ad depedet upo the performace of the uderlyig ivestmets selected. Variable auities are securities ad are regulated by the Securities ad Exchage Commissio (SEC). Costs ad Paymets Auities are geerally used to accumulate tax-deferred savigs uder which you make a lumpsum paymet, or series of paymets, to the isurace compay. This is ofte referred to as the accumulatio phase. I retur, the isurer agrees to make periodic paymets to you begiig immediately or at a future date. This process is referred to as auitizatio: the process of covertig your auity ito a series of periodic icome paymets. There are differet optios for how log paymets will cotiue: 1. Auity Certai - A optio i which you receive paymets for a certai period; for example, 10, 15 or 20 years. If you die prior to the edig of the period, your beeficiary(ies) will receive paymets util the paymet term eds. 15

22 Fiacial Educatio 2. Life Auity - Uder the Life Auity, you have four pay-out optios: Straight Life pays util you die; Life Auity with Period Certai - pays util you die or for a specified time period, whichever is loger Life Auity with Refud - pays util you die. Your beeficiary(ies) are guarateed to get a portio of the moey the auitat paid ito the auity retured as a lump sum (as log as the amout paid out to the auitat did t exceed the paid-i amout); Life Auity with Joit ad Survivorship pays util the auitat dies ad the spouse cotiues to receive paymets util their death. You should ot auitize your auity without careful cosideratio. Oce you decide to auitize, you caot reverse your decisio. There is o flexibility to icrease or decrease the paymets or exted or shorte the legth of time paymets are made. You caot make ay lump-sum withdrawals either. Attributes ad Beefits The geeral attributes (features) ad beefits of auities iclude: guaratee of pricipal, tax deferral, death beefits ad icome beefits. These beefits are referred to as riders that brig additioal costs to the cotract. As a result, auities typically carry higher overall expeses tha do mutual fuds, for example. Auities also carry surreder charges that ca last for several years. Types of Auities There are three types of auities: fixed, variable ad idexed. The followig describes the fuctioality of each: I a fixed-rate auity, the isurace compay agrees to pay the cotract holder o less tha a specified rate of retur for a pre-determied period. Variable auities offer sub-accouts or mutual fuds through which the cotract holder ca ivest i the stock ad bod markets. The rate of retur, ad the value of the auity, are variable ad depedet upo the performace of the uderlyig ivestmets selected. Variable auities are securities ad are regulated by the SEC. I a idexed auity, the isurace compay credits the cotract holder with a retur that is based o chages i a idex, such as the S&P 500 Idex. Idexed auity cotracts also provide that the cotract value will be o less tha a specified miimum, regardless of the performace of the uderlyig idex. Is a Auity Right for You? Oly whe you are fully iformed about the auity s features ad beefits, the costs of the beefits or riders, all other fees ad expeses, the liquidity provisios ad the surreder charges, are you prepared to aswer the questio of whether a auity is right or ot right for you. Use the checklist to help you decide. 16

23 Auity Checklist First, cotact DIFS, the isurace regulator for the state of Michiga, ad cofirm the followig: The isurace compay is registered ad licesed with DIFS. The isurace product beig recommeded is registered with DIFS. The solicitig aget/advisor is registered with DIFS ad has the proper liceses to sell isurace products i Michiga. Secod, ask your fiacial services provider to provide you with followig details: Cofirm the fiacial ratig of issuig isurace compay Kow the auity s features, beefits ad caveats Fixed auity: Kow the floor or guarateed miimum iterest rate Fiacial Educatio Fixed auity: Kow how ad whe the ew rate is declared ad the terms Variable auity: Evaluate the diversity of the sub-accout optios ad performace Idexed auity: Kow the participatio rate or cap rate Kow the total aual maagemet fees by percetage ad all other expeses ad rider costs Kow the tax treatmet for accumulated growth ad o withdrawals Kow the legth of the cotract (i years) Kow the year-by-year surreder charges Kow the terms for pealty-free withdrawals Completig the auity checklist requires gatherig a lot of iformatio ad kowig the meaigs of a lot of terms. Make it the resposibility of the provider recommedig the auity to provide you with the iformatio ad explaatios ecessary for completig this checklist. You oly eed to the get iformatio, ot do the work. Remember, oe of the purposes of a checklist is to esure that iformatio you gather, or that is provided to you, is complete ad to a explicit level of detail so that you ca make iformed decisios. Oe last thig to do, ask the fiacial services provider recommedig the auity the followig questio: I recogitio of all the other types of ivestmets ad combiatios of ivestmets available to me, why is this auity a suitable choice for me? Get the aswer i writig. 17

24 Fiacial Educatio Prepaid Fueral Cotracts A prepaid fueral cotract is a legal agreemet which requires paymet i advace for fueral services, cemetery services or merchadise ad the physical delivery ad retetio of which would occur after death. You ca pay for the cotract outright, through a isurace policy, or by a ivestmet that you ow. A prepaid fueral cotract ca be fuded by a trust or by isurace. The seller may offer oe or both of the followig fudig types: For a trust-fuded prepaid fueral cotract where paymets are placed i a approved iterestbearig restricted bak accout or formal trust accout to pay for the future cost of the selected fueral goods ad services. Paymets o the cotract are made to the seller. For a isurace-fuded prepaid fueral cotract where paymets are used to purchase a isurace policy or auity to pay for the future cost of the selected fueral goods ad services. Paymets are ot made to the seller but to the isurace compay that is fudig the cotract. Before purchasig a prepaid fueral cotract, you should: Fid out if the fueral home is properly licesed, has a good reputatio, ad is fiacially stable. Not all fueral homes have a licese to sell prepaid cotracts. Ask family ad frieds for a recommedatio. Shop aroud ad iterview several fueral homes. To verify a fueral home or fueral director s licese, ad to check for discipliary actio, you may cotact the Corporatios, Securities, ad Commercial Licesig Bureau at: Be prepared. Whe you visit or call a fueral home, the persoel may try to sell you a cotract. Have a checklist ready of items you wat for your fueral ad ay questios you may have. Take a trusted idividual whe you visit each fueral home ad ask that perso to take otes for you. Make sure all of your questios are sufficietly aswered. Obtai a writte explaatio of exactly how your moey will be protected i each trasactio ad whether the pre-eed cotract is guarateed, revocable, refudable, trasferable, ad portable. After purchasig a prepaid fueral cotract, you should: Be sure to tell your family about the plas you ve made. Give a copy of your cotract to someoe you trust, such as a relative, fried, lawyer, or doctor. Keep the origial cotract with your importat documets. If you live at a ursig home or hospital, give the facility a copy of your cotract. Prepaid Fueral Cotracts ad Medicaid Buyig a fueral cotract ad/or burial plot ca help you sped dow your assets to qualify for Medicaid. Sice Medicaid does ot cout prepaid irrevocable fueral cotracts that cost less tha $5,400 as a asset, you may wat to buy a irrevocable cotract which caot be caceled or refuded. However, the irrevocable cotracts are usually trasferable, i the evet you decide to trasfer to a differet fueral home. Note: A fueral cotract is differet tha burial isurace, which is usually cosidered a asset. Cosult your estate plaig professioal for more iformatio o the differeces betwee prepaid cotracts ad burial isurace. 18

25 Your Rights Uder the FTC Fueral Rule The Fueral Rule is eforced by the Federal Trade Commissio (FTC) ad icludes the followig: Buy oly the fueral arragemets you wat. You do ot have to accept a package that icludes items you do ot wat. Obtai price iformatio o the telephoe. Fueral directors must give you price iformatio o the telephoe if you ask for it. Although the Rule does ot require them to do so, they ca mail their price list or post the price list olie. Obtai a writte, itemized price list whe you visit a fueral home. The fueral home must give you a Geeral Price List (GPL) that is yours to keep. It lists all the items ad the services the fueral home offers ad the cost of each. Ask to see the casket price list before you see the actual caskets so that you ca ask about the lower-priced products that may ot be o display. Fiacial Educatio Ask to see the outer burial cotaier (vault) price list. Outer burial cotaiers are ot ecessarily required by state law, but may cemeteries require them to prevet the grave from collapsig. If the fueral home sells cotaiers, but does ot list its prices o the GPL, they are required to have a separate cotaier price list. Ask for a writte statemet of fueral goods ad services after you decide what you wat but before you pay. The statemet should show exactly what you are buyig ad the cost of each item. The Rule requires the fueral home to provide a writte statemet that explais ay legal cemetery or crematory requiremet that requires you to buy ay fueral goods or services. Use a alterative cotaier istead of a casket for crematio. No state or local law requires the use of a casket for crematio. A fueral home that offers crematios must tell you which alterative cotaiers are available. Cotaiers may be made of ufiished wood, pressed wood, fiberboard, or cardboard. Provide the fueral home with a casket or ur you buy elsewhere. The fueral provider caot refuse to hadle a casket or ur you bought olie, at a local casket store, or somewhere else. Also, it caot charge you a additioal fee to use a casket or ur you bought elsewhere. The fueral home caot require you to be there whe the casket or ur is delivered. For more iformatio o your rights uder the FTC Fueral Rule, visit the website at 19

26 Fiacial Educatio Fueral Pricig Checklist Make copies of this page ad visit several fueral homes to compare costs. Name of fueral home: Date visited: Simple dispositio of the remais (usually oly available if the body is expected to reach its fial restig place withi 48 hours after death; ask the fueral home for more iformatio): Immediate burial Immediate crematio If the crematio process is extra, how much is it? Doatio of the body to a medical school or hospital Traditioal, full-service burial or crematio: Basic services fee for fueral director & staff Pickup of body Embalmig Other preparatio of body Least expesive casket Descriptio, icludig model # Outer burial cotaier (vault) Descriptio Visitatio/viewig-staff & facilities Fueral or memorial service-staff & facilities Graveside service, icludig staff ad equipmet Hearse Other vehicles Total Other services: Forwardig body to aother fueral home Receivig body from aother fueral home Cemetery/mausoleum costs: Cost of lot or crypt (if oe is ot owed) Perpetual care Opeig ad closig the grave or crypt Grave lier (if required) Marker/moumet (icludig setup) 20

27 Mortgages A mortgage loa is a loa that a bak or leder gives you to help fiace the purchase of a house. The house you buy acts as collateral i exchage for the moey you are borrowig to fiace the mortgage for a house. A mortgage paymet is composed of four parts: pricipal, iterest, taxes ad isurace. It is ormally paid o a mothly basis. Pricipal Pricipal is the total amout of moey you borrowed to buy the home (if you have a $150,000 mortgage loa, the begiig pricipal balace is $150,000). Iterest Iterest is the price you pay to borrow moey from your leder. Taxes Taxes are the property taxes you pay as a homeower. They are typically calculated based upo the value of your house. Isurace Isurace icludes homeowers isurace ad could iclude mortgage isurace. You are required to get homeowers isurace by your leder to cover your house. If your dow paymet is less tha 20%, you will have to pay mortgage isurace which protects the leder if you default o your mortgage loa. Fiacial Educatio May leders set up a escrow accout for the collectio ad disbursemet of property taxes ad isurace. While the accout is created ad maitaied by the leder, it is fuded by the borrower. Choosig the right type of mortgage is oe of the most importat fiacial decisios you will eed to make. Listed below are the most commo types of mortgages. Covetioal Mortgage (Fixed Rate): A mortgage where the *iterest rate remais the same throughout the life of the mortgage. (Your mothly paymet may icrease or decrease if your loa icludes a **escrow accout because the escrow portio of your paymet is based o your curret taxes ad isurace costs ad/or ay advaces or deficiecies.) Adjustable Rate Mortgage (ARM): A mortgage that geerally offers a lower iitial rate or iterest rate tha fixed rate mortgage loas. After the iitial period, rates fluctuate over the life of the loa. FHA (Federal Housig Agecy) Mortgage: This type of loa ca be either a fixed rate or a adjustable rate mortgage. Borrowers are required to pay Mortgage Isurace Premium (MIP, see below) for this loa which provides the leder govermet protectio i the evet that the borrower defaults o the loa. The dow paymets associated with these types of loas are typically much lower tha a Covetioal Mortgage; however, the maximum amout of the loa may be limited. Iterest Oly: This type of loa allows the borrower to pay oly the iterest due o the loa, i mothly paymets for a fixed term. Durig this term, the pricipal balace remais uchaged. After the fixed term, the balace of the loa is due i full, or pricipal paymets may be required i additio to the iterest paymet creatig a much higher mothly paymet. Balloo Mortgage: A mortgage that usually icludes a fixed rate with relatively low paymets for a fixed period of time. At the ed of the fixed period, the etire balace of the loa is immediately due. VA Loas: These types of mortgages are exclusive to eligible veteras, active duty persoel ad survivig spouses. These loas offer competitive iterest rates, with low or o dow paymet because they are isured agaist loss by the Veteras Admiistratio. Secod Mortgage: A secod mortgage is a secod lie o a property (that is already secured by mortgage, ad/or first lie). May times secod mortgages are a Home Equity Loa or a Home Equity Lie of Credit (see below). Your home s equity is the differece betwee what you curretly owe o your home (ay existig mortgages) ad what your home is worth (usually determied by a appraisal). 21

28 Fiacial Educatio A Home Equity Loa provides the total amout borrowed to the borrower at oce, i a lump sum paymet. Home Equity Loas are typically offered with a fixed iterest rate, meaig the iterest rate will ot icrease or decrease over time. These loas are commoly repayable over five to 10 years, ad iclude a fixed mothly paymet. A Home Equity Lie of Credit, also kow as a HELOC, provides a set loa amout which ca be borrowed all at oce, or may be withdraw i icremets as eeded (similar to a lie of credit). Typically, the iterest rate for a HELOC is variable, meaig it ca icrease or decrease over time. The mothly paymet will deped o the iterest rate ad the outstadig pricipal balace. Reverse Mortgage: A loa that is oly offered to a borrower that is 62 years of age or older. This loa allows borrowers to covert the equity i their home to cash. You do ot have to pay back the loa ad iterest as log as you are livig i the house (but it must be paid back whe the property is sold, the borrower moves out, or the borrower dies). More iformatio o these types of mortgages ca be foud o a separate page i this toolkit. PMI (Private Mortgage Isurace) vs. MIP (Mortgage Isurace Premium): Covetioal mortgages have PMI ad FHA loas have MIP. PMI: Mortgage isurace provided by private mortgage isurace compaies for borrowers whe the dow paymet made is less tha 20% of the homes purchase price. This isurace is paid by the borrower, but beefits the leder, as it protects the leder agaist loss if the borrower defaults. MIP: The upfrot ad/or periodic charges that the borrower pays for mortgage isurace (paid to the leder) i case of default. There are differet mortgage isurace plas differig combiatios of mothly, aual, ad upfrot premiums. Additioal iformatio about mortgage loas ca be foud att he followig sites: The Uited States Govermet ( or at The Cosumer Fiacial Protectio Bureau ( or at The Mortgage Ecyclopedia, by Jack Guttetag ( Bakrate.com ( 22

29 Reverse Mortgages A Reverse Mortgage is a special type of loa sold to homeowers age 62 years ad older. This type of loa allows homeowers to access a portio of their home equity as cash; you receive moey from the leder, rather tha makig paymets to the leder. There are three differet types of reverse mortgages: 1. Sigle-Purpose Reverse Mortgages are offered by some state ad local govermet agecies ad oprofit orgaizatios. This is the least expesive optio. They are ot available everywhere ad ca oly be used for oe purpose, which is specific to the govermet or the oprofit leder. Examples of this would be home repairs ad/or improvemets or property taxes. Most homeowers with low or moderate icome ca qualify for these loas. 2. Federally-Isured Reverse Mortgages are also kow as Home Equity Coversio Mortgages (HECMs) ad are backed by the U.S. Departmet of Housig ad Urba Developmet (HUD). HECMs may be more expesive tha traditioal home loas ad the upfrot costs ca be high. This is very importat to cosider, especially if you pla to stay i your home for a short period of time or borrow a small amout. HECM loas are widely available ad have o icome or medical requiremets, which meas they ca be used for ay purpose. You must meet with a govermetapproved housig couselor before applyig for this type of loa. Fiacial Educatio 3. Proprietary Reverse Mortgages are private loas that are backed by the compaies that develop them. Just like HECMs, these loas ca be expesive ad ca be used for ay purpose. How much you ca borrow depeds o your age, the value of the property, the curret iterest rates, ad the type of reverse mortgage you choose. Before you take out a reverse mortgage, you should be aware of your payout optios: Lie of Credit is whe you pay oly the iterest o moey you use. The amout of moey available to you grows over time. Mothly Payout ca be a good choice if you eed additioal mothly icome to cover daily livig expeses. The amout of moey available to you grows over time. Note: You ca chage your mothly paymet optio at ay time for about $20. Lump Sum is where you take the whole amout of moey at oce. This ca be risky because you will pay iterest o all of the fuds, eve if you do ot eed them. Combiatio of Mothly Paymets ad a Lie of Credit is a combiatio of mothly paymets ad a lie of credit. Reverse Mortgage loas are otaxable ad, geerally, do ot affect your Social Security or Medicare beefits. You retai the title to your home without makig mothly paymets. These loas must be repaid whe the last survivig borrower dies, sells the home or o loger lives i the home as a pricipal residece. I the HECM program, a borrower ca live i a ursig home or other medical facility for up to 12 cosecutive moths before the loa must be repaid. If you are cosiderig a reverse mortgage, you should shop aroud. For more iformatio o this topic, cotact the AARP to obtai a copy of the Reverse Mortgage Loas, Borrowig Agaist Your Home guide or visit the followig sites: AARP FTC or CFPB or 23

30 Fiacial Educatio Deferred Presetmet Payday Loas A Deferred Presetmet Service Trasactio (ofte referred to as a payday loa) is a trasactio where a customer borrows moey for a service fee. No iterest is charged o this trasactio. The borrower writes a persoal check payable to the leder for the amout the perso wats to borrow, plus the fee they must pay for borrowig. The compay gives the borrower the amout of the check less the fee, ad holds the customer s check for a period of time (typically the ext payday) before presetmet to the customer s bak, hece the ame deferred presetmet. A payday loa ca be a very expesive form of credit if you are ot careful. Payday loas are ot iteded to meet log-term fiacial goals. Uder Michiga law, you ca have two payday loas ope at ay oe time, but ot more tha oe loa with the same payday leder. The maximum payday loa you ca receive is $ The service fee caot exceed the aggregate of: 15% for the first $100.00, 14% for the secod $100.00, 13% for the third $100.00, 12% for the fourth $100.00, 11% for the fifth $100.00, ad 11% for the sixth $ For a loa i the amout of $600, a service fee i the amout of $76 may be charged. The table below breaks dow the fee: 15% for the first $100 14% for the secod $100 13% for the third $100 12% for the fourth $100 11% for the fifth $100 11% for the sixth $100 For a $100 loa, the fee is calculated as: $15 For a $250 loa, the fee is calculated as: $15+$14+$6.50 = $35.50 For a $600 loa, the fee is calculated as: $15+$14+$13+$12+$11+$11 = $76 The service fee is eared by the leder. All providers of Deferred Presetmet Service Trasactios must be licesed by the Departmet of Isurace ad Fiacial Services (DIFS) with the exceptio of state ad atioally chartered baks ad credit uios. To verify if a provider is licesed, log oto gov/difs or call Be careful of olie payday leders. These leders are typically ot licesed to do busiess i the State of Michiga ad geerally charge iterest rates well above the legal iterest rate limits allowed i the state. For further iformatio o payday loas, see the Deferred Presetmet Service Trasactios FAQ o the DIFS website at or call to obtai a copy. 24

31 Ivestmet Kowledge IRA ad 401(k) Overview IRAs ad employer-sposored retiremet plas are popular ways save for retiremet. Ad for those who qualify, there are some federal tax beefits for these types of retiremet savigs plas. Idividual Retiremet Accout (IRA) A IRA is ot a ivestmet. It s a accout type that allows for tax-deferred or tax-free growth o your retiremet savigs cotributios. You ca ope a IRA at a: Brokerage firm Mutual fud compay Isurace compay Bak or credit uio Fiacial Educatio Traditioal IRA Whether your IRA cotributio is tax-deductible depeds o three factors: 1. Your icome tax filig status 2. Your adjusted gross icome (AGI), ad 3. Whether you are covered by a retiremet pla with your employer For 2014, if you are covered by a retiremet pla with your employer, your IRA cotributio is fullydeductible if your tax filig status ad AGI is oe of the followig: Sigle or Head of Household with a AGI less tha $60,000 Married Filig Joitly with a AGI less tha $96,000 If your AGI falls withi the followig rage, your cotributio is partially deductible: Sigle ad Head of Household with a AGI betwee $60,000 ad $70,000 Married Filig Joitly with a AGI betwee $96,000 ad $116,000 If your AGI is more tha the rage listed above, the your cotributio is ot deductible. For 2014, a IRA cotributor who is ot covered by a retiremet pla at their place of employmet ad is married to someoe who is, the deductio is phased out if the couple s icome is betwee $181,000 ad $191,000. If both you ad your spouse are ot covered by a employer-sposored retiremet pla, the you ca take the full deductio up to the amout of your cotributio limit. Other Attributes: Savigs grow tax deferred Ivestmets iclude stocks, bods, mutual fuds, Exchage-Traded Fuds, CDs, ad so forth Withdrawals may begi at 59½ Madatory distributios after 70½ Taxes are paid o earigs whe withdraw 25

32 Fiacial Educatio No icome restrictios Fuds withdraw prior to 59½ are geerally subject to a 10% early withdrawal pealty ad icome tax 2014 cotributio limits: u 49 ad youger: $5,500 u 50 ad older: $6,500 10% Early Withdrawal Pealty Exemptios Permaet disability Death of the IRA ower Paymet of o-reimbursed medical expeses i excess of 7.5% of AGI First-time home purchase ($10,000 lifetime limit) Higher educatio costs Pay IRS back taxes after levy o IRA accouts Pay medical isurace premiums if uemployed loger tha 12 weeks Ower attais the age of 59½ Required Miimum Distributios (RMD) Madatory miimum aual withdrawals startig with the year the accout ower turs 70½ or, if later, the year of retiremet Rules apply to all employer-sposored retiremet plas ad all IRA-based plas icludig Traditioal, SEPs, Simple IRAs, etc. RMD is calculated for each IRA accout by dividig the prior December 31 st balace of the accout by a life expectacy factor published by the IRS Excess distributios for oe year caot be applied to the RMD for future years Roth IRA For 2014, the AGI phase-out is: Sigle ad Head of Household with a AGI betwee $114,000 to $129,000 Married Filig Joitly with a AGI betwee $181,000 to $191,000 Other Attributes: Savigs grow tax free Cotributios are ot tax deductible Ivestmets iclude stocks, bods, mutual fuds, Exchage-Traded Fuds, CDs, ad so forth No madatory distributio age Withdrawals 100% tax free if regulatios are followed 2014 cotributio limits: u 49 ad youger: $5,500 u 50 ad older: $6,500 26

33 Traditioal IRA vs. Roth IRA Thigs to cosider: Icome restrictios for cotributig to a Roth IRA Forecastig prevailig tax rates upo retiremet u Rates higher: Roth IRA u Rates lower: Traditioal IRA u Rates same: Neutral Tax diversify: Percetage of retiremet assets i a Traditioal IRA or 401k ad a percetage i a Roth IRA or 401(k) Roth IRA: Ability to withdraw cotributios (ot earigs) without icurrig a 10% early withdrawal pealty. Tax Rates ad Traditioal vs. Roth IRAs If tax rates remai costat, there is o differece i the et after tax future value of a Traditioal IRA ad a Roth IRA: Fiacial Educatio Traditioal IRA $10,000 Iitial ivestmet $19,672 Value after 10 years compoudig at 7% aually -$6,295 Assumig 32% combied state ad federal tax $13,377 Net value Roth IRA $10,000 Iitial ivestmet - $3,200 Assumig 32% combied state ad federal tax $6,800 Net ivestmet $13,377 Net value after 10 years compoudig at 7% aually 401(k) / Employee Defied Cotributio Pla Cotributios made through payroll deductio Savigs grow tax deferred Potetial for employer matchig cotributios Ivestmets limited to those selected by employer Portability Fuds withdraw prior to 59½ are subject to a 10% early withdrawal pealty ad icome tax Potetial for loas ad hardship withdrawals 2014 Cotributio limits: u 49 ad youger: $17,500 u 50 ad older: $23,000 27

34 Fiacial Educatio 401(k) Rollover Optios Three optios whe leavig your employer: Leave your assets i former employer s 401(k) pla Rollover your 401(k) to ew employer s 401(k) pla Rollover your 401(k) ito a IRA Two optios for movig 401(k) assets: Rollover: fuds distributed to accout holder ad trasactio is reported to IRS Trasfer: custodia to custodia trasfer ad is ot reported to IRS Premature Distributios Pealties from early distributio from 401(k) or IRA: 10% IRS premature distributio pealty Icome tax o distributed amout, example: $10,000 Early distributio - $1,000 Premature distributio pealty - $3,000 Icome tax $6,000 Net distributio Lost opportuity potetial: $10, years compouded at 8% aually* $20,989 Projected value *Rate of retur is hypothetical ad assumes a 8% compouded aual growth rate o $10,000. It does ot represet the expected retur for ay specific ivestmet. Early Withdrawals: Sectio 72(t) Distributios Available to participats i a 401k pla ad IRA accout holders Distributios must be substatially equal paymets based upo the life expectacy of the participat Paymets must cotiue for a period of 5 years or util the age of 59 whichever is loger Three methods of calculatig distributio: u Miimum Distributio Method u Fixed Amortizatio Method u Fixed Auitizatio Method 28

35 Retiremet Pla Distributio Optios Whe you leave your curret employer, whether it s because you are pursuig employmet elsewhere, retirig, or leavig the workforce to raise a family, you have a umber of distributio optios for your retiremet accout that may help you avoid immediate taxes or possible tax pealties. However, before you make ay decisios, you should seek the advice of a tax advisor or fiacial services provider to assist you with evaluatig your optios. I geeral, you have, basically, three optios: 1. Keep your retiremet pla accout 2. Roll it over ito a qualified IRA 3. If you re leavig your curret employer for employmet elsewhere, rollover your retiremet pla accout ito your ew employer s retiremet pla. Let s look at each optio: Fiacial Educatio Optio 1: Keep your retiremet pla accout Most retiremet plas allow you to keep your accout i the curret pla if it is above a certai amout. Check with your beefits departmet or your pla provider to see if your accout balace qualifies. Typically, you ll cotiue to have access to all of the pla s resources ad fuctioality. Keepig your retiremet pla accout is easy; you do t have to do much of aythig. But doig what is easy should t be the primary cosideratio. There are potetial advatages to just keepig your retiremet accout, for example: By desig, retiremet plas offer features ad beefits that are ofte uavailable outside of the pla. I may cases, retiremet plas offer istitutioal ivestmet optios that are t replicated i a retail versio outside of the pla. Ad i may istaces, the ivestmet optios withi your retiremet pla have lower expeses tha their idetical retail versios. Your retiremet pla fiduciary coducts thorough ad ogoig due diligece o all ivestmet optios offered withi the pla to esure that they cotiue to meet the criteria for iclusio. Your pla may iclude importat features, such as the ability to take loas. Examples like these may provide a justificatio for leavig a portio or all of your retiremet pla assets withi the pla. Optio 2: Roll it over ito a qualified IRA If you decided to rollover your retiremet pla ito a qualified IRA, it will be with outside fiacial istitutios like baks, credit uios, isurace compaies, mutual fud compaies, discout ad full-service brokerage firms, ad registered ivestmet advisers. IRAs are also available through your employer s retiremet pla provider. There are some potetial advatages ad disadvatages to rollig over your retiremet pla ito a IRA, such as: Advatages A self-directed IRA may provide access to ivestmet optios ot available i a retiremet pla. For example, idividual stocks, idividual bods, exchage-traded fuds (ETFs), ad some fiacial istitutios may each provide access to iitial public offerigs. IRAs may also allow you to pursue more specific or targeted ivestmet strategies, icludig the use of optios, ad may provide more uique or o-traditioal diversificatio opportuities tha those that are typically available i a retiremet pla. 29

36 Fiacial Educatio IRAs also provide more flexibility i amig beeficiaries. If you are married, the beeficiary of your retiremet pla accout, by law, must be your spouse uless you obtai a siged release. I certai circumstaces, havig flexibility i amig beeficiaries may be beeficial. Disadvatages Oe potetial disadvatage is expeses. Total expeses i a IRA have the potetial to be sigificatly higher tha those i your retiremet pla. Oe to two percetage poits higher are ot ucommo. Cross your figers that the returs o your IRA always make up for the higher expeses you re payig. Remember, this is your retiremet accout. Do t let it be treated like a brokerage or tradig accout. Havig more ivestmet optios by rollig over a retiremet accout ito a IRA may ot ecessarily be better. The ivestmet optios available i your retiremet pla were selected out of a large pool of ivestmet optios by your pla fiduciary. Oly by cotiually meetig a broad ad rigorous set of criteria do they remai i the pla. The fiacial services provider hadlig your IRA may ot be legally held to this stadard of care i the selectio ad moitorig of your ivestmets. Coflicts of iterest may also exist so use cautio. More ivestmet optios also preset the potetial for usuitable or fraudulet ivestmets beig sold to you. The cosequeces from this could be life-alterig. Optio 3: Rollover your retiremet pla accout ito your ew employer s retiremet pla For those of you who may leave your curret employer for employmet elsewhere, you may have the optio to roll over your retiremet pla ito your ew employer s retiremet pla. If you decide to do that, selectig this optio may deped o a umber of cosideratios: If your retiremet pla is your oly ivestmet accout, you may wat to cosider how the features ad ivestmet optios of your ew employer s pla compare to your curret pla. If, for example, your curret pla offers more ivestmet optios or a particular optio that is t available i your ew employer s pla, ad the fees ad expeses associated with your curret pla are acceptable to you, the keepig your retiremet pla i your curret pla may be the more beeficial choice. Coversely, if your ew employer s pla offers more optios or optios ot available i your curret pla, ad the expeses are comparable with those i your curret pla, the trasferrig your retiremet pla to your ew employer s pla may be the more beeficial choice. Aother potetial beefit to cosider i rollig your retiremet pla over ito your ew employer s pla is that uder certai coditios, you may be able to defer required miimum distributios if you re still workig at your ew place of employmet after you tur age 70½. A potetial dowside for rollig your retiremet pla ito a IRA is that the miimum age for takig pealty-free withdrawals is 59½ istead of 55 with a retiremet pla. If you, or you ad your spouse have other ivestmet accouts, aother way to cosider your optio is how the retiremet pla accout fits i with your other accouts. For example, which pla offers features or beefits more to your likig? Does the pla offer uique ivestmet optios that are uavailable i your other accouts? 30

37 While most employers allow ew employees to trasfer their retiremet pla accout from their previous employer, they may impose a waitig period before you ca trasfer, so it s importat to cofirm with your ew employer what the terms ad coditios are for trasferrig-i your retiremet pla accout. The fial cosideratio o decidig whether to trasfer your retiremet pla to your ew employer s pla is your preferece. If you prefer more flexibility, or the ability to pursue ivestmet strategies is typically ot available through a employer-sposored retiremet pla, the Optio 2, rollig your retiremet pla ito a qualified IRA, may be the more beeficial choice for you. I Coclusio Regardless of whether you trasfer your retiremet pla to your ew employer s pla, keep it i your curret pla, or roll it ito a qualified IRA, it s importat for you to cotiue makig regular cotributios durig your workig years ito a retiremet pla. Fiacial Educatio If you re cosiderig takig a pre-mature distributio from your retiremet accout, cautio is i order. Takig a distributio from your retiremet pla prior to age 55 may subject you to immediate taxes ad possible pealties. Also, if you are leavig your employer ad are ot immediately seekig ew employmet, ad you pla o rollig your retiremet pla ito a IRA, you may wat to cosider opeig a separate IRA specifically for your retiremet pla rollover ad ot commigle it with cotributory IRAs. The decisio o which retiremet pla distributio optio is more beeficial for you requires a careful ad thorough evaluatio of your persoal, professioal ad fiacial circumstaces that may go beyod what s covered i this sectio. Discussig your optios ad their potetial tax ad fiacial implicatios with a tax advisor or fiacial services provider may also be beeficial. 31

38 Fiacial Educatio Uderstadig Your Brokerage Accout Statemet Your brokerage accout statemet is the official documet for complete iformatio pertaiig to your accout s value, holdigs, ad activity. While accout statemets ca look differet from firm to firm, they all have this iformatio i commo. Accout iformatio Accout summary Icome Fees Accout activity Margi Portfolio detail Disclosures ad defiitios Brokerage firms are required to provide you with a statemet at least quarterly. If your accout has frequet activity, you may receive mothly statemets. As with bak accouts, most firms provide you with the optio to receive your statemet (ad other accout-related documets) either electroically or through the mail. Either way, you eed to uderstad the iformatio your accout statemet provides. Note: The brokerage firm you have your accout with may ot be the firm that geerates your accout statemet. Your brokerage firm may be a itroducig firm that takes orders from their customers ad the clears or settles the trades through a clearig firm. Clearig firms fialize trades ad hold the securities for the itroducig firm. Typically it is the clearig firm that geerates the accout statemet, ot the itroducig firm. To reduce the potetial of you beig defrauded through forged statemets, the Fiacial Idustry Regulatory Authority or FINRA requires that all brokerage accout statemets cotai the clearig firm s ame ad cotact iformatio. Accout Iformatio The accout iformatio sectio shows: The statemet reportig period Your accout umber Accout type Titlig o your accout Your address of record Accout ivestmet objective (optioal) Kowig your accout type is importat. Most brokerage firms offer at least two types of accouts. A Quick Course o Accout Types: A cash accout is geerally coded as a Type 1 accout ad a margi accout is typically coded as a Type 2 accout. These codes are explaied i the Disclosures ad Defiitios sectio of your statemet. I a cash or Type 1 accout you pay for your securities i full by the settlemet date (geerally three busiess days) either by depositig fuds or with proceeds from the sale of securities. I a margi loa accout or Type 2 accout, your brokerage firm ca led you fuds to pay for the securities beig purchased. The securities i your accout serve as collateral for the loa. This is called 32

39 buyig securities o margi. For example, if you purchase securities totalig $20,000 ad you pay $10,000 ad your brokerage firm leds you the other $10,000, the borrowed amout of $10,000 is your margi balace. Your brokerage firm charges iterest o this balace as with ay other type of cosumer loa. You are liable for the margi balace ad the iterest icurred. Most brokerage firms have a miimum equity requiremet before they allow you to trade o margi. The miimum amout is typically $5,000 to $10,000 depedig o the firm. Note: There are special risks with margi accouts that are ot associated with cash accouts. If the securities you purchased o margi declie sigificatly i value, ad the percetage ratio betwee the value of your securities ad your margi balace drops below the miimum ratio, you may be subject to a margi call or maiteace call. To cover the call, your brokerage firm will require you to deposit cash or securities ito your accout or sell securities i your accout to cover the call. Your brokerage firm ca, at their discretio, sell ay security i your accout to cover a margi call without otifyig you i advace. It s your resposibility to kow what type of accout your have. Cofirm with your fiacial advisor that your accout type (Type 1 cash accout or Type 2 margi accout) is appropriate for you. Fiacial Educatio May brokerage accout statemets show the ivestmet objective of the accout, for example Moderate Growth ad Icome or Log Term Growth. This iformatio is importat o two couts: 1. Allows you to re-cofirm that the ivestmet objective is cosistet with the purpose of the accout, e.g., grow the value of my accout over the log term or provide fuds durig my retiremet. 2. Cofirm that the securities listed i the Portfolio Detail sectio are cosistet with the ivestmet objective ad the ivestmet strategy. The accout iformatio sectio also shows: The ame of your brokerage firm Your fiacial advisor s ame Office address ad phoe umber, ad The clearig firm s ame, address ad phoe umber. (Required by FINRA) Accout Summary The accout summary sectio typically shows: Begiig accout value for the period (moth or quarter) Summary of accout activity icludig cash deposits, cash withdrawals, divideds ad iterest, fees charged, ad Closig accout value for the period. It may also iclude a pie chart ad a tabular summary of your accout s ivestmets by asset class or ivestmet type, e.g., mutual fuds or auities, ad the estimated aual icome geerated from your holdigs. Complete iformatio o the idividual ivestmets i your accout is provided i the Portfolio Detail sectio. Note: While a summarizatio of the begiig ad edig value of your accout is a quick ad coveiet way to see whether your accout was up or dow for the period, it may ot tell you whether the securities i the accout cotributed or detracted from the edig balace. A closig balace that is higher or lower tha the opeig balace may be the result of deposits or withdrawals, or from iterest ad divided paymets beig credited to the accout. The Portfolio Detail sectio 33

40 Fiacial Educatio of your statemet provides the edig value for each ivestmet ad the total value by asset class or ivestmet type i your accout. You, or you ad your broker/adviser, ca review the ivestmets ad their values i this sectio ad compare them with the previous period statemet. Accout Activity The categories of activity iclude: Credits ad debits Iterest ad divided icome Charges ad fees Trasfers ad jourals Securities trasactios May brokerage firms provide cosolidated iformatio o the accout s icome, credits ad debits i the accout summary sectio. As with a bak checkig accout, it is importat for you to recocile the flow of fuds ito, out of ad withi your brokerage accout. Note: It s importat that you review the tradig activity i your accout ad recocile the trasactios with the trade cofirmatios you receive. Also, cofirm that the trasactios, ad the frequecy of trasactios, are appropriate for the purpose of your accout, the ivestmet objective, ad ivestmet strategy. If you have questios o specific trades or eed further clarificatio of the ivestmet strategy, discuss the matter with your broker/adviser. He or she welcomes every opportuity to help keep you iformed ad i-the-kow about the activity i your accout. Portfolio Detail This sectio provides a complete ivetory of the idividual ivestmets i your accout. The ivetory icludes the ivestmet s ame, ticker symbol or CUSIP, share quatity/umber of bods, cost basis (if available), curret price, curret market value (quatity x market price), estimated aual icome ad percetage yield. Typically, brokerage firms categorize ivestmets by asset class, e.g., stocks/etfs, fixed-icome ad cash. Mutual fuds are typically listed separately by asset class, e.g., stock mutual fuds ad bod mutual fuds. Auities ad alterative ivestmets are typically listed separately. A summarizatio of the Portfolio Detail sectio is typically provided i the Accout Summary sectio i the form of a pie chart or table. Note: Review your accout s asset allocatio, level of diversificatio ad the idividual ivestmets o a periodic basis with your fiacial advisor to cofirm that your accout remais cosistet with its purpose, the ivestmet objective ad ivestmet strategy. Disclosures ad Defiitios This sectio helps you uderstad your statemet by providig legal ad admiistrative explaatios about fees, pealties, ad the terms ad codes used i your statemet. Stuffers ad brochures (some madated by regulators) may also be icluded i your accout statemet. Coclusio It is your resposibility to check for iaccuracies or discrepacies i ay of your statemets. If they appear, cotact your broker/adviser immediately. Use the My Accout Statemet checklist for this purpose. 34

41 Checklist: My Brokerage Accout Statemet Whe to Use: Upo receipt of your statemet Your brokerage accout statemet is the official documet for complete iformatio pertaiig to your accout s value, holdigs, ad activity. It tells you everythig that s goig o i your accout. This checklist provides a hady way for you to cofirm, kow ad review importat iformatio about your statemet. Use this checklist upo receivig your brokerage accout statemet. Cofirm accuracy of accout iformatio icludig: Accout umber Accout type Accout titlig Accout ivestmet objective (if provided) Your cotact iformatio Brokerage firm, clearig firm ad fiacial advisor cotact iformatio Fiacial Educatio Kow why your accout icreased or decreased i value from the previous reportig period. Review accout activity with special attetio to fees ad charges, deposits ad withdrawals, trasfers, jourals ad letters of authorizatio. Review trade activity. 35

42 Fiacial Educatio Asset Allocatio Asset allocatio is the startig poit of the ivestmet process. It is the process of divvyig-up (or allocatig) your moey amog some - or all - of the asset classes of stocks, bods, cash ad other secodary asset classes such as real estate, atural resources ad precious metals. Most of the retur patter of your accout is attributable to its asset allocatio. Havig a asset allocatio that is icosistet with your ivestmet objective may have egative cosequeces. For example, a accout over-allocated to bods ad cash may result i lost growth potetial. Coversely, a accout over-allocated to stocks ad other growth ivestmets may have you exposed to more risk that you would kowigly assume. The right asset allocatio for you is oe that takes ito cosideratio your ivestmet-related goals, your goal s time horizo, your ivestmet objective ad the how much risk you re willig to assume. The followig example allocatios are geeral guidelies for allocatig your moey based upo your goal time horizo, the purpose of your accout ad its ivestmet objective: Extremely Low-Risk Allocatio The allocatio is 100% cash ad cash equivalets, such as: CDs Savigs Moey market mutual fuds Treasury bills This allocatio may geerally be cosidered more appropriate for: Ivestmet time horizos less tha 3 years A ivestmet objective that has o tolerace for risk This ivestmet objective may geerally be referred to as: Preservatio of Pricipal Low-Risk Allocatio The allocatio rage is 30% to 40% riskier growth assets¹ e.g.: Greater percetage allocated to bods ad cash tha to riskier, growth assets like stocks Potetially more volatile tha a portfolio with o allocatio to growth assets such as stocks² Returs are geerally derived from iterest icome rather tha from divideds ad capital appreciatio, especially with higher percetage allocatios to bods ad cash. This allocatio may geerally be cosidered more appropriate for: Ivestmet time horizos betwee 3 years ad 5 years A ivestmet objective with a lower tolerace for risk This ivestmet objective may geerally be referred to as: Coservative Growth ad Icome. Moderate-Risk Allocatio The allocatio rage is 40% to 60% riskier growth assets e.g.: A equal or slightly higher percetage allocated to riskier, growth assets such as stocks, tha to bods ad cash 36

43 Potetially more volatile tha a portfolio with a lower percetage allocatio to riskier, growth assets Returs are geerally derived from a mixture of divideds, iterest icome ad capital appreciatio This allocatio may geerally be cosidered more appropriate for: Ivestmet time horizos betwee 6 years ad 10 years A ivestmet objective with moderate tolerace for risk This ivestmet objective is called: Moderate Growth ad Icome Higher-Risk Allocatio The allocatio rage is over 60% riskier growth assets e.g.: Higher percetage allocated to growth assets such as more stocks tha to bods ad cash Potetially more volatile tha a portfolio with a lower percetage allocatio to riskier, growth assets Returs are geerally derived from capital appreciatio rather tha from divideds ad iterest icome, especially with higher-percetage allocatios to stocks or other riskier assets Fiacial Educatio This allocatio may geerally be cosidered more appropriate for: Ivestmet time horizos over 10 years A ivestmet objective with a higher tolerace for risk This ivestmet objective may geerally be referred to as: Log Term Growth ¹ For example real estate, hard assets e.g., gold ad silver, ad atural resources. ² Prices of bod mutual fuds ad ETFs fluctuate i value i respose to movemet i iterest rates ad bod credit ratigs. I geeral, whe iterest rates declie, the prices of existig bods rise i value. Coversely ad i geeral, whe iterest rates rise, the prices of existig bods declie i value. I geeral, the loger the maturity date, the more the bod is affected by movemets i iterest rates ad bod credit ratigs. Disclaimer The above asset allocatio examples are provided for iformatioal purposes oly ad do ot costitute ivestmet advice. There is o guaratee that ay asset allocatio example illustrated herei will achieve its objective, geerate profits or avoid losses. Diversificatio does ot guaratee ivestmet returs ad does ot elimiate the risk of sigificat loss. 37

44 Fiacial Educatio How to Evaluate ad Select a Fiacial Services Advisor The fiacial markets are becomig icreasigly complex, ad may of us may feel ill-prepared to make iformed decisios o what to do. Seekig the advice of a isurace aget, stockbroker or ivestmet adviser may brig the additioal resources you may eed to better maage ad oversee your ivestmets. I selectig the right fiacial advisor for you, you eed to first ask yourself the right questios, ad the ask the right questios to the advisor. By doig so may help you fid the oe who s best suited for you. I this sectio you will lear about the various types of fiacial services advisors ad the role each play i maagig your ivestmets. Note: I this sectio you will see the terms advisor ad adviser. The term fiacial advisor is a olegal, catch-all term that icludes isurace agets who sell variable auities ad mutual fuds, bak represetatives, ad registered represetatives at brokerage firms. The term adviser (with a e ) is a legal term used with registered ivestmet advisers or ivestmet adviser represetatives who operate uder the Ivestmet Advisers Act of Isurace Agets Isurace agets are i the busiess of recommedig ad sellig isurace ad isurace-related ivestmet products to their customers. I geeral, this may iclude fixed, variable ad idexed auities, whole life, term life ad variable life policies. Idepedet agets may represet several isurace compaies; captive agets represet oly oe isurace compay. Compesatio is typically o a commissio basis. Regulatio ad Oversight: State isurace regulators (I Michiga, it s the Departmet of Isurace ad Fiacial Services or DIFS) Fiacial Idustry Regulatory Authority (FINRA) for products cotaiig securities, e.g., variable auities Natioal Associatio of Isurace Commissioers (NAIC) Legal Title: Isurace aget Producer Other No-Legal Titles: Fiacial plaer Fiacial advisor Compesatio: Typically commissios Example Products: Fixed Auities Variable Auities Idexed Auities Immediate Auities Whole ad Term Life 38

45 Variable Life Log-Term Care Isurace Mutual Fuds Registered Represetatives ad Brokers Brokers are legally referred to as registered represetatives; meaig they are properly licesed ad registered to buy ad sell securities for their customers through the broker/dealer securities firm they represet. Brokers typically receive a commissio for the buyig ad sellig of securities. These trasactios are hadled o a o-discretioary basis, meaig the broker must receive authorizatio from their customer prior to buyig or sellig ay security. Stadard of Care: The stadard of care for a registered represetative is a kow your customer ad suitability stadard. This requires that they gather comprehesive fiacial iformatio about their customer, e.g.: icome, et worth, the purpose/ivestmet objective of the accout, ivestig time horizo, risk tolerace, ivestmet experiece, ad the customer s eed for icome or liquidity. Oly from this iformatio ca he or she the recommed suitable ivestmets for their customer. Fiacial Educatio Regulatio ad Oversight: Securities Act of 1934: Ay perso i the busiess of effectig trasactios i securities for the accout of others State securities regulators (I Michiga, it s the Michiga Departmet of Licesig ad Regulatory Affairs [LARA] Securities Divisio) The Fiacial Idustry Regulatory Authority (FINRA) The Securities ad Exchage Commissio (esp. the Broker/Dealer) Legal Title: Registered Represetative Other No-Legal Titles: Stockbroker Fiacial advisor or cosultat Wealth maager Stadard of Care: Kow your customer ad suitability NYSE Rule 405 Kow your customer FINRA Rule 2090 Kow your customer FINRA Rule 2111 Suitability For more iformatio o the suitability stadard of care, visit the FINRA website at: Compesatio: Typically commissios 39

46 Fiacial Educatio Example Products: Stocks Bods Optios Iitial Public Offerigs (IPOs) ad Sydicate Mutual Fuds Exchage-Traded Fuds (ETFs) Auities ad other isurace-related products (oly if licesed) Is a Registered Represetative or broker right for you? If the followig characteristics reflect your ivestmet eeds, the a broker may be right for you: You re mostly iterested i picks ad recommedatios o a opportuistic basis from your broker. You like to be ivolved i the day-to-day maagemet of the ivestmets i your accout ad prefer to discuss each recommedatio ad authorize the trasactio prior to executio. You are typically a buy ad hold ivestor, ad trasactios are ifrequet. Payig a fair commissio whe trasactios occur is acceptable to you. Registered Ivestmet Advisers Registered ivestmet advisers (RIAs) provide ogoig advice as a matter of course to their cliets. I geeral, RIAs utilize the same ivestmet products ad securities offered by the registered represetative. But istead of buyig ad sellig ivestmets for a commissio, ivestmets are maaged for a fee. A registered ivestmet adviser ca be a stad-aloe idepedet firm or part of a large fiacial istitutio. Like registered represetatives who buy ad sell securities for their customers through the broker/dealer they represet, advisers who provide advice to their cliets through their fiacial istitutio s RIA, are referred to as ivestmet adviser represetatives (IARs). Most large full-service brokerage firms have a registered broker/dealer uit ad a registered ivestmet adviser uit associated with it. If properly licesed, a registered represetative at a larger brokerage firm ca also be a IAR uder the firm s RIA uit. Stadard of Care: The Registered Ivestmet Adviser has a affirmative duty to act solely i the iterest of the cliet. This is referred to as a fiduciary stadard of care. Actig as a fiduciary, all cosideratios, decisios ad trasactios must be made exclusively for the beefit of the cliet, ad ay coflicts of iterest must be fully-disclosed up frot. Ulike o-discretioary trasactios that require registered represetatives to have all trasactios approved by the customer prior to executio, RIAs geerally trasact busiess o a discretioary basis, meaig they have discretio to buy ad sell securities ad to make other ivestmet-related decisios o behalf of their cliets without receivig prior approval. Regulatio ad Oversight: Ivestmet Advisers Act of 1940: Ay perso, who, for compesatio, egages i the busiess of advisig others, either directly or through publicatios or writigs, as to the value of securities or as to the advisability of ivestig i, purchasig, or sellig securities 40

47 Assets uder $100 millio: State securities regulator Assets over $100 millio: Securities ad Exchage Commissio (SEC) Legal Title: Registered Ivestmet Adviser (RIA) Ivestmet Adviser Represetative (IAR) Stadard of Care: Fiduciary Compesatio: Asset-based fee i.e., a aual percetage based upo the value of the accout Flat rate Hourly rate Retaier fee ad mothly subscriptio Fiacial Educatio Example Products: Fee-based platforms that typically utilize the securities offered by registered represetatives. Separately maaged accouts (SMAs) through ivestmet maagemet firms ot affiliated with a brokerage firm or RIA. Is a RIA or IAR right for you? If the followig characteristics reflect your ivestmet eeds, the a Registered Ivestmet Adviser (RIA) or Ivestmet Adviser Represetative (IAR) may be right for you: You require or prefer ogoig ad cotiuous advice You require or prefer the fiduciary stadard of care rather tha the lower suitability stadard of care You require or prefer comprehesive reportig ad performace measuremet You require or prefer to have a adviser act o your behalf o ivestmet-related decisios without pre-authorizatio of each trasactio prior to its executio Require or prefer to pay a fee for services Note: If you are a trustee or guardia, ad you are resposible for the oversight ad moitorig of ivestmets for a idividual, orgaizatio or other etity, you may be required to work with a registered ivestmet adviser or adviser represetative who is held to a fiduciary stadard of care. Geeral Compariso Registered Represetative ad Registered Ivestmet Adviser: Item Registered Represetative RIA or IAR Other Titles: Stockbroker, fiacial advisor, etc. Adviser Stadard of Care: Kow your customer, suitability Fiduciary Trasactios: No-discretioary tradig Discretioary tradig Compesatio: Commissio-based Fee-based 41

48 Fiacial Educatio Fiacial Plaers (o-legal term) Fiacial plaer is ot a legal term; it s a descriptio. I geeral, fiacial plaers are i the busiess of developig comprehesive fiacial plas for their cliets that typically iclude estate, tax, ad isurace plaig. So a isurace aget, a registered represetative, ad a registered ivestmet adviser ca all be fiacial plaers withi the scope that their licesig permits. Idustry Liceses There are umerous types of idustry liceses. The followig are three example types: Series 6: Ivestmet Compay Products/Variable Cotracts This licese is required to receive compesatio for recommedig ad sellig mutual fuds ad variable auities. The certificatio process icludes: 100 multiple choice questios 2 hours ad 15 miutes Series 7: Geeral Securities Represetative This licese is required to receive compesatio for buyig ad sellig securities with the exceptio of commodities ad futures. The certificatio process icludes: Part I: 125 questios (3 hours) Part II: 125 questios (3 hours) Series 65: Uiform Ivestmet Adviser Law Examiatio This licese is required to receive compesatio for providig ogoig ivestmet advice. The certificatio process icludes: 130 questios 3 hours The fiacial markets are becomig icreasigly complex. Ad may of us may feel ill-prepared to make iformed decisios o what to do. Seekig the advice of a fiacial services provider may brig the additioal resources you may eed to better maage ad oversee your ivestmets. Selectig the right fiacial services provider for you ad askig yourself the right questios, ad the askig the right questios to the fiacial services advisor, may help you fid the oe who s best suited for you. The eclosed checklists have bee provided to assist you with selectig ad evaluatig a fiacial services provider. 42

49 Fiacial Services Providers: Questios to Ask Yourself Checklist Before you select a fiacial services provider, you eed to iterview yourself. This checklist of questios will give you a better uderstadig of the type of relatioship you are lookig for with a fiacial services provider as well as the types of products ad services you may be iterested i. Yes No Do I seek cotiuous ad ogoig ivestmet-related advice? Yes No Do I seek specific ivestmet recommedatios with advice beig icidetal? Yes No Do I prefer to discuss ad authorize all trasactios? Yes No Do I prefer to delegate ivestmet-related decisios ad trasactios? Yes No Do I seek comprehesive fiacial, estate ad tax plaig? Yes No Do I seek oly ivestmet maagemet? Yes No Are isurace-related products a acceptable type of ivestmet? Yes No Are mutual fuds ad ETFs acceptable types of ivestmets? Yes No Are idividual stocks ad bods acceptable types of ivestmets? Yes No Are commissios a acceptable form of paymet for service? Yes No Are fees a acceptable form of paymet for service? Fiacial Educatio 43

50 Fiacial Educatio Fiacial Services Providers: Questios to Ask the Provider Checklist Is my fiacial profile represetative of your cliet base? What is your academic ad professioal backgroud? Do you have professioal desigatios or other credetials? What is the stadard of care for my accout? What other services do you provide? Who else may be hadlig my accout? How is your compesatio structured? You ca complete this sectio of the checklist yourself while meetig with a prospective service provider or you ca request that they complete the checklist - i writig - prior to you meetig with them. Most fiacial services providers have o record of discipliary actios agaist them. You ca cofirm this by cotactig your state securities regulator. I Michiga, it s the Michiga Departmet of Licesig ad Regulatory Affairs (LARA) Securities Divisio or through the Fiacial Idustry Regulatory Authority (FINRA) website. Cotact LARA Securities Divisio at or visit the FINRA website at: To evaluate a professioal desigatio, use the followig checklist - or have the desigatio-holder use the checklist - to get you complete iformatio. This iformatio will help you determie whether the desigatio has ay value or applicatio to your fiacial circumstaces. Professioal Desigatios: What to Kow Checklist Visit the website of the orgaizatio issuig the desigatio Obtai a brochure or pamphlet Kow the prerequisites for obtaiig the desigatio Kow the coursework ad format for how the desigatio is eared Kow the cotiuig educatio requiremets Kow if a ivestor complait or public discipliary process exists Kow if the desigatio has third-party accreditatio 44

51 For more iformatio o professioal desigatios for the fiacial services idustry, you ca visit the FINRA website at: Whether you use a fiacial services provider or you are a do-it-yourselfer, ivestmets are goig to be selected ad bought. To be iformed, aware ad i cotrol over the hadlig of your accouts, ad to greatly reduce the potetial for makig a poor ivestmet decisio, you eed to be able to check-off the followig: Purpose of the ivestmet¹ Selectig Ivestmets: What to Kow Checklist Cosistet with ivestmet objective, goal timeframe ad risk tolerace How the ivestmet fits ito the overall ivestmet strategy² The cost to buy, hold ad sell the ivestmet Fiacial Educatio Help: ¹ For example, does the ivestmet provide the potetial for log-term growth? Does it provide curret icome or provide liquidity at a pre-determied date? ² Just addig aother ivestmet for the sake of addig aother ivestmet is t ecessarily i your best iterest. How does the ew ivestmet fit i with what you already ow? Does the ivestmet brig further diversificatio? Does it icrease the potetial for growth or provide additioal icome? Does it reduce risk? 45

52 Fiacial Educatio Crowdfudig The Iteret has become a iexpesive ad easy way for idividuals ad busiesses to raise moey for their activities. Cogress recetly passed the JOBS Act, which directs the Securities ad Exchage Commissio (SEC) to create rules exemptig crowdfudig from the securities registratio laws. Oce implemeted, these rules will remove restrictios o start-up compaies seekig ivestors over the Iteret. Ivestors should be o the lookout for uscrupulous issuers ad itermediaries who may attempt to egage i crowdfudig before the rules are writte or misuse crowdfudig to steal from ivestors through false ad misleadig represetatios. Crowdfudig is a olie moey-raisig strategy that bega as a way for the public to doate small amouts of moey, ofte through social etworkig websites, to help artists, musicias, filmmakers ad other creative people fiace their projects. The cocept has recetly bee promoted as a way of assistig small busiesses ad start-ups lookig for ivestmet capital to help get their busiess vetures off the groud. Traditioally, ivestmet opportuities are offered by professioals, such as broker-dealer firms ad ivestmet advisers, who must recommed ivestmets that are based o their cliets ivestmet objectives ad levels of sophisticatio. Through crowdfudig, idividuals are able to ivest i etrepreeurial start-ups through a itermediary, such as a broker-dealer or a fudig portal. By law, fudig portals are ot allowed to provide ivestmet advice. Fudig Portal A fudig portal is a website, also called a platform, that advertises the ivestmet opportuities ad facilitates the paymet from the ivestor to the issuer. Some portals advertise a variety of ivestmet opportuities o oe website, allowig the ivestor to select oe or more projects i which to ivest. How Crowdfudig Works Joe s small busiess sells goat cheese made from his special pygmy goats. To keep his busiess afloat or to help it grow, Joe ca tur to the Iteret to seek olie doatios from the public who cotribute small amouts of moey ad expect othig i retur. Joe usually seds a sample of his cheese as a thak-you for the doatio; large doors might eve get a cheese amed i their hoor. New legislatio has directed the SEC to write rules that will chage how Joe ca raise moey olie. Oce the rules are writte, Joe will be able to use the Iteret to raise up to $1 millio each year by sellig ivestmets i his compay to thousads of ivestors. Because Joe will be issuig shares i his compay i exchage for ivestmet capital, his supporters are o loger doors; they become ivestors ad will expect a fiacial retur for their ivestmet. Why Ivestors Must be Extremely Cautious About Crowdfudig Ivestmets Crowdfudig ivestmets caot be offered legally util the SEC adopts rules to permit them. Beware of offerigs that seek ivestmets immediately. All ivestmets have risk, but small busiess ivestmets have eve greater risk tha ormal. About 50 percet of all small busiesses fail withi the first five years. Issuers usig fudig portals to raise moey may be iexperieced. Their track records may be uprove, usubstatiated, or outright fraudulet. The iformatio about the ivestmet is limited to what is provided through the fudig portal. Ivestors may eed to rely o their ow research to determie the issuer s track record. 46

53 Because state regulators are ot allowed to review crowdfudig issuers or their offerigs, full ad complete disclosure may ot be available to ivestors. Ivestors may have limited legal ability to take actio agaist the issuer should the ivestmet ot perform as represeted. Due to limited regulatory oversight over these offerigs, ivestors may be left o their ow to pursue costly private lawsuits whe thigs go wrog. Crowdfudig ivestmets are mostly illiquid ad ivestors must be prepared to hold their ivestmets idefiitely. It also may be difficult or impossible to resell these securities due to the lack of a secodary market. Fudig portals must be registered with the SEC, belog to a self-regulatig orgaizatio (SRO), ad comply with other rules the SEC may issue. Crowdfudig portals claimig a accreditatio or seal of approval from a stadards program or board may ot be legitimate. The Bottom Lie It pays to be skeptical of ivestmet opportuities you lear about through the Iteret. Whe you see a offerig o the Iteret whether it is o a fudig portal, i a olie ewsletter, o a message board or i a chat room you should be cautious util you have doe your homework ad prove that it is t a scam. If you have ay questios about crowdfudig offerigs, cotact the Departmet of Licesig ad Regulatory Affairs (LARA), Corporatios, Securities ad Commercial Licesig Bureau at or visit Fiacial Educatio 47

54 Fiacial Educatio Ivestmet-Related Terms Like every ivestor, you wat to choose ivestmets that will provide the growth ad icome you eed to meet your fiacial goals. To do that, it s importat for you to uderstad what your ivestmet choices are, how differet types of ivestmets put your moey to work, ad the termiology used whe discussig ivestmets tools. Below is a list of ivestmet-related terms to help you uderstad the complex world of fiacial ivestmets. Asset Allocatio Asset allocatio is the process of divvyig-up (or allocatig) your moey amog some - or all - of the primary asset classes, e.g. stocks, bods ad cash. Differet combiatios or pairigs of asset classes create differet risk/retur profiles. Asset Class A asset class is a group of securities that have similar characteristics, react similarly i the marketplace ad are subject to the same laws ad regulatios. The three basic asset classes are stocks, bods ad cash. Other asset classes iclude real estate, precious metals ad atural resources. Note: A security is a publically-traded fiacial istrumet such as a stock, bod, mutual fud, exchage-traded fud ad a variable auity. Auity A auity is a fiacial product sold by a isurace compay. It ivolves a cotract betwee you ad the isurace compay that outlies the terms ad coditios of the auity. Auities are geerally used to accumulate tax-deferred savigs uder which you make a lump-sum paymet, or series of paymets, to the isurace compay. I retur, the isurer agrees to make periodic paymets to you begiig immediately or at a future date. Listed below are types of auity products: Fixed-Rate Auity The isurace compay agrees to pay the cotract holder o less tha a specified rate of retur for a pre-determied period. Idexed Auity The isurace compay credits the cotract holder with a retur that is based o chages i a idex, such as the S&P 500 Idex. Idexed auity cotracts also provide that the cotract value will be o less tha a specified miimum, regardless of the performace of the uderlyig idex. Variable Auity A variable auity offers sub-accouts or mutual fuds through which the cotract holder ca ivest i the stock ad bod markets. The rate of retur, ad the value of the auity, are variable ad depedet upo the performace of the uderlyig ivestmets selected. Variable auities are securities ad are regulated by the Securities ad Exchage Commissio (SEC). Auitizatio Auitizatio is the process of covertig your auity ito a series of periodic icome paymets. You should ot auitize your auity without careful cosideratio. Oce you decide to auitize, you caot reverse your decisio. There is o flexibility to icrease or decrease the paymets or exted or shorte the legth of time paymets are made. You caot make ay lump-sum withdrawals either. 48

55 Bechmark A stadard agaist which the performace of a security, mutual fud or ivestmet maager ca be measured. Geerally, a idex is used as a bechmark. The objective of actively-maaged fuds is to out-perform a represetative bechmark (idex) whe measured over a multiple-year period. Bods Bods are debt securities issued by publicly-traded compaies, muicipalities, state ad federal govermet. Bodholders are referred to as creditors of the issuig compay or etity. Bods ca be owed idividually or through a bod mutual fud or a exchage-traded fud (ETF). Risk & Retur There are several uique types of risk associated with bods. Two otable oes are iterestrate risk ad credit risk. Bods have higher risk tha cash ad typically have higher returs tha cash. Iterest Rate Risk Typically, as iterest rates rise, the price of existig bods declie i value. Coversely, as iterest rates declie, the price of existig bods will rise i value. Fiacial Educatio Credit Risk Credit risk is defied as a deterioratio i the fiacial coditio of a corporatio or other issuig etity that egatively affects the price of the bod prior to maturity. A compay or other etity s creditworthiess may deteriorate to the poit that reders it uable to make a scheduled iterest paymet or worse, repay its loa. This is referred to as a default. Credit Risk ad Retur Govermet bods historically have the lowest credit risk amog bod categories ad historically have lower returs. u High-quality corporate bods historically have higher credit risk ad higher returs tha govermet bods. u Low-quality corporate bods historically have higher credit or default risk ad higher returs tha high-quality corporate bods. Lower-quality bods are ofte referred to as high-yield or juk bods. Market coditios ca affect these bod categories, havig oe category i favor ad aother category out of favor. This ca affect the risk ad retur profile of a give bod category ad its risk ad retur profile relative to that of other bod categories. Credit Ratigs Credit ratig agecies like Moody s ad Stadard & Poor s affirm the credit worthiess - or credit risk, of corporatios ad govermet etities i the form of a credit ratig. The ratigs rage from AAA for the highest-quality - or lowest credit risk, to D for a compay or govermet etity i default. Like your ow credit score, the higher the ratig, the more favorable the fiacig. Iterest Rates ad Prices Bod prices ad iterest rates have a iverse relatioship to each other. For example, as iterest rates rise, the prices of existig bods ted to decrease i value as ewly-issued bods offer higher, more attractive coupo rates. Ad as iterest rates declie, the price of existig bods ted to icrease i value as ewly-issued bods offer lower, less attractive coupo rates. 49

56 Fiacial Educatio Cash Iterest Rates ad Maturity As a geeral rule the maturity date of a bod is a sigificat factor i how its price may be affected by icreases or decreases i iterest rates. u Log-term bods with maturities of 10 years or more are more affected by icreases ad decreases i iterest rates. u Short-term bods with maturities of 5 years or less are less affected by icreases ad decreases i iterest rates. Cash ca be described as ready moey. I the cotext of ivestig, cash typically takes the form of a cash alterative like a moey market mutual fud. Moey market fuds are required by law to ivest i highly-liquid, low-risk fixed-icome securities such as CDs, govermet securities ad high-quality commercial paper. Moey market mutual fuds are ot guarateed or federally isured. Cash: Risk & Retur Cash is cosidered a low-risk, low retur asset. Cash ca remai as cash i your accout, but typically cash is coverted ito a cash equivalet.13-week T-bills, CDs ad moey market mutual fuds are all cosidered cash equivalets. Closed-Ed Fud A closed-ed fud, legally kow as a closed-ed compay, is oe of three basic types of ivestmet compaies. The two other basic types of ivestmet compaies are mutual fuds ad uit ivestmets trusts (UITs). Closed-ed fuds geerally do ot cotiuously offer their shares for sale. Rather, they sell a fixed umber of shares at oe time (i a iitial public offerig), after which the shares typically trade o a secodary market. The price of closed-ed fud shares that trade o a secodary market after their iitial public offerig is determied by the market ad may be greater or less tha the shares et asset value (NAV). The ivestmet portfolios of closed-ed fuds geerally are maaged by separate etities kow as ivestmet advisers that are registered with the SEC. Diversificatio Diversificatio is the risk maagemet process of selectig several differet ivestmets for each asset class. Diversifyig withi a asset class reduces exposure to risks associated with a particular compay, idustry or sector. For mutual fuds ad ETFs (see Mutual Fuds ad Exchage Traded Fuds ), diversifyig by ivestmet category (see Ivestmet Category ) is aother way to reduce the risks associated with oe ivestmet category. Exchage-Traded Fuds (ETFs) Exchage-traded fuds (ETFs), are ivestmet compaies that are legally classified as ope-ed compaies or uit ivestmet trusts (UITs) but they also differ from ope-ed compaies ad UITs i that they do ot sell idividual shares directly to ivestors ad oly issue their shares i large blocks that are kow as creatio uits. Ivestors geerally do ot purchase creatio uits with cash. Istead, they buy creatio uits with a basket of securities that geerally mirrors the ETF s portfolio. Those who purchase creatio uits are frequetly istitutios. ETFs are ot cosidered to be ad may ot call themselves mutual fuds. Most ETFs seek to achieve the same retur as a particular market idex. That type of ETF is similar to a idex fud i that it will primarily ivest i the securities of compaies that are icluded i a selected market idex such as the S&P 500 Composite Stock Price Idex, for example. A ETF will ivest i either all of the securities or a represetative sample of the securities icluded i the idex. 50

57 ETFs also iclude actively-maaged ETFs that pursue active maagemet strategies ad publish their portfolio holdigs o a daily basis. Other types of ETFs iclude leveraged or iverse ETFs, which are ETFs that seek to achieve a daily retur that is a multiple or a iverse multiple of the daily retur of a securities idex. A ETF, like other types of ivestmet compaies, will have a prospectus. Expese Ratio The expese ratio is the total percetage of fud assets used for admiistrative, maagemet, advertisig, ad all other expeses such as recordkeepig, custodial services ad legal expeses. A expese ratio of 1% per aum meas that each year 1% of the fud s total assets will be used to cover expeses. Sice fud performace is the calculated et of expeses; expese ratios have a material effect o fud performace. The expese ratio does ot iclude the fud s tradig activity, sales load or brokerage commissios. Idex A idex is a statistical measure of chage i a ecoomy or a securities market. I the case of fiacial markets, a idex is a imagiary portfolio of securities represetig a particular market or a portio of it. Each idex has its ow calculatio methodology ad is usually expressed i terms of a chage from a base value. Thus, the percetage chage is more importat tha the actual umeric value. Fiacial Educatio Stock ad bod market idexes are used to costruct idex mutual fuds ad exchage-traded fuds (ETFs) whose portfolios mirror the compoets of the idex. The followig idexes represet a wide array of fiacial markets: Stadard & Poor s 500 (S&P 500) represets a broad market ad is oe of the world s best kow idexes. This idex is the most commoly used bechmark for the stock market. Formerly the Lehma Brothers Aggregate Bod Idex, the Barclay s Capital Aggregate Bod Idex (BarCap Aggregate) represets a broad market ad is a commoly used bechmark for the total bod market. Dow Joes Wilshire 5000 was commoly comprised of 5000 stocks, but today is made up of more tha 6,700. A promiet idex, this is oe of the broadest idexes ad is desiged to track the overall performace of the U.S. stock markets. This idex is a commoly used bechmark for the total stock market. Dow Joes U.S. Techology Idex represets a segmet of a broad market like the S&P 500, for example: The S&P 500 is composed of 10 sectors. Oe of which is Techology. Morga Staley Capital Iteratioal s Europea, Australia, ad Far Easter (MSCI EAFE) idexes represet the market of a regio for foreig stocks i Europe, Australasia (a geographical regio icludig Australia, New Zealad, ad the eighborig islads), ad the Far East. British FTSE 100 represets the market of a atio. Similar to the S&P 500 i the Uites States, this is a idex of blue-chip stocks o the Lodo Stock Exchage. Because, techically, you ca t actually ivest i a idex, idex mutual fuds ad exchage-traded fuds (based o idexes) allow ivestors to ivest i securities represetig broad market segmets ad/or the total market. 51

58 Fiacial Educatio Ivestmet Category Ivestmet categories allow ivestors to kow more about a particular fud s ivestmet objective ad the types of securities that make up most of the fud s holdigs. Oe basic way of categorizig stock fuds is by market capitalizatio i.e., large-cap, mid-cap ad small-cap ad by ivestmet style e.g., value, growth ad bled (a combiatio of value ad growth). Bod fuds are geerally categorized by their average portfolio maturities. For example, log-term, itermediate ad short-term, ad by credit quality: high-quality, medium ad low-quality. Ivestmet Objective The ed toward which your ivestmet-related actios are directed or coordiated. A ivestmet objective is a what, ot a how. A example of a ivestmet objective would be moderate growth ad icome. Ivestmet Strategy Ivestmet strategy is the actios you udertake to meet the ivestmet objective. Ivestmet strategy is a how, ot a what. It is a thoughtfully-costructed pla or method or actio that will be employed to achieve the result. To meet the ivestmet objective of moderate growth ad icome, a example strategy might be a combiatio of compoets: growth mutual fuds ad ETFs, idividual divided-payig stocks, idividual bods, bod mutual fuds ad ETFs. Ivestmet Style Value Style Ivest i stocks that trade at a lower price relative to their fudametals, i.e., divideds, earigs, sales, etc. ad are thus cosidered udervalued. Bled Style Ivest i both growth ad value stocks with typically broader sector ad idustry exposure that combie growth ad value styles. Growth Style Ivest i compaies with acceleratig sales ad earigs, typically i rapidly growig idustries. Mutual Fud A mutual fud is a ivestmet compay that ivests, o behalf of its shareholders, i a basket of securities i accordace with its stated ivestmet objective, ad ivestmet category. For example, a large cap growth fud ivestig i a basket of large cap compaies whose earigs ad reveue are growig more rapidly tha other large cap compaies, a foreig stock mutual fud ivestig i a basket of compaies domiciled outside of the Uited States or a corporate bod fud ivestig i a basket of debt istrumets issued by corporatios. Mutual fuds are sold by prospectus which provides you with complete iformatio about the fud s ivestmet objective, fees ad expeses ad historical returs. The followig are types of mutual fuds: Actively-maaged Fud A type of mutual fud or ETF that seeks to outperform the market, e.g., a Large Cap fud outperformig the S&P 500 Idex, through superior security selectio, over or uder-weightig various sectors, etc. Idexed or Passively-Maaged Fud A type of mutual fud or ETF costructed to closely track the retur of a broad-market idex, e.g., the S&P 500 Idex, a sector withi a broad market, a specific ivestmet category, regio or coutry. Passively-maaged fuds have typically lower expeses tha actively-maaged fuds. A ivestmet caot be made directly ito a idex. 52

59 Required Miimum Distributio (RMD) Also referred to as miimum required distributio (MRD), required miimum distributio (RMD) is the amout that qualified pla participats, traditioal, SEP ad SIMPLE IRA owers must begi takig from their retiremet accouts by April 1 followig the year they reach age 70½. RMD amouts must the be distributed each subsequet year. The RMD is based o the December 31 value of the accout prior to the year for which the idividual is required to take a distributio. That total is the divided by the life expectacy or the joit life expectacy of the idividual ad the idividual s oldest primary beeficiary as determied by the IRS. Roth IRA accouts are ot subject to RMDs. Also, uder certai circumstaces, some 401(k) plas allow curret employee participats to defer takig RMDs util they retire, eve if they are older tha 70½. Failure to take a RMD results i a 50% pealty. Rollover, Direct A distributio of eligible rollover assets from a qualified pesio pla, 401(k), 403(b) pla, or a govermetal 457 pla to a traditioal IRA or aother qualified pesio pla, 401(k), 403(b) pla, or a govermetal 457 pla; or a distributio from a IRA to a 401(k), 403(b) pla, or a govermetal 457 pla. Direct rollover assets are remitted directly to the qualified pla or IRA Custodia/Trustee, ever to the idividual. A direct rollover is reportable but ot a taxable evet. Plas that offer oly a distributio check to the employee ca accomplish a direct trasfer by makig the check payable to the ew custodia FBO (for the beefit of) the employee s ame. Fiacial Educatio Rollover, Idirect A distributio of eligible rollover assets from a qualified pesio pla, 401(k), 403(b) pla, or a govermetal 457 pla ito a IRA. Idirect rollover assets are paid to the idividual who the has full use of the fuds for 60 days after which the fuds must be re-deposited ito a qualified IRA or ito a eligible employer-sposored retiremet pla. The re-deposited amout must equal 100% of the amout distributed by the employer icludig the 20% withholdig. Failure to re-deposit the fuds withi IRS guidelies will subject the etire distributio to icome tax ad a 10% early withdrawal pealty if the employee is uder age 59½. Rule 72(t) Rule 72(t) is a Iteral Reveue Service (IRS) rule that allows for pealty-free withdrawals from a IRA accout before the age of 59½. I accordace with the rule, the IRA ower must take at least five substatially equal periodic paymets (SEPPs). Oce the periodic paymet amout is set ad withdrawals begi, it caot be chaged without icurrig pealties. The withdrawal amout is based upo life expectacy ad is calculated usig IRS-approved methods. Withdrawals are taxed as regular icome. Stocks Stocks represet owership or equity i a publicly-traded compay. Stocks ca be owed idividually or through a stock mutual fud, stock ETF, closed-ed fud, or uit ivestmet trust (UIT). Risk & Retur Stocks have higher risk tha cash ad bods ad statistically, stocks have higher returs tha cash ad bods whe measured over multiple-decade holdig periods. Certai categories of stocks may have higher or lower risk relative to other stock categories. u Domestic Large compay stocks are cosidered to have the lowest risk amog stock categories. 53

60 Fiacial Educatio u Domestic Small compay stocks historically have higher risk tha domestic large compay stocks ad typically have higher returs tha domestic large compay stocks whe measured over multiple-decade holdig periods. u Foreig-based stocks, especially compaies i emergig markets have, i geeral, higher risks tha domestic stocks. Ivestmets i foreig coutries preset special risks icludig currecy fluctuatio, the potetial for diplomatic ad political istability ad regulatory risks. I geeral, foreig-based stocks have the potetial for equal or higher returs tha domestic stocks ad the potetial for periods of sigificat out-performace ad uderperformace relative to domestic stocks. Market Capitalizatio Stocks are categorized by size: large, mid-sized ad small. A compay s market capitalizatio or market cap determies its category. Market cap is calculated by takig the compay s umber of outstadig shares ad multiplyig that by its share price. u Geerally-accepted categories are: u Small-cap stocks: market cap betwee $300 millio ad $2 billio u Mid-cap stocks: market cap betwee $2 billio ad $10 billio u Large-cap stocks: market of $10 billio or more May household-ame compaies have market caps i excess of $100 billio. These compaies are ofte referred to as mega-cap stocks. Classificatios by market cap are oly approximatios, ad a compay s market cap categorizatio ca chage. For example a small cap compay ca grow ito a large cap compay ad a large cap compay ca devalue ito a mid-cap compay as a result of compay-specific or broad-market factors. Uit Ivestmet Trust A uit ivestmet trust is commoly referred to as a UIT ad is oe of three basic types of ivestmet compaies. The other two types are mutual fuds ad closed-ed fuds. A UIT typically issues redeemable securities (or uits ), like a mutual fud, which meas that the UIT will buy back a ivestor s uits, at the ivestor s request, at their approximate et asset value (NAV). A UIT typically will make a oe-time public offerig of oly a specific, fixed umber of uits (like closed-ed fuds). May UIT sposors, however, will maitai a secodary market, which allows owers of UIT uits to sell them back to the sposors ad allows other ivestors to buy UIT uits from the sposors. A UIT will have a termiatio date (a date whe the UIT will termiate ad dissolve) that is established whe the UIT is created. I the case of a UIT ivestig i bods, for example, the termiatio date may be determied by the maturity date of the bod ivestmets. Whe a UIT termiates, ay remaiig ivestmet portfolio securities are sold ad the proceeds are paid to the ivestors. A UIT does ot actively trade its ivestmet portfolio. That is, a UIT buys a relatively fixed portfolio of securities (for example, five, te, or twety specific stocks or bods), ad holds them with little or o chage for the life of the UIT. Because the ivestmet portfolio of a UIT geerally is fixed, ivestors kow more or less what they are ivestig i for the duratio of their ivestmet. Ivestors will fid the portfolio securities held by the UIT listed i its prospectus. 54

61 Fiacial Decisios The Cost of Credit Credit plays a importat role i our lives every day. Potetial leders will review your credit to help them decide whether to led you moey, while other compaies may review your credit to decide o the pricig of isurace, retig of residetial property, ad makig employmet decisios. Therefore, buildig ad maitaiig good credit is essetial to stay i cotrol of your fiaces ad to achieve your goals. Credit Reports Iformatio about you is reported to your credit profile ad cotais the followig: Employer iformatio Residece Paymet histories The legth of time your accouts have bee ope How much credit you ve used Whether you re seekig ew sources of credit Judgmets (lawsuits, arrests, ad bakruptcy actios) Fiacial Educatio Cosumer credit reports are stored i the files of the atio s cosumer credit reportig agecies. Credit Reportig Agecies ad Credit Bureaus There are three atiowide credit reportig agecies which gather cosumer iformatio to produce credit reports: Equifax Experia TrasUio Credit bureaus, o the other had, do ot produce credit reports. They just gather iformatio ad hold cosumer credit reports i their databases. They iclude the followig: LexisNexis Westlaw ChoicePoit efuds (ower of ChexSystems) Credit Score Credit scores are calculated based o iformatio cotaied i your credit report. Your credit score is a umber that helps assess how well you have maitaied your past fiacial obligatios. The most widely used credit score is the FICO Score, created by the Fair Isaac Corporatio. Your FICO score is calculated by evaluatig may types of iformatio. Sice each agecy gets their iformatio from differet sources, you may have oe score from each of the three credit reportig agecies. The iformatio is grouped ito five categories (paymet history, amouts owed, legth of credit history, ew credit, ad types of credit used) as outlied below. The percetages i the chart reflect how importat each of the categories is i determiig how your FICO Score is calculated. For further iformatio, please log oto 55

62 Fiacial Educatio FICO credit scores rage from 300 to 850. A low score represets poor credit, whereas a score of 850 represets excellet credit. Your credit score cosiders both positive ad egative iformatio i your credit report, such as the followig: Number ad severity of late paymets Type, umber, ad age of accouts Total debt Public records To establish a positive credit history ad help improve your credit score you should: Pay your bills o time. Keep balaces low o credit cards ad revolvig lies of credit. Limit the amout of ew credit. Regularly review your credit report to esure accurate iformatio. Obtaiig a Copy Your Credit Report It is very importat for the iformatio i your credit report to be complete ad accurate. I order to do this, you should review your credit report at least oce a year for ay iaccuracies ad omissios. You should also review your credit report to esure fraudulet activity has ot bee committed by idetity thieves; because eve though you did t make those charges, the iaccurate iformatio could egatively affect your credit. The Fair Credit Reportig Act (FCRA) requires each of the three atiowide cosumer credit reportig agecies (Equifax, Experia, ad TrasUio) to give you a free credit report every 12 moths. To order your credit report, please visit: or call Sice each credit reportig agecy reports cosumer iformatio at differet times, it is suggested to stagger your requests (order oe every four moths) to esure your credit reports cotai up-to-date iformatio. AualCreditReport.com is a free, o-obligatio service. You will ot be required to purchase or subscribe to aythig to view your credit report, though you may choose to pay a fee i order to obtai your actual credit score. You ca obtai a free estimate of your credit score by loggig oto: You are also etitled to a free credit report if: A compay takes adverse actio agaist you (e.g. deies credit) You re uemployed ad pla to look for a job withi 60 days You re o public assistace Your report is iaccurate because of fraud, icludig idetity theft 56

63 If you are ot eligible for a free credit report, you may cotact the credit reportig agecies to purchase a copy. The agecies may charge you up to $11 for a copy of your report withi a 12-moth period. Equifax, Experia, TrasUio, Steps to Take Whe You Fid a Mistake o Your Credit Report The last thig you wat to do is carry someoe else s debt, or have outdated egative iformatio reported o your credit report. Uder the FCRA, the credit reportig agecies ad iformatio providers are resposible for correctig iaccurate or icomplete iformatio i your credit report. To take advatage of your rights uder this law, you should: 1. Review your report from each of the three atiowide credit reportig agecies. 2. Make ote of ay iaccurate or icomplete iformatio. 3. Write a letter or submit a dispute olie to the credit reportig agecy which icludes the followig: Fiacial Educatio Your ame ad address. Clearly idetify each specific item you dispute. A explaatio ad the facts of why you dispute the item. A request that these items be corrected or removed from your credit report. A copy of your credit report with the items i questio circled. Copies (NOT origials) of documets that support your positio, i.e., copies of receipts, caceled checks, ad bills. Oce you have all of the iformatio, you should: Sed the origial letter by certified mail with retur receipt requested. Keep a copy of your dispute letter ad supportig documetatio. Allow 30 days for a respose from the credit reportig agecy. Review the credit report set back to you to esure that ay misiformatio has bee deleted or corrected. Note: Each credit reportig agecy may report differet iformatio i your credit report. Therefore, you should review each report. If more tha oe credit reportig agecy lists iaccurate or icomplete iformatio, you will eed to write a letter or submit a dispute olie to each credit reportig agecy. For more iformatio o the FCRA, please cotact the Federal Trade Commissio at or call If you have questios or complaits about your credit report, your rights as a cosumer, or the credit reportig agecies or bureaus, cotact the Cosumer Fiacial Protectio Bureau (CFPB) at

64 Fiacial Educatio Maagig ad Reducig Debt I geeral, most people fid themselves strugglig with debt. Eve if it is a little debt, it still must be properly maaged. However, if you fid yourself carryig too much debt, elimiatig debt should be a top priority as it could jeopardize your fiacial future. There are may ways idividuals ca elimiate or reduce their debt. Although these optios may ot be ideal for some, the choices listed below could be cosidered. Developig a Budget The first step toward takig cotrol of your fiacial situatio is to do a realistic budget of how much moey you take i ad how much moey you sped. See the followig sectio: Developig A Savigs ad Spedig Pla for iformatio o developig a budget. Cotactig Your Creditors If you re havig trouble makig eds meet, cotact your creditors immediately. Tell them why it s difficult for you, ad try to work out a modified paymet pla that reduces your paymets to a more maageable level. Do t wait util your accouts have bee tured over to a debt collector. Debt Relief Services If you fid yourself overwhelmed by your debt ad are at the poit where you are cosiderig usig a credit couselor, debt maagemet or debt settlemet compay, you should kow the followig distictios: Credit Couselig Credit couselors geerally advise idividuals o maagig their moey, offer solutios to curret fiacial problems, ad/or help develop a persoalized pla to help prevet future fiacial difficulties. Credit couselors do ot collect moey from you or disburse fuds o your behalf to your creditors. These couselors may ot collect moey upfrot or before their service is redered. Most reputable credit couselors are o-profits ad offer services through local offices, olie, or over the phoe. If possible, fid a orgaizatio that offers i-perso couselig. May uiversities, military bases, fiacial istitutios, housig authorities, ad braches of the U.S. Cooperative Extesio Service (e.g. Michiga State Uiversity Extesio) operate o-profit credit couselig programs. Your fiacial istitutio, local cosumer protectio agecy, ad frieds ad family also may be good sources of iformatio ad referrals. But be aware that o-profit status does t guaratee that services are free, affordable, or eve legitimate. I fact, some credit couselig orgaizatios charge high fees, which they may hide, or urge their cliets to make volutary cotributios that ca cause more debt. Debt Maagemet These types of compaies create debt maagemet plas that are idividually tailored based o what ca be realistically afforded o a mothly basis. These services require the collectio of moey; you pay the debt maagemet compay ad the the compay pays the creditor o your behalf. Debt maagemet plas help reduce outstadig, usecured debts at a reduced level over a fixed period of time to help regai cotrol of fiaces. Debt Settlemet Debt settlemet programs typically are offered by for-profit compaies ad egotiate with your creditors to allow you to pay a settlemet to resolve your debt a lump sum that is less tha the full amout that you owe. To make that lump sum paymet, the program asks that you set 58

65 aside a specific amout of moey every moth i savigs. Debt settlemet compaies usually ask that you trasfer this amout every moth ito a escrow-like accout to accumulate eough savigs to pay off ay settlemet that is evetually reached. Further, these programs ofte ecourage or istruct their cliets to stop makig ay mothly paymets to their creditors. Debt Settlemet Has Risks Although a debt settlemet compay may be able to settle oe or more of your debts, there are risks associated with these programs to cosider before erollig: 1. These programs ofte require that you deposit moey i a special savigs accout for 36 moths or more before all your debts will be settled. May people have trouble makig these paymets log eough to settle all (or eve some) of their debts, ad ed up droppig out the programs as a result. Before you sig up for a debt settlemet program, review your budget carefully to make sure you are fiacially capable of settig aside the required mothly amouts for the full legth of the program. 2. Your creditors have o obligatio to agree to egotiate a settlemet of the amout you owe. So there is a possibility that your debt settlemet compay will ot be able to settle some of your debts eve if you set aside the mothly amouts required by the program. Also, debt settlemet compaies ofte try to egotiate smaller debts first, leavig iterest ad fees o large debts to cotiue to mout. 3. Because debt settlemet programs ofte ask or ecourage you to stop sedig paymets directly to your creditors, they may have a egative impact o your credit report ad other serious cosequeces. For example, your debts may cotiue to accrue late fees ad pealties that ca put you further i the hole. You also may get calls from your creditors or debt collectors requestig repaymet. You could eve be sued for repaymet. I some istaces, whe creditors wi a lawsuit, they have the right to garish your wages or put a lie o your home. Whether you are lookig for a credit couselig, debt maagemet, or debt settlemet compay, uderstad there are differeces betwee them. A credit couselor is NOT required to be licesed ad they CANNOT collect moey to pay a cosumer s debt. Debt maagemet compaies are required to be licesed ad both the compay ad the cosumer ca make paymets to the creditors. To fid a licesed debt maagemet compay i your area, visit the Departmet of Isurace ad Fiacial Services (DIFS) website ( to search the compay database. Debt settlemet compaies are required to be licesed to work i your state. Cosumers are required to make deposits i a special savigs accout whereby the compay will the make paymets to the creditors. Before doig busiess with ay debt settlemet compaies, cotact the Michiga Attorey Geeral s Office, ad they ca tell you if ay cosumer complaits are o file about the firm you re cosiderig doig busiess with. Ask the Attorey Geeral s Office if the compay is required to be licesed to work i your state ad, if so, whether it is. Fiacial Educatio Complaits If you have a complait about a credit couselig agecy or a debt settlemet compay, cotact the Michiga Attorey Geeral s Cosumer Protectio Divisio at or complete a olie complait form at If you have a complait about a debt maagemet compay, cotact the Departmet of Isurace ad Fiacial Services (DIFS) at or obtai a olie complait form at 59

66 Fiacial Educatio Use Cautio Whe Shoppig for Debt Relief Services Avoid ay debt relief orgaizatio that: Charges ay fees before it settles your debts or eters you ito a debt maagemet pla Pressures you to make volutary cotributios, which is really aother ame for fees Touts a ew govermet program to bail out persoal credit card debt Guaratees it ca make your usecured debt go away Tells you to stop commuicatig with your creditors, but does t explai the serious cosequeces Tells you it ca stop all debt collectio calls ad lawsuits Guaratees that your usecured debts ca be paid off for peies o the dollar Wo t sed you free iformatio about the services it provides without requirig you to provide persoal fiacial iformatio, like your credit card accout umbers, ad balaces Tries to eroll you i a debt relief program without reviewig your fiacial situatio with you Offers to eroll you i a debt maagemet pla without teachig you budgetig ad moey maagemet skills Demads that you make paymets ito a debt maagemet pla before your creditors have accepted you ito the program Debt Cosolidatio You may be able to lower your cost of credit by cosolidatig your debt through a secod mortgage or a home equity lie of credit. But these loas require you to put up your home as collateral. If you ca t make the paymets or if your paymets are late you could lose your home. What s more, cosolidatio loas have costs. I additio to iterest, you may have to pay poits, with oe poit equal to oe percet of the amout you borrow. Still, these loas may provide certai tax advatages that are ot available with other kids of credit. Bakruptcy Persoal bakruptcy also may be a optio, although its cosequeces are log-lastig ad farreachig. People who follow the bakruptcy rules receive a discharge a court order that says they do t have to repay certai debts. However, bakruptcy iformatio (both the date of the filig ad the later date of discharge) stay o a credit report for 10 years ad ca make it difficult to get credit, buy a home, get life isurace, or sometimes get a job. Still, bakruptcy is a legal procedure that offers a fresh start for people who have gotte ito fiacial difficulty ad ca t satisfy their debts. For more iformatio, see Bakruptcy i Fiacial Crisis Maagemet i the toolkit. Credit Repair Be suspicious of claims from so-called credit repair compaies. May compaies appeal to people with poor credit histories, promisig to clea up their credit reports for a fee. But aythig these compaies ca do for you for a fee, you ca do yourself for free! You have the right to correct iaccurate iformatio i your file, but o oe regardless of their claims ca remove accurate egative iformatio from your credit report. Oly time ad a coscietious effort to repay your debts will improve your credit report. Federal ad some state laws ba these compaies from chargig you a fee util the services are fully performed. 60

67 The Credit Repair Orgaizatio Act (a Federal Law) regulates the credit repair compaies atiowide. By law, credit repair compaies caot: Make false claims about their services Charge you util they have completed the promised services Perform ay services util they have your sigature o a writte cotract ad have completed a three day waitig period. Durig this time, you ca cacel the cotract without payig ay fees. Note: Accurate, egative iformatio will remai o your credit report for seve (7) years; ad bakruptcy iformatio remais for te (10) years. Complaits If you have a cosumer complait about a credit repair compay, cotact the Federal Trade Commissio (FTC) at ad the Cosumer Fiacial Protectio Bureau (CFPB) at Fiacial Educatio Dealig with Debt Collectors The Fair Debt Collectio Practices Act (a Federal Law) dictates how ad whe a debt collector may cotact you: Debt collectors may call you betwee the hours of 8 a.m. ad 9 p.m. They may ot call you while you are at work They may ot harass you, lie to you, or use ufair practices whe they are tryig to collect a debt from you They must hoor a writte request from you to stop further cotact (this should be set certified mail) If you wat more iformatio or have a cosumer complait, cotact the Federal Trade Commissio (FTC) at , the Cosumer Fiacial Protectio Bureau (CFPB) at , or the Michiga Departmet of Licesig ad Regulatory Affairs (LARA) at

68 Fiacial Educatio Developig a Savigs ad Spedig Pla May Americas carry some form of debt today, as they choose to buy ow ad pay later. The followig basic spedig strategies help you cotrol the amout of debt you create: Sped less tha your icome. This savigs tactic works well durig the workig years ad will cotiue to beefit you i your retiremet years. Take cotrol of how you sped moey. Trackig what you sped usig a pecil ad paper, a spreadsheet o a computer, or moey maagemet software ca help you avoid potetial debt traps. Build a emergecy fud to cover at least three moths of livig expeses. Usig emergecy fuds for uexpected expeses or ifrequet but aticipated expeses (such as repairig a damaged roof, replacig a broke dryer, or buyig ew automobile tires) avoids the use of expesive debt. If you fid yourself i a situatio i which you must go ito debt, the followig guidelies ca help you sesibly maage your fiacial obligatios: 1. Kow the costs of usig credit. Read the fie prit. Be aware of whe fees could be assessed ad whe higher fiace charges ca be applied. 2. Lower the costs of usig credit by: u Payig all of your bills o time, every moth. u Beig aware of uiversal default. If borrowers pay eve oe creditor late a credit card, utility compay or other their credit costs could go up without otice. u Never spedig more tha 30 percet of a credit limit from ay oe source. 3. Kow what you owe ad reduce your debt by settig goals. 4. Methodically pay off your debt istead of sellig a asset to elimiate it all at oce. 5. Pay dow or pay off a mortgage after payig off high-iterest debt, such as auto loas, credit cards ad payday loas. 6. If your spedig is uder cotrol but your overall debt is too high, cosider dowsizig your home, movig to a less-expesive area, or takig o a part-time job. Eve small cutbacks i expeses ca add up to big savigs over time. 7. Do ot hesitate to get help i addressig persoal debt issues from a qualified fiacial advisor. The followig are steps you ca take to assist i creatig your budget but you will first eed to gather the documetatio listed here to assist you: Your last 12 moths worth of bak accout statemets Your last 12 moths worth of credit card statemets Last two paystubs for you (ad your spouse if you are married) Colored highlighters (use to group your expeses together ito differet categories) Last year s tax retur 62

69 STEP 1 Make a list of all your fixed or required mothly obligatios To make a effective budget, break this list dow ito three parts: Essetials: this icludes expeses that cover food, clothig, housig, trasportatio ad health care. No-essetial mothly obligatios: o-essetials are thigs such as cable, cell phoe, gym memberships, subscriptios ad other items. Required o-mothly expeses: items like property taxes, isurace premiums, auto registratio ad home warraties may come up oce a year. Be sure to take these periodic expeses ad calculate their cost o a mothly basis ad iclude it i your budget. STEP 2 Research your costs for health care Accout for all your expected health care costs keepig i mid premiums may go up aually. I additio, factor i the cost of detal, eye care ad hearig. Fiacial Educatio STEP 3 List all your optioal expeses This all the fu stuff, like travel, hobbies, sports ad etertaimet. STEP 4 - Calculate expeses vs. icome Total all your expeses. Total all your icome. Subtract your mothly expeses by your mothly icome. Hopefully, there is excess icome for savigs which ca be used for optioal expeses, home improvemets, crises, etc. If your icome is ot eough to pay your expeses you will eed to reevaluate your expeses. Attached is a example budget spreadsheet. You ca use this to assist you with preparig your mothly expese list. 63

70 Fiacial Educatio 64

71 Uderstadig Social Security Social Security reaches almost every family at some poit. It helps ot oly older Americas but also workers who become disabled ad families i which a spouse or paret dies. Social Security is ot meat to be the oly source of icome for people whe they retire, as it oly replaces about 40 percet of a average wage earer s icome after retiremet. May fiacial experts say retirees will eed 70 percet or more of pre-retiremet earigs to live comfortably; therefore, private pesios, savigs ad ivestmets are ecouraged to help supplemet the differece. Social Security Eligibility To become eligible for Social Security you eed 40 credits (10 years of work). However, youger people eed fewer credits to be eligible for disability beefits or for family members to be eligible for survivor beefits. As you work ad pay taxes, you ear Social Security credits. I 2014, you ear oe credit for each $1,200 i earigs up to a maximum of four credits per year. Retiremet Beefits Choosig whe to retire is oe of the most importat decisios you will make i your lifetime. Social Security retiremet beefits may be reduced, icreased, or uaffected depedig upo your age at retiremet. You are etitled to your full retiremet beefit at your full retiremet age. Social Security s full retiremet age depeds o the year i which you were bor. If you were bor i 1942 or earlier, you are already eligible for your full Social Security beefit. If you were bor betwee 1943 ad 1954, your full retiremet age is 66. If you were bor betwee 1955 ad 1959, your full retiremet age icreases gradually util it reaches age 67 for those bor i 1960 or later. The below chart shows your full retiremet age by the year you were bor. Fiacial Educatio Full Retiremet Age Year Bor (FRA) 100% Beefit ad 2 moths ad 4 moths ad 6 moths ad 8 moths ad 10 moths 1943 to ad 2 moths ad 4 moths ad 6 moths ad 8 moths ad 10 moths 1960 ad later 67 65

72 Fiacial Educatio You ca retire ad collect Social Security beefits ay time after age 62. If you decide to start takig beefits before your full retiremet age, your beefit amout will be reduced. O the other had, if you choose to wait util age 70, you beefit amout will be more due to the delayed retiremet credit you ll ear. Note: Although the full retiremet age for social security is risig, you should still apply for Medicare beefits three moths before your 65th birthday. If you wait loger, your Medicare medical isurace (Part B) ad prescriptio drug coverage (Part D) may cost you more moey. Beefits May Be Taxable You will have to pay taxes o your beefits if you file a federal tax retur as a idividual ad your total icome is more tha $25,000. If you file a joit retur ad you ad your spouse make more tha $32,000 joitly, you will have to pay taxes o your beefits. For more iformatio, call the Iteral Reveue Service at Whe to Apply It is recommeded to apply for beefits three moths before the date you wat the beefits to start. You ca apply for beefits o Social Security s website at Beefit paymets are paid electroically, either through direct deposit to your fiacial istitutio or you ca receive beefits o a prepaid debit card. Questios Regardig Social Security If you have questios regardig Social Security, you may wat to visit the Social Security Admiistratio s (SSA) website at to fid your aswers. If you prefer to speak to someoe directly, the SSA is available to speak with callers Moday thru Friday from 7:00 a.m. to 7:00 p.m. The toll-free umber is

73 Fiacial Orgaizatio Fiacial Ivetory You wat to get your fiacial life orgaized. This ot oly helps you to create a clear picture of your fiacial situatio ad make better decisios i the future, it will also help your spouse ad family members to avoid havig to make certai decisios i a crisis situatio. Creatig a fiacial ivetory allows you to take charge of your fiacial iformatio ad havig this importat iformatio located i oe documet helps you prepare for life s uexpected evets. A fiacial ivetory template ca be foud o the Michiga Associatio of Certified Public Accoutats website at This comprehesive tool, available i word ad excel formats, will help you get started o the path towards fiacial orgaizatio. Fiacial Educatio 67

74 Fiacial Educatio Talkig With Family Members About Fiaces May families do ot discuss fiaces util a crisis occurs. Ratioally, we may kow that the best way to miimize feeligs of helplessess ad stress is to pla ahead. Emotioally, however, we may fid it difficult to talk about these issues. Plaig ahead requires aticipatig egative situatios depedecy, disability, icapacity, ad death ad explorig solutios to these ucertai, hard-to-face problems. Discussio of such topics ca make everyoe feel ucomfortable or ueasy. Despite these axieties, there are good reasos to pla ahead. Plaig ahead: Prepares you or family members to make iformed decisios i times of crisis; Saves moey ad helps you avoid fiacial disasters or setbacks; Esures that you (or your spouse s) life-style, persoal philosophies ad choices are kow before the time comes whe you or they are ot able to participate i makig decisios; Allows time to gather iformatio, compare optios ad determie which optios help achieve what is most importat; Decreases the possibility that the family will have to egage i more itrusive, restrictive activities, such as takig court actio to seek a guardiaship or coservatorship; Reduces disagreemets amog sibligs about what Mom ad Dad wat ad how assets should be hadled. Discussig ad plaig the future with family members while everyoe is comparatively healthy ad fiacially secure puts families ad idividuals i a better positio to cope with uexpected life evets. Remember, it s difficult for may people to talk about fiaces, so startig the discussio ca be ucomfortable. Below are some tips to help you start the discussio. Start by takig care of your ow fiacial documets share your prefereces ad plas. This may ope the door to discussio. Use other people s experieces as examples real life examples make the importace of havig this coversatio more tagible. If somethig happes to a fried or eighbor, such as a move ito a log-term care facility or the exteded hospitalizatio followig a illess, these evets ca provide a good etry poit for a coversatio. Timig of the discussio whe ad where the discussios are held ca have a tremedous impact o outcome. Set your toe to the toe you d take with aother adult fried. A relaxed, shared activity, such as walkig, golfig or bakig, may diffuse some of the tesio whe the coversatio turs to moey. Plaig ahead does ot prevet all problems, but it does provide idividuals with more optios ad eables their families to act more effectively. Plaig ahead ca help families avoid disagreemets over care ad fiaces ad help alleviate the stress of makig difficult choices i crisis situatios. 68

75 Maagig Fiacial Affairs Nobody likes to thik of ed-of-life plaig matters, but havig the proper arragemets ad fiaces i place ca ease the process for your family durig this difficult time. There are a umber of legal documets you should cosider preparig to get your affairs i order. Although you could create some of these documets by yourself, it is recommeded that you cosult with a fiacial professioal or attorey. Estate Plaig A estate is the term used to describe all the moey ad property owed by a idividual - i other words, a perso s assets. Estate plaig is a process usig certai tools to esure that your fiacial goals are fulfilled after death. Goals may iclude providig for depedets, avoidig probate, or reducig estate taxes. Estate plaig may be as simple as implemetig a will or as complex as executig a trust ad explorig sophisticated tax or estate plaig techiques. Estate plaig may be more importat with a smaller estate because a larger portio will go toward fial expeses. Some devices that may be used to safeguard ad distribute a estate are joit teacy with full rights of survivorship, trust, ad will. Fiacial Educatio Joit Teacy This is oe way that property ca be held by more tha oe perso. A joit ower caot sell his or her iterest without the permissio of other owers. Property held i joit teacy does ot go through probate; it passes directly to the survivig ower(s). Havig property i joit teacy may also reduce iheritace taxes. Trust A trust is a writte agreemet wherei you give a trustee power to maage certai property for a beeficiary. There are several types of trusts. Purposes of the trusts iclude cotrollig assets after death, avoidig probate, providig for disability, ad reducig iheritace taxes. Will - The primary purposes of havig a will are to provide for the distributio of your property after death ad to desigate a persoal represetative to see that your wishes are carried out. A will may also be used to appoit a guardia for mior childre. There are three types of wills ad each is equally valid. Choosig which will to use depeds o the size of your estate ad your wishes cocerig the distributio of your property. u A hadwritte will must be dated ad siged at the ed of the documet. u A formal will ca be typewritte. It must be siged ad witessed by at least two people. (Keep i mid that a beeficiary uder the will should ever be a witess to its sigig.) u A statutory will is a form. It is relatively simple to use but allows limited choice. The form is available i the Plaig for Your Peace of Mid publicatio that is available o the Michiga Legislative website at Advace Care Plaig I advace care plaig, advace directives are established which specify your health care desires. Talk with your doctor, family, close frieds ad other trustworthy advisors about your health care wishes, questios ad cocers. After learig your optios ad discussig your wishes, prepare a Advace Care Directive. Advace Care Directives are specific istructios made i advace that are iteded to direct your medical care whe you are uable to do so. They state your wishes about medical, surgical, ad/or behavioral health care whe you are ot able to speak for yourself. Durable Power of Attorey for Health Care This is a documet that allows you to give aother perso, called the Patiet Advocate, the power to make medical treatmet ad related 69

76 Fiacial Educatio health care decisios for you. It is a legal documet, ad must be siged ad dated by you ad witessed by two adults. It must cotai certai thigs i it to be valid. You may wat to use a form approved by the State Bar of Michiga, the Michiga State Medical Society, or a hospital or health care provider. Keep a persoal copy i a safe ad accessible place while lettig key people kow of your itetios. Livig Will You have probably heard of a Livig Will. It is a writte statemet that you share with your doctors ad family members tellig them the type of care you wat if you become termially ill or permaetly ucoscious ad if you are uable to make decisios about your cotiued care. However, Livig wills are ot recogized i Michiga law. Other documets such as The Five Wishes have recetly bee created to iclude a emphasis o desired treatmets rather tha just exclusio of life-prologig itervetios. Lear more about advace directives i the Five Wishes model at You may wish to cosult a attorey for further iformatio regardig livig wills. Aother advace directive optio is a Do-Not-Resuscitate (DNR) Declaratio. A DNR is a writte documet i which you express your wish that if your breathig ad heartbeat stop, you do t wat ayoe to attempt to resuscitate you. Michiga law provides that these documets are valid i hospitals, ursig homes, ad other settigs. Fueral Plaig Fiaces surroudig fueral ad fial arragemets ca be a source of great cocer ad that s why a icreasig umber of people are plaig their ow fuerals, desigatig their fueral prefereces, ad sometimes payig for them i advace. Prearragig a fueral ad burial allows you to compare prices ad make your ow choices. If you choose to prepla ad prepay for your fueral, be sure your family is iformed of your plas ad let them kow where the documets are kept. (For more iformatio o prepaid fueral cotracts, see Prepaid Fueral Cotracts i the Fiacial Products sectio of the Toolkit.) Fueral directors are required to give you itemized prices i perso ad, if you ask, over the phoe. You have the right to purchase oly those specific goods ad services you wat, uless state or local law requires the purchase of a specific item. The fueral home must give you a itemized statemet that icludes the total cost of the goods ad services you have selected. If you are legally required to buy a particular item, the fueral provider must disclose it o the price list, with referece to the specific law. Oce you see this total, you ca chage your mid about items if the total cost is more tha you wish to pay. For additioal iformatio ad resources o Ed-of-Life Plaig, you ca cotact: Michiga Office of Services to the Agig (OSA) visit or call Michiga Departmet of Commuity Health (MDCH) or call The Michiga Associatio of Certified Public Accoutats (MICPA) or call Hospice ad Palliative Care Associatio of Michiga visit or call Carig Coectios (Natioal Hospice ad Palliative Care) visit or call

77 Reivetig Retiremet Preparig ad Livig Through Retiremet Pre ad Post-Retiremet Checklist Covertig Wealth to Icome Matchig Your Ivestmets to Your Moey-Related Goals Fiacial Crisis Maagemet Hadlig a Credit Crisis Preparig for Fiacial Crisis i Retiremet Miimizig the Fiacial Impact of Losig a Spouse Actio Steps to Take Whe a Loved Oe Dies Home Loa Modificatio Home Foreclosure Bakruptcy 71

78 Reivetig Retiremet 72

79 Preparig ad Livig Through Retiremet Pre- ad Post-Retiremet Checklist Whether you re retirig i 10 years or you ve bee retired for 10 years, gettig orgaized, plaig ahead, ad beig i cotrol of your moey-related matters, goes a log way toward makig your retiremet experiece rich ad rewardig. This sectio icludes checklists for idividuals who are plaig to retire ad for those who are curretly retired. Idetify or pla your retiremet date. Pre-Retiremet Checklist Reduce your debt. Excessive debt will have a egative impact o your et retiremet icome. Estimate your Social Security beefits ad other sources of guarateed icome, e.g., Social Security ad pesio. Idetify your essetial mothly expeses durig retiremet, e.g., mortgage or ret paymet, car loas or lease paymets, property ad car isurace, utilities, health isurace, etc. Develop a budget for discretioary spedig that takes ito accout your estimated essetial mothly expeses ad estimated total mothly icome from all sources. Evaluate how your retiremet moey is allocated ad calculate its growth ad icome potetial durig retiremet. Be careful ad coservative with your assumptios. Utilize catch up provisios o IRA ad 401k cotributios if a gap exists betwee your estimated retiremet icome ad your estimated overall expeses durig retiremet. Evaluate your 401(k) roll-over optios. Take ito cosideratio your other pools of retiremet moey, e.g., your spouse s 401(k) ad your IRA accouts. The optio you choose should complemet your other retiremet pools of moey. Evaluate healthcare beefits ad provider optios. Cosider log-term care ad disability isurace. Reivetig Retiremet 73

80 Reivetig Retiremet Post-Retiremet Checklist Develop a budget with a emphasis o maagig your debt. Idetify your essetial expeses, e.g., mortgage or ret paymet, car loas or lease paymets, property ad car isurace, utilities, health isurace, etc. Excessive debt will have a egative impact o your et retiremet icome. Evaluate ad cotrol your discretioary spedig. Discretioary spedig is too ofte ratioalized as ecessary, must-have or must-do spedig. Over-spedig o discretioary items icreases your risk of ruig out of moey. Maage risk or volatility i your ivestmet accouts, especially dowside volatility. Kow what you ow i your ivestmet accout ad why you ow it. Kow how your ivestmet portfolio has performed. Measure its performace at least semi-aually. Compare its performace agaist a appropriate bechmark (idex) or bled of bechmarks. Kow the percetage amout you are withdrawig o a aualized basis from your ivestmets. Evaluate the safeess ad sustaiability of your withdrawal rate. Kow what factors may adversely affect your withdrawal rate ad develop a pla to adjust the amout or source of your withdrawal. Pla ad act o what you kow - ad what you ca cotrol. Be careful with assumptios about the future. Your assumptios may mislead you ito beig either overly-optimistic or overly-pessimistic about your future which ca lead to decisios that could egatively affect the quality of your life durig retiremet. What we kow (Be careful ot to cofuse assumptios with what you actually kow): Our retiremet date What we ca expect from guarateed icome sources, e.g. Social Security ad pesio beefits What we do t kow: Future expeses icludig our healthcare costs Future returs for stocks ad bods Iflatio ad tax rates Our date of death What we ca cotrol: Our debt Discretioary spedig Oversight ad maagemet of our retiremet moey 74

81 Covertig Wealth to Icome Perhaps our sigle surpassig ivestmet challege is to accumulate ad maitai sufficiet assets to sustai us durig the years whe we are either o loger workig or whe our eared icome is substatially lower. There are umerous strategies ad thousads of ivestmet combiatios that ca be used to accumulate wealth. But whe the accumulatio phase eds ad you eed to begi covertig your accumulated wealth to icome, the umber of geerally-accepted strategies arrows. Before decidig o your retiremet icome strategy, you eed to aswer these four questios: 1. How much do I aticipate eedig? 2. Startig whe? 3. For how log? (It may be loger tha you thik!) 4. What are my sources of icome? For example: Social Security, IRAs, compay retiremet pla distributio, pesio, etc. Fidig aswers to questios 2 ad 4 is relatively easy. Arrivig at accurate aswers for questios 1 ad 3 is trickier. Several factors make these two questios especially difficult: Reivetig Retiremet Logevity: We ted to uderestimate how log we will eed retiremet icome. Risig costs: Iflatio i the costs for goods, services ad health care. Market risk: A ivestmet strategy that is too coservative may ot provide sufficiet log-term growth to sustai the purchasig power of your icome durig retiremet. A ivestmet strategy that is too aggressive may icrease the potetial for extreme ad urecoverable losses. Excess withdrawals: Spedig too much too early i your retiremet icreases the possibility that you will deplete your assets too early. After cosiderig the questios ad factors outlied above, you eed to determie your ivestmet strategy or priority. While there is o guaratee that ay ivestmet strategy will achieve its objective, geerate profits or avoid losses, the followig example strategies represet good startig poits toward arrivig at a retiremet strategy that makes sese to you. Diversified Fixed-Icome Portfolio Geeral attributes: Reliable fixed-icome stream Ideal for risk aversio Potetial loss of purchasig power due to iflatio Probability of early depletio of assets Example ivestmets iclude: u Certificate of Deposits (CDs) u Treasuries u Idividual bods u Bod mutual fuds u Fixed-rate tax-deferred auities u Sigle premium immediate auities 75

82 Reivetig Retiremet Sigle Premium Immediate Auities Geeral attributes: Provides a lifetime icome stream Reliability of icome is depedet o fiacial stregth of the isurace compay Cotrol of the assets trasferred to the isurace compay Best used to cover essetial expeses oly Potetial loss of purchasig power due to iflatio Separate Icome ad Growth Buckets Portfolio Geeral structure ad attributes: Potetial for asset growth Less affected by short-term market fluctuatios Possibility of early depletio of assets Separate icome buckets, e.g.: 2-year, 5-year, 10-year buckets depleted over specified time periods. Example ivestmet categories iclude: Moey Market/Savigs Certificate of Deposits (CDs) Idividual bods Separate growth buckets, e.g.: 10-year, 15-year, 20-year buckets, etc. to replace depleted icome buckets. Example ivestmet categories iclude: Idividual stocks Actively-maaged stock mutual fuds Exchage-traded fuds (ETFs) ad broad-market idex fuds Total Retur Portfolio with Systematic Withdrawals Geeral attributes: Portfolio composed of a broadly-diversified combiatio of ivestmet categories Regular, pro rata withdrawals Requires periodic rebalacig of the portfolio to its strategic allocatio target percetages Potetial for asset growth, but Potetial for rapid depletio of assets from sellig equities at depressed prices i a dow market Possibility of early depletio of assets Limit withdrawal rate to 4% or less 76

83 Matchig Your Ivestmets to Your Moey-Related Goals Based upo the ivestmet time horizo of your goal, certai types of ivestmets may geerally be cosidered more appropriate tha others. For example, if you have short-term, must have moey available goals, the you might cosider owig ivestmets that are less likely to lose you the moey you ll eed soo. If you have log-term goals that require growth i the value of your moey, you might cosider owig ivestmets that are more likely to make you moey you ll eed later. Log-term ivestmets that offer growth potetial may ot be appropriate for short-term timeframes because their potetial for extreme volatility over the short-term may result i a loss of pricipal, if sold. Coversely, short-term ivestmets that preserve the value of your moey may ot be appropriate for log-term timeframes where growth is the ivestmet objective. Short-term goals: Less tha 3 years Short-term ivestmet examples: Cash equivalets U.S. Treasury Bills Bak or credit uio savigs accouts Stable value fuds ad moey market fuds CDs maturig less tha 3 years Reivetig Retiremet Bods Short-term idividual bods maturig less tha 3 years Target date maturity exchage-traded fuds (ETFs) Short-term bod mutual fuds ad ETFs with average effective maturities less tha 3 years¹, ² Itermediate-term goals: Betwee 3 years ad 10 years For itermediate-term timeframes, it may be appropriate to allocate a portio of your fuds to stocks ad other growth assets depedig upo your ivestmet objective ad your willigess to assume the potetial risk of a multiple-year period of egative stock returs. Historically, the potetial risk of a egative retur o stocks for a full holdig period is greater for holdig periods betwee 1 year ad 5 years tha it is for holdig periods betwee 6 years ad 10 years. Itermediate-term ivestmet examples: Cash equivalets U.S. Treasury Bills Bak or credit uio savigs accouts Stable value fuds ad moey market fuds Bods (ad other fixed-icome ivestmets) CDs with maturity dates betwee 3 ad 10 years Idividual bods with maturity dates betwee 3 ad 10 years Target date maturity bod ETFs Itermediate-term bod mutual fuds ad ETFs with average effective maturities betwee 3 ad 10 years¹, ² 77

84 Reivetig Retiremet Stocks (ad other growth ivestmets) Idividual commo stocks Stock mutual fuds, closed-ed stock fuds (CEF), stock uit ivestmet trusts (UIT), stock ETFs ad Target Date fuds Real estate fuds, hard asset (precious metals) fuds, atural resources fuds Log-term goals: More tha 10 years Log-term ivestmet examples: Bods Target date maturity bod ETFs Log-term idividual bods Log-term bod mutual fuds ad ETFs with average effective maturities more tha 10 years ¹, ² Stocks (ad other growth ivestmets) Idividual commo stocks Stock mutual fuds, closed-ed stock fuds (CEF), stock uit ivestmet trust (UIT), stock ETFs ad Target Date Fuds Real estate fuds, hard asset fuds, atural resources fuds ¹ Average effective maturity is a weighted average of all the maturities of the bods i a mutual fud or exchage traded fud. It is calculated by weightig each bod s effective maturity by the market value of the security. Iformatio o the average effective maturity of a bod mutual fud or ETF is available through your employer-sposored retiremet pla provider (for ivestmets offered withi the pla), mutual fud fact sheets, mutual fud compay websites ad mutual fud/ ETF ratig ad rakig services. ² Prices of bod mutual fuds ad ETFs fluctuate i value i respose to movemet i iterest rates ad bod credit ratigs. Ulike idividual bods, bod mutual fuds ad ETFs do ot have a maturity date. They maitai a average maturity i accordace with their ivestmet objective. For example, a short-term bod fud may maitai a costat average effective maturity of 2.5 years i perpetuity. Cosequetly, the value of your bod fud ad/or ETF may be worth less tha your origial ivestmet upo liquidatio. 78

85 Fiacial Crisis Maagemet Hadlig a Credit Crisis Sometimes a credit crisis is uavoidable, perhaps due to a lost job or sigificat health care expeses. I those situatios, commuicatio with creditors is critical. I early all cases, talkig with creditors earlier rather tha later will yield you more favorable results. It is much easier to work thigs out with a fiacial istitutio before it turs your accout over to a collectio agecy. If you fid yourself i this situatio you may wat to cotact a Natioal Coucil o Agig Ecoomic Security Ceter i your commuity for the ame of a reputable debt couselor. Beefit programs are costatly chagig; therefore, you may wat to check i your commuity for orgaizatios that address older adult cocers. Dealig with a Credit Emergecy Ask your creditors for more favorable ledig terms, such as lower fiace charges ad a lower miimum mothly paymet. While this will legthe the time to pay dow the debt ad may result i payig more fiace charges over the log ru, it could prevet your utilities (for example) from beig cut off i the short term. If a debt situatio becomes itolerable, cotact the Natioal Foudatio for Credit Couselig ( This orgaizatio will help you take cotrol of your spedig ad work out a affordable repaymet pla. Protect your fiacial assets while you re i a credit crisis. Avoid services that claim they ca elimiate debt or fix a credit score. You will typically pay a lot of moey for these services ad could ed up i a situatio that is o better, or possibly eve worse. Reivetig Retiremet Avoid Credit Traps Wise use of debt i retiremet also meas avoidig credit traps. Repeated rollig of a debt from oe credit card to aother, for istace, ca lower your credit score. Uless a credit card iterest rate reductio is sigificat, such as a drop of 4 or 5 percet or more, movig a debt aroud is oly delayig the ievitable. Rather tha movig a debt aroud, pay dow the debt as aggressively as possible. Or cosolidate may higher-rate debts ito oe at a lower rate, if possible. No matter how bad your credit crisis may seem, be careful of quick fixes, such as the followig: Pawshops Check-cashig stores Cash-advace firms Payday leders Ret-to-ow compaies Auto title loa compaies I early all cases, the costs of usig oe of these so-called loa shops will far outweigh ay beefits you might gai. 79

86 Reivetig Retiremet Preparig for Fiacial Crisis i Retiremet Crises durig retiremet ca come i may forms: divorce, catastrophic medical expeses, atural disaster, disability, care for a elderly family member, or loss of a icome source. Experiecig these fiacial setbacks i retiremet ca be especially overwhelmig. Thoughtful plaig for a potetial crisis ow ca make the recovery period faster ad less paiful later. Make sure you have eough saved to pay for uexpected evets. If you have a retiremet pla at work, such as a 401(k) or 403(b), ad your employer makes matchig cotributios, be sure to save the most you ca to ear 100 percet of the matchig cotributios. If you do ot have a employersposored retiremet pla, cosider cotributig to a Idividual Retiremet Accout (IRA). Makig risky ivestmets i hopes of big returs is temptig, but a safer way is simply to save more. Reduce your debt sooer rather tha later. Pay dow your mortgage ad ay cosumer debt as quickly as possible. You will have more cash to deal with a crisis i the future if you are out of debt. Keep a reasoable percetage of stocks i your retiremet portfolio. If you are earig retiremet, keep track of the overall amout you have ivested i equities (stocks), such as mutual fuds or exchage-traded fuds. If you have too little i stocks by ivestig too coservatively you risk ruig out of moey i your later years. If you have too much i stocks, you could be forced ito sellig whe market coditios are bad. Overcomig a Fiacial Crisis i Retiremet If you already are settled ito your retiremet ad have bee dealt a sigificat fiacial hardship, do t despair. Start by makig some immediate cutbacks ad rebuild from there. Cut back o expeses. Small chages ow quickly ca add up over time: Ret movies or borrow them from the library istead of seeig them at the movie theater. Take the weeked ewspaper subscriptio istead of the daily versio, or cacel altogether ad read olie. Chage your cellphoe package to a less expesive versio that still works for you, ad drop your ladlie if you ca do without it. Pack your luch. Make coffee at home. Uplug uused electroic devices. Make drastic chages. Depedig o your situatio, you may have to make larger cutbacks as well: Refiace your mortgage to a lower iterest rate. Sell a car ad use public trasportatio; or sell a higher-value car ad buy a iexpesive replacemet. Susped your retiremet savig cotributios for a period of time. Switch from more expesive whole-life isurace to less expesive term-life isurace. Let your child pick up more of his or her college expeses. Have your child rely more o studet loas ad/or his or her ow earigs tha o your support for help with college expeses. You always ca help your child pay dow his or her loas after he or she is out of school if your fiacial situatio has improved. Eve if your child has to take out more loas, remember that he or she has a lifetime to pay dow the loas while you have less time to save ad prepare for retiremet. 80

87 Dowsize your home or ret a place to live. If local real estate coditios allow, cosider sellig your home ad purchasig a less expesive replacemet to reduce your debt ad overall housig expeses. If you caot afford to buy a replacemet home, do t overlook the idea of retig a less expesive home ad savig the differece. Reivetig Retiremet 81

88 Reivetig Retiremet Miimizig the Fiacial Impact of Losig a Spouse Losig a spouse is always a paiful ad difficult time, ad for retirees caught fiacially uprepared it ca be especially devastatig. How do you pla for such a loss, ad what do you do if you are i the midst of dealig with this crisis right ow? The followig is a list of thigs you may wat to do to help you prepare for the fiacial impact losig a spouse ca cause. Get orgaized Orgaize ad cetralize all of your fiacial records so they are accessible to both of you. Discuss your prefereces for sharig iformatio about olie accouts, keepig security cosideratios i mid. Share iformatio Make sure both of you are fully iformed about all of your retiremet resources, such as Social Security beefits, IRAs, pesios, ad ay employer retiremet beefits. Make sure both of you uderstad your basic estate plaig documets, icludig your wills, powers of attorey for health care, ad livig will. Budget for oe icome I additio to plaig for retiremet with icome ad beefits from both spouses, cosider what will happe if oe spouse dies soo after retiremet. Pla a budget based o oe icome to be prepared. Cosider workig loger Delayig Social Security beefits for whomever makes the higher icome ca be a good strategy for icreasig retiremet icome. If the higher-earig spouse passes away, the survivig spouse ca claim those beefits as if they were his or her ow. Review isurace policies It s importat for you to make careful decisios about isurace to miimize the impact of your spouse s death. For may couples, a joit-life auity paymet optio will work better tha a sigle-life optio. The mothly beefit amout for the joit-life optio will be lower, but it will be guarateed to pay util the survivig spouse passes away. I additio, give the high cost of ursig care, it ofte is wise to purchase a log-term care isurace policy. A alterative to logterm care isurace may be to purchase life isurace ad have the survivor earmark a portio of those beefits for log-term care ad medical expeses. For steps to take after a spouse passes away see Actio Steps to Take Whe a Loved Oe Dies i the ext sectio of this Toolkit. 82

89 Actio Steps to Take Whe a Loved Oe Dies Copig with the loss of a loved oe is difficult. To make importat decisios durig this time easier, cosider followig the task list provided below. The timeframes are oly guidelies to help you set some priorities whe the required umber of tasks may be overwhelmig. Because each situatio is uique, it is recommeded you cosult with a professioal (CPA ad/or attorey) for specific assistace i processig a estate. Immediately After Death Notify close family members ad frieds. Make arragemets to care for miors ad pets. Make appoitmets to arrage the fueral, burial or crematio, ad memorial service at these meetigs, you ll also wat to discuss your loved oe s prearragemets ad last requests. Place a obituary i the local ewspaper the fueral director ca help with this. Notify your loved oe s employer(s) (if applicable) otify the persoel departmet of your loved oe s curret employer(s) to collect ay salary, vacatio or sick pay owed. Cotact your ow employer ad arrage for bereavemet leave (if applicable). Cotact the schools of your loved oe s childre (if applicable). Reivetig Retiremet Two Weeks ad After Obtai certified copies of the death certificate you may wat to obtai several certified copies of the death certificate through the local office of vital statistics because some agecies or compaies will oly accept a certified copy. You will eed a certified copy of the death certificate to receive distributio from life isurace policies, to retitle or trasfer ivestmet accouts, ad to trasfer persoal property ad real estate. Locate the Will or letter of istructio, if ay. Cotact your loved oe s fiacial advisor the advisor ca help determie what ivestmets your loved oe owed ad help assess the valuatio o date of death. They ca also help with retitlig assets to a beeficiary or a heir. Locate importat legal documets such as a marriage certificate, childre s birth or adoptio certificates, ad military discharge papers may be eeded to retitle your loved oe s assets or to apply for beefits for a survivig spouse or childre. Duplicate copies of marriage ad birth certificates are available at the couty office resposible for vital statistics where the marriage ad births occurred. To receive a duplicate copy of a military discharge, cotact the Natioal Persoel Records Ceter. Cotact your loved oe s estate-plaig attorey the attorey ca coordiate the probate process ad may have copies of ay Will or Trust documets. Report the death to the Social Security Admiistratio if your loved oe received beefits, to fid out whether ay paymets must be retured. Additioally, a survivig spouse may be eligible for a lump-sum death beefit ad/or survivor s beefit. For istructios or additioal iformatio, cotact your local Social Security Admiistratio office, visit or call Notify the credit reportig agecies. To reduce the risk of idetity theft, cotact the three atioal credit reportig agecies (Experia, Equifax ad TrasUio) ad request that a deceased do ot issue credit flag be placed o the credit file. 83

90 Reivetig Retiremet Locate isurace policies cotact all isurace compaies to file claims. Cosider filig for life isurace beefits immediately (Cosult your estate-plaig attorey or tax professioal if you expect the estate may be subject to federal or state estate taxes.) If your loved oe owed a auity, your ad your loved oe s fiacial advisor should carefully review the auity cotract to help esure that ay amouts payable to the decedet, or his or her estate, are collected. If a heir is etitled to cotiued paymets from the auity, cotact the provider to trasfer paymets to that heir. Notify credit card compaies cacel all cards uless you are amed o the accout ad wish to retai the card. Cotact past employers regardig pesio plas, ad cotact Idividual Retiremet Accout (IRA) custodias or trustees your loved oe s fiacial advisor, estate plaig attorey ad qualified tax professioal ca help trasfer owership of retiremet accout assets to desigated beeficiaries. Notify your loved oe s fiacial istitutio(s) to retitle or distribute the accout(s). Retitle joitly held assets, such as bak accouts, vehicles, stocks, bods, ad real estate. Notify utility compaies. If ecessary, cacel or redirect ewspapers, subscriptios ad other home deliveries. Cosult a qualified tax professioal regardig whether filig ay icome, estate or iheritace tax returs is required. I additio, remember to take your time o makig ay big fiacial decisios, such as sellig a house or ivestig a life isurace beefit. 84

91 Home Loa Modificatio If you are behid o your mortgage paymets it is importat to keep a ope lie of commuicatio with your mortgage compay. Talk to them. Explai your situatio. Work with represetatives to fid a solutio that will make it possible for you to keep your house ad protect your credit ratig. Mortgage compaies must make good faith efforts to establish live cotact with deliquet borrowers. Oce live cotact has bee established, the mortgage compay must iform the borrower i writig of ay loss mitigatio optios available, ad assig a cotact who ca respod to the borrower s iquiries ad provide assistace with the available loss mitigatio optios. There are a variety of programs available to help borrowers resolve their deliquecy ad keep them i their home. For further iformatio, please see the table below, or cotact a HUD approved Homeowership Couselig Agecy. To locate a HUD approved couselig agecy i your area, cotact the Michiga State Housig Developmet Authority (MSHDA) at or call OPTION OVERVIEW BENEFIT Refiace Receive a ew loa with lower iterest rate or Makes your paymet or terms more other favorable terms. affordable. Reistatemet Repaymet Pla Forbearace Pla Modificatio Pay the total amout you owe i a lump sum paymet by a specific date. This may follow a forbearace pla as described below. Pay back your past-due paymets together with your regular paymets over a exteded period of time. Make reduced mortgage paymets or o mortgage paymets for a specific period of time. Receive modified terms of your mortgage to make it more affordable or maageable after successfully makig the reduced paymet durig a trial period (i.e., completig a three [or four] moth trial period pla). Allows you to avoid foreclosure by brigig your mortgage curret if you ca show you have fuds that will become available at a specific date i the future. Allows you time to catch up o late paymets without havig to come up with a lump sum. Have time to improve your fiacial situatio ad get back o your feet. Permaetly modifies your mortgage so that your paymets or terms are more maageable as a permaet solutio to a log-term or permaet hardship. Reivetig Retiremet Short Sale Deed-i-Lieu of Foreclosure Sell your home ad pay off a portio of your mortgage balace whe you owe more o the home tha it is worth. Trasfer the owership of your property to the leder. Allows you to trasitio out of your home without goig through foreclosure. I some cases relocatio assistace may be available. Allows you to trasitio out of your home without goig through foreclosure. I some cases relocatio assistace may be available. This is useful whe there are o other lies o your property. 85

92 Reivetig Retiremet Homeowers who have had a fiacial hardship ad are at risk of default or foreclosure may also qualify for the U.S. Departmet of Treasury s Hardest Hit Fuds program. The Michiga Homeower Assistace Noprofit Housig Corporatio (MHA) actig through MSHDA was created to oversee the distributio of these fuds, ad has desiged forgivable loa programs to help homeowers with: Mortgage paymet assistace for homeowers curretly receivig Michiga uemploymet compesatio. Rescue fuds for homeowers who have falle behid i their mortgage paymets or past due property tax paymets due to o fault of their ow. Federal matchig fuds for pricipal reductios for homeowers who ca o loger afford their mortgage paymets as a result of reduced icome. Michiga homeowers ca apply directly at or by callig

93 Home Foreclosure The previous sectio of the Toolkit, Home Loa Modificatio ad Other Loss Mitigatio Optios offers you may alteratives to avoid the foreclosure process. If you fid that oe of these alteratives are available to you, you may be facig foreclosure. Below is some iformatio o how the Michiga foreclosure process works. There are two ways leders i Michiga ca foreclose: Judicial Foreclosure where the leder must take the borrower to court (this type of foreclosure is ot commo), ad Foreclosure by Advertisemet where the leder may foreclose by schedulig a Sheriff s sale ad advertisig the sale i a local paper. Uder Michiga s Foreclosure by Advertisemet Law, a compay must publish a Notice of Sale oce a week for four weeks, i a ewspaper of geeral circulatio i the couty where the property is located. The otice must also be posted o the property at least 15 days after the first Notice of Sale is posted. Mortgage compaies caot make the first otice or filig i the foreclosure process uless oe of the followig is met: Reivetig Retiremet The loa is more tha 120 days past due; The borrower has violated a due-o-sale clause; or, The foreclosure actio of a secod mortgage is beig joied. A foreclosure sale must be made at a public auctio to the highest bidder. The trustee or the sheriff of the court of the couty i which the property is located may coduct the sale betwee the hours of 9:00 am ad 4:00 pm o the date specified i the Notice of Sale. Michiga s Foreclosure Law icludes a six-moth redemptio period (12 moths for agricultural property that is larger tha three acres) for homeowers whose homes have sold at a foreclosure sale. This period is meat to provide a reasoable amout of time for homeowers to redeem the home, refiace it, sell it o a short sale or fid a ew place to live. If a homeower abados the property before the six moths is up, the leder ca shorte the redemptio period to 30 days. Furthermore, the purchaser at the foreclosure sale has the right to ispect the exterior ad iterior of the homeower s property ad all acillary structures after the sale ad periodically throughout the redemptio period. If a ispectio by the purchaser is ureasoably refused by the homeower or if damage to the property is immiet or has occurred, the purchaser ca immediately begi evictio proceedigs to seek possessio of the property ad elimiate the homeower s redemptio period. However, the court will ot eter a judgmet for possessio ad extiguishmet of the homeower s right to redemptio if, before the hearig for possessio, the homeower repairs ay damage to the property. A timelie of the foreclosure process, Uderstadig the Foreclosure Process, is available at the Michiga State Housig Developmet Authority s (MSHDA) website at If you are facig foreclosure ad eed assistace, cotact the Departmet of Isurace ad Fiacial Services at , Michiga State Housig Developmet Authority at , or seek legal advice. 87

94 Reivetig Retiremet Bakruptcy If you are like most people, whe you borrow moey, you have every itetio of payig it back. Whe somethig uexpected happes, such as a serious illess or loss of job, you may fid yourself uable to keep up with your paymets. Bakruptcy may be a optio available to help you elimiate your debt. While declarig bakruptcy might seem like the perfect solutio, bakruptcy ruis credit, makes it difficult to keep bak accouts ad credit cards, ca cause the loss of valuable possessios ad makes it difficult to get o with the ecessities of life, such as buyig or retig a home or car, gettig isurace or fidig a job. I fact, most fiacial advisors look at bakruptcy as a last resort oe that should oly be carried out with the cousel of a experieced bakruptcy attorey ad oly whe budgetig, credit couselig or other efforts have failed. If you pla to file for bakruptcy protectio, you are required to take a credit couselig class from a govermet-approved orgaizatio withi 180 days before you file. You also have to complete a debtor educatio course before your debts ca be discharged. For more iformatio o these courses ad to verify if the course is govermet-approved, please visit the Uited States Courts website at ApprovedCreditAdDebtCouselors.aspx. Geerally, bakruptcies ca be divided ito two types: liquidatio (Chapter 7) ad reorgaizatio (Chapter 13). These types are explaied below. Chapter 7 Bakruptcy Chapter 7 bakruptcy comes uder the liquidatio category. It s called liquidatio because the bakruptcy trustee may take ad sell ( liquidate ) some of your property to pay back some of your debt. However, you may keep property that is protected (also called exempt ) uder state law. Not everyoe ca file for Chapter 7 bakruptcy. For example, if your disposable icome is sufficiet to fud a Chapter 13 repaymet pla, after subtractig certai allowed expeses ad mothly paymets for certai debts, you wo t be allowed to use Chapter 7 bakruptcy. However, if you do file Chapter 7 it typically lasts three to six moths. I Chapter 7 bakruptcy, some of your property may be sold to pay dow your debt. I retur, most or all of your usecured debts (that is, debts for which collateral has ot bee pledged) will be erased. You get to keep ay property that is classified as exempt uder the state or federal laws available to you (such as your clothes, car, ad household furishigs). May debtors who file for Chapter 7 bakruptcy are pleased to lear that they ca keep some of their persoal property. If you owe moey o a secured debt (for example, a car loa for which the car is pledged as a guaratee of paymet) you have a choice of allowig the creditor to repossess the property, cotiuig your paymets o the property uder the cotract (if the leder agrees), or payig the creditor a lump sum amout equal to the curret replacemet value of the property. Some types of secured debts ca be elimiated i Chapter 7 bakruptcy. Chapter 13 Bakruptcy There are several types of reorgaizatio bakruptcies, but Chapter 13 is the most commo type for cosumers. I Chapter 13 bakruptcy you keep all of your property, but must make mothly paymets over three to five years to repay all or some of your debt. I Chapter 13 bakruptcy you must have a reliable source of icome that you ca use to repay some portio of your debt i order to file for Chapter 13. Whe you file for Chapter 13 bakruptcy, you must 88

95 propose a repaymet pla that details how you are goig to pay back your debts over the ext three to five years. The miimum amout you ll have to repay depeds o how much you ear, how much you owe, ad how much your usecured creditors would have received if you d filed for Chapter 7 bakruptcy. Your debts must be withi limits set by the federal govermet. If you have secured debts, Chapter 13 gives you a optio to make up missed paymets to avoid repossessio or foreclosure. You ca iclude these past due amouts i your repaymet pla ad make them up over time. Both Chapter 7 ad Chapter 13 bakruptcy have may rules, ad exceptios to those rules, regardig which debts are covered, who ca file, ad what property you ca ad caot keep. Though bakruptcy ca elimiate may kids of debts, such as credit card debt, medical bills, ad usecured loas, there are may types of debts, icludig child support ad spousal support obligatios ad most tax debts, that caot be wiped out i bakruptcy. You may wat to cosult with a attorey if you have questios regardig the types of bakruptcy ad whether it is a good optio for you. Reivetig Retiremet 89

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97 Fiacial Protectio Recogizig Scams Natioal ad Local Scams Idetity Theft Cosumer Tips o Idetity Theft Prevetio Ivestmet Scams ad Fraud Commo Ivestmet Threats How to Spot a Co Artist 91

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99 Recogizig Scams Natioal ad Local Scams Scam artists i the Uited States ad aroud the world defraud millios of people each year. They use may differet ways to trick you ito sedig moey or givig out persoal iformatio. Below are several commo scams for you to be aware of so you ca protect yourself from these uscrupulous scam artists. Telephoe Sales Scams Telemarketers will call you usig high-pressure tactics to solicit moey for fraudulet ivestmets, isurace policies, travel packages, charities, ad sweepstakes. Fraudulet telemarketig operatios are desiged to limit the beefit to the customer while maximizig the profit for the telemarketer. Tips to avoid telephoe scams: Fiacial Protectio Hag up the phoe! You do ot eed to speak to the caller. Do t give out cofidetial iformatio about yourself (i.e. Social Security Number) to usolicited callers. Never give out your credit card umber over the phoe to usolicited callers. Avoid phishig scams. Phishig scams occur whe a scam artist preteds to be a reputable orgaizatio ad requests your persoal iformatio via telephoe or . If you are ufamiliar with the compay, you should check with the Better Busiess Bureau to make sure there are o complaits ad that you are dealig with a legitimate compay. Sig up for the Do Not Call Registry at The Natioal Do Not Call Registry gives you a choice about whether to receive telemarketig calls at home. Most telemarketers should ot call your umber oce it has bee o the registry for 31 days. If they do, you ca file a complait at this website. Do ot give out persoal iformatio over the phoe or by uless you are sure who you are talkig to ad that the compay is legitimate. If they cotacted you (usolicited), the cotact them back at a umber or address that you kow to be accurate. The Federal Trade Commissio s (FTC) Federal Telemarketig Sales Rule puts cosumers i charge of the umber of telemarketig calls they get at home. It established the Do Not Call Registry ad assists cosumers i reducig the umber of uwated telemarketig sales calls. The FTC established several rules icludig the followig: Phoe solicitatios are prohibited betwee 9:00pm 8:00am Telemarketers must tell you up frot that they are sellig somethig ad which compay is doig the sellig. All metios of promotios, prizes or cotests must be accompaied by the statemet: o purchase is ecessary to eter or wi. Telemarketers who are sellig a credit service, such as a credit card or credit repair service, caot ask for advace paymet. Telemarketers may ot use abusive or obscee laguage, threats or itimidatio. Goods or services caot be misrepreseted or exaggerated. 93

100 Fiacial Protectio It is illegal for a telemarketer to withdraw a paymet from your checkig accout without your writte or recorded oral permissio. If you are a victim of a telephoe scam, you should report it to the Federal Trade Commissio at Imposter Scams This type of scam occurs whe you are cotacted by someoe posig as a govermet employee or govermetal agecy to obtai your persoal iformatio. For example, after the Affordable Care Act was implemeted, scam artists made claims of sedig out Obamacare Cards ad stated they eeded to obtai idividual s persoal iformatio, i.e. Social Security Number ad bak accout umbers pursuat to the requiremets of this ew law. This is icorrect, ad it is a scam for your persoal iformatio to be wrogfully obtaied. Tips to avoid imposter scams: Remember, there are o Obamacare cards, or are there ew Medicare cards, as a result of the New Health Care Law. Never provide usolicited callers with ay persoal data or accout umbers. Govermet agecies ad legitimate orgaizatios with which you do busiess already have your persoal iformatio o file. Uless you iitiate the call, you will ever be asked to provide or verify that data. If you get a call from someoe who claims to be from the govermet ad who asks for your persoal iformatio, hag up. It s more tha likely a scam! Gradparets Scam The claim: Your gradchild is callig from aother state or a foreig coutry ad has bee arrested, hospitalized or subjected to some other hardship. The catch: It s NOT your gradchild callig. This is a widespread atioal scheme that targets older Americas ad occurs year-roud. Sice the caller does t kow your gradchild s ame, the caller will greet you by sayig: Hi, it s your favorite gradso! so that you ca fill i the blaks. The the caller claims some hardship ad urgetly requests that moey be wired to Caada, Mexico or elsewhere for bailout from the alleged crisis. Do t take the bait like thousads of lovig gradparets have. If you re ot sure, ask for the family safe word (a code word shared by family members for use i emergecy situatios), or call your gradchild s home or cell umber to ask if there s a problem. If the caller claims to be a lawyer, police officer or doctor helpig a gradchild i eed, a five-miute olie search ca yield the phoe umber of the reported law firm, police statio or hospital for ay call back o your part. Prize ad Sweepstakes Scams Fraudulet sweepstakes promoters target the elderly. These frauds geerally ivolve iformig the victim that he or she could wi, or has already wo, a valuable prize or a lot of moey. The victim is required to sed i moey to cover taxes, shippig, or processig fees. I most cases, the prize may ever be delivered or, if so, it is usually costume jewelry or cheap electroic equipmet worth less tha the moey paid to retrieve it. 94

101 Three importat tips o avoidig prize ad sweepstakes scams: 1. Never sed moey to pay taxes, shippig or processig fees to collect your FREE prize. If you wo a prize, it s free! 2. Throw away prize ad sweepstakes etries received i the mail, or delete if received electroically. 3. Also, if you received a otice that you wo a prize but do t recall eterig the cotest, stop all commuicatios. That is a SCAM! Remember, you must first eter the cotest i order to wi. Report all violatios to the Federal Trade Commissio (FTC) at Travel Scams You ca spot a fraudulet travel offer by its rock-bottom prices ad high-pressure sales tactics. Fraudulet travel offers come by mail, phoe, fax, ad . Some advertise cheap trips but pad the deal with hefty fees. Fiacial Protectio You might be offered a three-star hotel but fid yourself checkig ito a dump. A lot of travel freebies come with obligatio to sit through high-pressure time-share pitches. Some promoters are crooks who take your moey ad ru. Ad very few of the trips are refudable. Before buyig travel packages, get the offer i writig ad check out the compay with the Better Busiess Bureau or the Michiga s Attorey Geeral s office. Tips to avoid fraudulet travel scams: Always use a credit card to purchase travel that way if somethig goes wrog, you ca dispute the charge with your credit card compay. Never give your credit card umber to someoe who calls you o the phoe, i.e. usolicited callers. Report fraudulet travel to the Attorey Geeral s Cosumer Protectio Divisio at Lottery Scams Michiga residets should be aware of lottery scams. These types of scams are ofte mail scams which falsely state the recipiet has wo a prize i the lottery. I some cases, the victim receives a letter which icludes the ame ad logo of a legitimate game. The letter may eve iclude a bogus check. Surprisigly, illegal lotteries operate from locatios all over the world ad otify wiers via the mail, telephoe or Iteret. Sometimes these scams are about lotteries i the U.S., but they ca be as far away as Australia ad Europe. These lottery scams violate U.S. law which prohibits the cross-border sale or purchase of lottery tickets by phoe or mail. Most promotios for foreig lotteries are likely to be phoy. If you have received ay correspodece toutig lottery wiigs, regardless of where it is from, please remember the followig: Never give your credit card or bak accout umbers to ayoe promisig lottery cash prizes or memberships. Never respod to a letter, or phoe call from someoe who offers you a guaratee of wiig a prize. 95

102 Fiacial Protectio If you are goig to participate i a lottery pool, use cautio ad do so oly with people you kow ad trust. Never redeem a lottery ticket for someoe you do t kow. There are several ways to idetify lottery scams: A perso caot wi a lottery without havig purchased or received a lottery ticket. A lottery ever asks you to sed a processig fee to claim a prize, or is there ever ay activatio process to claim a prize. Scam otificatios ofte iclude a fictitious compay ad the ames ad telephoe umbers of several people who work there, but whe those umbers are called, a voice message is heard or there is o aswer. Notificatios may iclude umbers from a wiig drawig ad a chart idicatig which umber matches pay with prize amouts. Report all lottery scams to the followig: Attorey Geeral s Cosumer Protectio Divisio at U.S. Postal Ispectio Service at Local police departmet Computer Scams Never respod to a usolicited askig for your bak accout umber. Oe such co is the Nigeria letter scam. This is a old co game that used to arrive by letter with a Nigeria stamp. Now it comes by . The seder outlies a tale ivolvig large amouts of moey they ca t access ad asks you to provide your bak accout umber so that you ca help them obtai the moey. I retur they promise you a cut. THIS IS A TOTAL FRAUD. If you respod to it you are guarateed to lose your moey. Report all computer scams to the Attorey Geeral s Cosumer Protectio Divisio at Home Repair Scams Travelig cotractors offer home improvemet deals like roof repairs, driveway resurfacig, ad exterior paitig. They are rarely licesed or isured ad ofte take large cash paymets up frot ad subsequetly fail to do ay work at all, start but ot fiish the work, or do substadard work that requires correctio. Note: A ote of cautio whe havig repairs doe at your home. Scammers posig as repairme or eve utility workers will attempt to distract you after eterig your home while their accomplice burglarizes your place. So be careful! Eight steps to help prevet home repair scams: 1. Ask family, frieds or eighbors for recommedatios. 2. Get at least three estimates from reputable ad licesed local cotractors. 3. Ask the licesee to show you his/her pocket card which will cotai the licese umber. 4. Call the Michiga Departmet of Licesig ad Regulatory Affairs (LARA) - Licesig Divisio at to verify that the idividual or busiess etity is licesed. 5. Cotact the Better Busiess Bureau to check them out before awardig a bid. 96

103 6. Ask for ad verify refereces. 7. Call LARA s - Eforcemet Divisio at to determie if there have bee discipliary actios agaist the idividual or busiess etity. 8. Never pay more tha oe-third of the cost of ay job up frot. Charitable Cotributio Scams Michiga cosumers should be wary of appeals that follow curret evets like: Hurricaes Sady & Katria; the earthquakes i Japa & Haiti; ad the 911 attack. These are times whe may fraudulet appeals are made that attempt to tug at people s heartstrigs or take advatage of their patriotism. Cotact oe of the followig agecies for verificatio that you are dealig with a legitimate charity: Attorey Geeral s Cosumer Charitable Trust Sectio Better Busiess Bureau (located i Grad Rapids) Better Busiess Bureau (located i Southfield) Charity Watch Fiacial Protectio Some bogus charities ask for doatios to groups whose ames soud very similar to reputable charities, so do t be fooled by soud-alike ames. Eve if telemarketers are actig o behalf of legitimate charities, too ofte oly a small percetage of the doatio actually goes to the cause. However, o-profit ad charitable orgaizatios are required to file Form 990s each year with the Iteral Reveue Service. These forms show how the orgaizatio is spedig its moey. The public ca access the filig o the GuideStar Website at or by callig Report all charitable cotributio scams to the Attorey Geeral s Cosumer Charitable Trust Sectio at Home Foreclosure Rescue Scam Ufortuately, scam artists are stealig millios of dollars from distressed homeowers. Beware of a compay or perso who does the followig: Asks for a fee i advace to work with your leder to modify, refiace or reistate your mortgage. Guaratees they ca stop a foreclosure or get your loa modified. Advises you to stop payig your mortgage compay ad pay them istead. Pressures you to sig over the deed to your home, or sig paperwork that you have t had a chace to read, ad you do t fully uderstad. Claims to offer govermet-approved or official govermet loa modificatios. Asks you to release persoal fiacial iformatio olie or over the phoe. To Report a Scam: You may file a complait olie with the Michiga Attorey Geeral s Cosumer Protectio Divisio at or by callig Go to ad fill out the Loa Modificatio Scam Prevetio Network s (LMSPN) complait form. 97

104 Fiacial Protectio Note: The Loa Modificatio Scam Prevetio Network is a atioal coalitio of govermetal ad private orgaizatios led by Faie Mae, Freddie Mac, NeighborWorks America ad the Lawyers Committee for Civil Rights Uder Law. Health, Fueral, ad Life Isurace Scams May older adults are cocered about havig the fuds to pay for eeded medical care or proper burial, or to bequeath loved oes upo death. Uscrupulous salespeople take advatage of the elderly by sellig them policies that duplicate existig coverage, do ot provide the coverage promised, or are altogether bogus. If this happes to you, call DIFS to file a complait at Note: Additioally, you should be cautious ad do your homework before payig for fueral ad burial services i advace. There have bee well publicized cases i which fueral providers mismaaged ad eve embezzled the moey that was paid i advace for fueral services. Check the compay s reputatio with the Better Busiess Bureau before eterig ito a cotract. Credit Repair Scams Michiga residets are wared about compaies promisig that they ca clea up ad fix credit reports. The truth is these compaies do othig to improve a credit report ad oly cost cosumers moey. After cosumers pay these compaies hudreds or thousads of dollars i fees, most of them simply vaish. Furthermore, o oe ca legally remove accurate ad timely egative iformatio from a credit report ad the FTC has ever see a legitimate credit repair compay. The FTC s Tell-Tale Sigs of a Credit Repair Scam: Compaies that wat you to pay for credit repair services before they provide ay services. Compaies that do ot tell you your legal rights ad what you ca do for yourself for free. Compaies that recommed that you do ot cotact a credit reportig compay directly. Compaies that suggest that you try to ivet a ew credit idetity - ad the, a ew credit report - by applyig for a Employer Idetificatio Number to use istead of your Social Security Number. Compaies that advise you to dispute all iformatio i your credit report or take ay actio that seems illegal, like creatig a ew credit idetity. If you follow illegal advice ad commit fraud, you may be subject to prosecutio. If cosumers are ot disciplied eough to create a workable budget they should cosider cotactig a credit couselig orgaizatio or debt maagemet compay. Report all credit repair scams to the Federal Trade Commissio (FTC) at Five Ways to Protect Yourself from Scams 1. Do t be afraid to say o. You do t have to talk to telemarketers hag up the phoe if you are ucomfortable. 2. Call the police if you feel threateed. 3. Do t reveal your credit card, bak accout or SSN# to ufamiliar compaies or usolicited callers. 4. If it souds too good to be true, it probably is. 5. Do t be embarrassed or ashamed fraud ca happe to ayoe at ay age. 98

105 Idetity Theft Idetity theft is a serious crime ad it occurs whe someoe steals your persoal idetifyig iformatio to commit fraud or other crimes. It ca cost you time ad moey, ad ca destroy your credit ad good ame. Persoal idetifyig iformatio icludes ay sesitive fiacial or persoal iformatio such as your Social Security Number, birth date, address, driver s licese umber, bak accout umber, ad credit card umber. There are differet types of idetity theft that ca occur depedig o the persoal iformatio stole, ad how the iformatio is used. Your persoal iformatio ca be obtaied i may differet ways. You should lear how this iformatio ca be uitetioally obtaied, take steps to protect your persoal iformatio, ad prevet yourself from beig a victim of such a crime. Some of the commo ways that your persoal iformatio ca be uitetioally obtaied iclude: Theft by family or frieds Retrieved from the trash Stole mail Lost or stole wallet Purchased from a corrupt isider at a bak, hotel, car retal agecy, etc. Uauthorized access of persoal iformatio stored o a computer Phishig scam (A scam where a idividual preteds to be a reputable orgaizatio ad requests persoal iformatio via the telephoe or ) Fiacial Protectio Idetity theft i residet care facilities or other medical exteded stay facilities is o the rise. Theft ca occur by employees of the facility, or others eterig the facility posig as employees. You ca reduce the chaces of becomig a idetity theft victim by followig these tips: Be alert to visitors or uidetified idividuals i the facility, ad report ay cocers. Do ot leave checkbooks, credit cards, ATM cards, mail, or other items usecured. Keep all o-medical persoal iformatio such as Social Security Number, birth date, ad driver s licese umber i a secure place. Medical Idetity Theft Theft of medical iformatio ad health records is aother commo form of idetity theft. A thief may use your health isurace umbers ad ame to obtai prescriptios drugs, file claims, or obtai medical care. This ca cause iaccuracies i your medical treatmet records, isurace iformatio, ad possibly your credit report. You ca protect yourself from medical idetity theft i the followig ways: Shred labels o prescriptio bottles before you throw them out. Do ot share your health pla iformatio with ayoe who offers free health services or products. Shred isurace forms, physicia statemets, ad similar documets. Read your medical ad isurace statemets, such as Explaatio of Beefits (EOB) statemet or Medicare summary, regularly ad completely to esure the iformatio is accurate regardig treatmet you received. 99

106 Fiacial Protectio Tax Idetity Theft Aother type of idetity theft is tax idetity theft ad it geerally takes place durig the tax filig seaso. The theft occurs whe someoe uses your ame, Social Security Number or other idetificatio to create a fraudulet retur that geerates a big refud. These fraudulet returs are typically filed at the begiig of tax seaso before a legitimate taxpayer files. The thief takes advatage of geerous tax breaks whether the real taxpayer qualifies for that particular tax break or ot. Some refud fraud has ivolved misuse of credits, such as a first-time homebuyer credit, a telephoe excise tax, ad educatio credits i past years. Victims of this crime usually do t discover the fraud util it s too late. The first clue some people get is whe they try to electroically file their taxes but their retur is rejected by the system. Aother clue of this theft is whe they receive a letter from the Iteral Reveue Service (IRS) statig that they owe taxes for a year they did ot file. If you discover that you are a victim of tax idetity theft, you should cotact the IRS idetity theft tollfree lie at immediately. Protectig your persoal iformatio is importat to avoid beig a victim of idetity theft. See the ext sectio Cosumer Tips o Idetity Theft Prevetio to lear how you ca protect yourself. 100

107 Cosumer Tips o Idetity Theft Prevetio Idetity theft is the fastest growig crime i the coutry affectig thousads of cosumers. By accessig ad usig basic iformatio, a crimial ca use your persoal iformatio to make uauthorized withdrawals of fuds from your accouts, make fraudulet purchases with your credit cards, ad create ew accouts (bakig, telephoe, utility, loas, all of which ca have a damagig effect o your credit). The followig are some tips to help you lower your risk of idetity theft: Keep persoal ad fiacial records i a locked cabiet or i a password-protected file. Avoid providig your full 9-digit Social Security Number wheever possible. Always ask if you ca provide the last four digits or use alterate iformatio altogether. Do ot carry your Social Security card. Eroll i direct deposit. Do ot pre-prit persoal iformatio (i.e. Social Security umber ad driver s licese umber) o your persoal checks. Shred ay documets that display persoal ad fiacial iformatio before throwig i the trash. Be cautious with your mail. Icomig or outgoig mail should ot sit i your mailbox for exteded periods of time. Do ot put checks i a ulocked mailbox. Never respod directly to requests for persoal or accout iformatio olie, over the phoe, o , or through a mobile device icludig text messagig. If a request for persoal or accout iformatio appears to come from your fiacial istitutio or credit card compay, verify the request before providig ay iformatio. Cotact your fiacial istitutio s official website or telephoe umber listed o your fiacial statemets or o the back of your bak or credit cards. Be aware of the dagers of olie threats. Istall ati-virus ad ati-malware software o your computer, ad keep it updated. Istall security patches ad software updates as soo as they are released by verified sources. Use a separate credit card or accout for o-lie purchases. Do t publish your birthdate, address, mother s maide ame, pet s ame or other idetifyig or persoal iformatio o social etworkig sites. Use privacy settigs o social etworkig sites to cotrol who is able to access persoal profile iformatio. Use uique ad hard-to-guess passwords that combie letters, umbers, ad symbols. Chage your passwords regularly. Use strog passwords for wireless Iteret coectios, ad do t access usecure Websites or type i persoally-idetifiable iformatio usig public Wi-Fi o mobile devices, laptops, or computers. Tur off Bluetooth ad Wi-Fi whe they are ot beig used. Review each of your three credit reports oce a year to esure all iformatio is correct. Fiacial Protectio Do t be embarrassed or ashamed fraud ca happe to ayoe at ay age. 101

108 Fiacial Protectio Resolvig Idetity Theft If you suspect you are a victim of idetity theft, you should take steps to report the crime ad begi repairig your persoal iformatio. Resolvig idetity theft takes time, but takig actio quickly is importat to prevet the thief from doig more damage. Oce you take immediate actio, you should the moitor your progress as you work to correct your persoal iformatio. The followig are five steps to take immediately whe idetity theft strikes: 1. Cotact all three credit reportig agecies to place fraud alerts. They ca be cotacted at or by telephoe at the followig umbers: Equifax Experia TrasUio Close accouts that have bee accessed ad apply for ew passwords. 3. File a complait with the Michiga Attorey Geeral Call the Federal Trade Commissio (FTC) Idetity Theft hotlie at , or cotact them olie at You will receive a ID Theft Affidavit. 5. File a police report ad whe you attach the ID theft affidavit this becomes a Idetity Theft Report. This is ecessary for providig persuasive evidece of theft i disputig debts. It is importat that you keep good writte records of all of your activities ad sed all correspodece certified mail, retur receipt requested, so you ca documet whe correspodece is received. Creatig a system to orgaize your calls ad track deadlies will help you esure correctios are made quickly. Oce you have take the iitial steps, you should cotiue to moitor your persoal iformatio ad esure errors ad problems are corrected. 102

109 Ivestmet Scams ad Fraud Commo Ivestmet Threats We ve all heard about ivestmet scams ad fraud. Ad most of us thik: that could t happe to me or, I d ever fall for that, but it does, ad we do. Who is the typical victim of ivestmet scams ad fraud? Here are the statistics: Idividuals 45 to 70 years-old Most of these victims are fiacially literate ad educated Most have above-average icomes Geerally iquisitive ad cofidet The Approach Scam artists typically approach their targets either directly, idividual-by-idividual, through referrals, or through affiity groups such as clubs, associatios, or places of worship. Affiity group scams are successful because of the potetial for peer ifluece ad the false belief that if other people I kow are ivestig, it must be okay. Fiacial Protectio Scam Tactics Scam artists have highly-developed skills for commuicatio ad persuasio. Couple that with a friedly ad disarmig persoality, ad you may just fall for it. The tactics they use iclude: Persistece. Whether subtle or high-pressure, they literally wear you dow without you eve realizig it. Creatig scarcity ad the eed for immediacy. Gettig to kow you persoally. I doig so, they idetify your stregths, your weakess, ad where you re vulerable. Plai-old sweet persuasio through a disarmig demeaor. With your good judgmet suspeded ad your defeses dow, you fall for it. It s commo for victims of fraud to commet after the fact: I still ca t believe it. I thought they were my fried. Commo Ivestmet Schemes Real Estate Ivestmet Schemes Schemes related to ew real estate developmet projects or buyig, reovatig, flippig or poolig distressed properties are popular with scam artists. While legitimate real estate ivestmets ca be a importat part of a diversified ivestmet portfolio, there are substatial risks. Regulators have see problems with o-traded real estate ivestmet trusts (REITS). REITS properties offer promises of ivestmet fuds beig secured by a iterest i real property; however the property i questio is already highly leveraged ad has o remaiig equity. As with all ivestmets, careful vettig ad due diligece is a must with real estate ivestmets. Pyramid Schemes Scammers promise sky-high returs i a short period of time for doig othig other tha hadig over moey ad gettig others to do the same. Despite their claims to have legitimate products or services to sell, these deceivers sped much of the moey o themselves ad simply use moey comig i from ew recruits to pay off early stage ivestors. Although the products sold may be legitimate, evetually the pyramid will collapse. At some poit the schemes get too big, the promoters 103

110 Fiacial Protectio caot raise eough moey from ew ivestors to pay earlier ivestors, ad may people lose their moey. Pozi Schemes A type of illegal pyramid scheme amed for Charles Pozi, who fooled thousads of New Eglad residets ito ivestig i a postage-stamp speculatio scheme back i the 1920s. Pozi schemes cotiue to work as moey from ew ivestors is used to pay off earlier ivestors. Ultimately the scam will collapse leavig ivestors with othig to show for their trust. Pozi schemes have similar characteristics: Promise of icredibly high retur coupled with low risk A reasoably plausible explaatio of why the ivestmet is so good A scam artist with credibility will ofte base claims of holdig false credetials or beig part of a particular group or orgaizatio. Oe way to protect yourself is to ask questios ad whe you thik you have asked all the questios you have, ask more questios. Berie Madoff, the kig of Pozi schemes, oce said he oly tured people away whe they asked too may questios. Risky Oil ad Gas Drillig Programs Ivestors explorig alteratives to traditioal securities may be attracted to the lucrative returs ofte associated with ivestmets i oil ad gas drillig programs. Ufortuately, eergy ivestmets geerally prove to be a poor substitute for traditioal retiremet plaig. Promoters will coceal risk, usig high pressure sales tactics ad deceptive marketig practices to peddle worthless ivestmets i oil wells to the ivestig public. Ivestors should coduct thorough due diligece ad assess their ow tolerace for cosiderable risk whe cosiderig the purchase of iterests i oil ad gas programs. Proxy Tradig Accouts Be wary of idividuals who claim to have tradig expertise ad offer to set up or maage a tradig accout o a ivestor s behalf. Allowig a ulicesed idividual to have access to the userame ad password for your brokerage accout or worse, allowig a ulicesed idividual to set up a brokerage accout i your ame, is a recipe for disaster. Ivestors should check with the Michiga Departmet of Licesig ad Regulatory Affairs (LARA), Corporatios, Securities ad Commercial Licesig Bureau at to cofirm that ayoe offerig to maage your accouts is properly registered ad has a clea backgroud. Fiacial professioals who make the commitmet to be properly registered also commit to act ethically ad hoestly. Digital Currecy Cosumers ow are able to purchase goods ad services with virtual moey such as Bitcoi, PP Coi ad other digital currecies. Ulike traditioal coiage, these alteratives typically are ot backed by tagible assets, are ot issued by a govermetal authority ad are subject to little or o regulatio. The value of Bitcois ad other digital currecies is highly volatile ad the cocept behid the currecy is difficult to uderstad eve for sophisticated fiacial experts. Be aware ivestmets that icorporate abstract moey systems preset very real risks, icludig the possibility of leavig a ivestor broke. Get-Rich-Quick Self-Employmet Scams This scam promises a sure path to fiacial idepedece through work-at-home scams ad pyramid schemes. The scam also assures certai icome i retur for a iitial ad sometimes recurrig ivestmet. It may also iclude a variety of other phoy busiess ad frachise opportuities. 104

111 This scam targets idividuals eedig to supplemet their icome. If you are a uemployed worker, suddely i possessio of a large severace package; or retired with a sizable pesio, you may be a prime target. Scam artists ofte locate their victims through trade shows, telephoe solicitatios, televisio, radio, prit advertisemets, ad the Iteret. They tell the prospective purchaser that iterest by the public or a specific market iche is very high ad that the widow of opportuity will soo close. These promoters pressure ivestors to make a quick decisio ad had over their moey. Tips to Protect Yourself from Scam Artists Ivest wisely olie ad offlie. Here are some importat tips you should keep i mid whe you are cosiderig purchasig ivestmet products ad for protectig those ivestmets oce you have them: Beware ay moey maager who wats total cotrol of all your moey or who deliberately overemphasizes his trustworthiess ad hoesty. Choose everyday ivestmets that ca be bought ad sold through well-kow brokerage firms or mutual fud compaies. Make sure your statemets come from your brokerage firm, ot the idividual moey maager. Beware promises of high or uusually steady rates of retur. If a moey maager ca t easily explai his or her ivestmet process, that s a red flag. Take your time whe makig ivestmet choices. Do t be hurried or bullied ito makig a decisio. Be careful of act ow or before it s too late statemets. Say o to aybody who tries to pressure you or rush you ito a ivestmet. Always ask for a writte explaatio of ay ivestmet opportuity ad the shop aroud ad get a secod opiio. Make checks payable to a compay or fiacial istitutio, ever a idividual. Retai ad maitai accout statemets ad cofirmatios you receive about your ivestmet trasactio. Documet all coversatios with fiacial advisers. Seek idepedet, third-party advice. Have a licesed ivestmet professioal, attorey or accoutat review the ivestmet opportuity. Most of the moey lost to scams ad fraud is just that: lost; ad ofte difficult to recover from both fiacially, ad emotioally. Take immediate actio if you detect a problem. Time is critical, so do ot be afraid to complai. Do t let embarrassmet or fear stop you from reportig fiacial exploitatio or ivestmet fraud. Do t put all your eggs i oe basket- divide your ivestmets amog differet asset categories, such as stocks, bods, ad cash held i federally isured deposit accouts. Fiacial Protectio The followig are resources you ca cotact to check o a broker or to obtai ivestmet iformatio: Departmet of Licesig ad Regulatory Affairs (LARA) - Corporatios, Securities ad Commercial Licesig Bureau or Fiacial Idustry Regulatory Authority (FINRA) FINRA Broker Check Hotlie at or Securities ad Exchage Commissio (SEC) or Natioal Futures Associatio (NFA) or Commodity Futures Tradig Commissio (CFTC) or 105

112 Fiacial Protectio Other Ways to Protect Yourself Whe preseted with ay ivestmet opportuity that you re ufamiliar with, suspicious of, or souds too good to be true, use this quick ad easy check list to help protect yourself: 1. Cofirm that the ivestmet is registered with the state s securities regulator or the state s isurace regulator. 2. Cofirm that the salesperso is properly licesed ad registered with state s regulators. For isurace products, ad isurace salespersos i the State of Michiga, call the Michiga Departmet of Isurace ad Fiacial Services (DIFS) at For other types of ivestmets, ad for the salespersos who pitch them, call the Michiga Departmet of Licesig ad Regulatory Affairs Corporatios, Securities, ad Commercial Licesig Bureau at We re all potetial victims of ivestmet fraud ad scams. The skills of the crimial are ot used to sell the features ad beefits of a bogus ivestmet. The ivestmet is oly a prop. Their skills are used for oe purpose: to get you to tur over your moey. They do this by disarmig you ad lullig you out of your atural skepticism ad better judgmet. Ad whe that occurs, ay oe of us could fall for it. 106

113 How to Spot a Co Artist Ivestig i securities is risky eough without worryig about whether your salesperso is goig to fleece you. To be a iformed ivestor, you must kow what dager sigs to look for. Some are subtle, ad some are easier to spot. Rule 1: Co Artists Like to Bled I Co artists kow that beig themselves hurts busiess. Effective co artists must disguise their true motives. Whether your first cotact with the co artist is through a usolicited telephoe call or a strager rigig your doorbell or sedig you a , the co artist takes great pais to look ad soud familiar. Ofte, co artists like to bled i with others i your group whether that group be political, commuity (such as the local seior ceter), religious or other. They quickly get to kow a lot of people i the group so they ca cout o this commo bod to spread the word about their questioable ivestmets ad reel i ususpectig ivestors. Rule 2: Co Artists Dress for Success Eve though co artists would like you to believe that they are just plai folk, they are smart eough to realize that this aloe will ot sway you to part with your moey. They work very hard to come across as smooth, professioal ad successful. Co artists may dress like they are wealthy ad work out of impressive lookig offices. If your oly cotact is by mail, the office may bear a prestigious soudig address. Ofte, this is othig more tha a mail drop. Your best bet is to look behid the surface ad do some serious ivestigatig before you part with your moey. Fiacial Protectio Rule 3: Co Artists Ofte Push Poorly Uderstood or Little-Kow Products Today, a variety of istitutios, from baks to brokerage firms to fiacial plaers, offer a wide rage of fiacial products. With such a cofusig mix to choose from, it is o woder that may people tur to fiacial advisers for guidace. Co artists kow this ad stad ready to assume full resposibility for your ivestmet decisios. Do t let them! Whe it comes to your moey, thik thigs through for yourself after gettig all the facts. Never give someoe cotrol over your purse strigs just because you thik you are too old, youg or fiacially iexperieced. If you really eed help, oly deal with fiacial advisers, broker-dealers or fiacial istitutios with prove track records. Rule 4: Co Artists Brig Out the Worst i You Skilled co artists ca brig out your worst traits, particularly greed, fear, ad isecurity. Co artists kow that promises of huge returs with o risk will get your attetio. They hope that it will get your moey too. Fear comes ito play whe the co artist wars you that complaiig about a failed ivestmet to the govermet may result i your spoilig it for others or rockig the boat. Co artists try to make you feel iadequate if you do t believe them or ask too may questios. If you fid yourself makig ivestmet-related decisios based oly o your emotios, watch out! Rule 5: Co Artists Are Fair Weather Frieds Before you ivest, co artists are very friedly. They take a persoal iterest i you out of the blue. They call back whe they promised they would. Each time, they tell you eve more good thigs about the ivestmet. You may feel you re beig pressured ito ivestig. You are. Despite his or her kid words, the co artist will do aythig i his or her power to make a sale. Too ofte, however, oce you have ivested your moey, cotact with the co artist dwidles ad the stops altogether. If you caot get aswers to your questios after hadig over your cash, there is a good chace someoe else is gettig rich off of your ivestmet. 107

114 Fiacial Protectio Rule 6: For Every Silver Liig, There Is a Cloud Every ivestmet ivolves risk. But to hear the co artist explai it, the ivestmet may be too good to be true. Trust your ier voice if you hear claims like these: I just got a hot tip from a iside course that this stock will go through the roof. Your retur is guarateed. There s o way you ca lose moey. Gotta get i o the groud floor ow or you ll be left out i the cold. I fact, we ll sed a messeger over tomorrow to pick up your check. (Co artists ofte use this device to avoid federal mail fraud charges.) This deal is so great, I ivested i it myself. If this does t perform as I just said, we ll refud your moey-o questios asked. Everyoe else that ivested i this did very well. Be especially careful if the salesperso dowplays ay dowside or deies that risk exists. Co artists usually are ot very good at aswerig importat questios. Watch out if the salesperso is reluctat to provide iformatio o the followig: The backgroud, educatioal history ad work experiece of the deal s promoters, pricipals or geeral parters; Iformatio o whether your ivestmet moies will be segregated from other fuds available to the busiess; Writte iformatio o the busiess fiacial coditio, such as a balace sheet ad bak refereces; The prior track record of the busiess ad its pricipals; The salesperso s ame, where he or she is callig from, who he or she works for, his or her backgroud ad what commissio or other compesatio he or she will receive; The salesperso s coectio with the veture ad ay affiliates. I additio, be wary if the salesperso does t ask you questios about your past ivestmet experiece ad your ability to withstad risk. Eve if the salesperso does ask a few related questios, take heed if you get the sese that he or she is merely goig through the motios. Rule 7: Do t Be Afraid to Sleep o It If you are promised high, guarateed profits ad give o writte explaatio cocerig the ivestmet vehicle, the promoter s backgroud or the risks ivolved, walk away. Never ivest i aythig based o the ethusiasm or charisma of the salesperso they may have more to gai by takig your moey tha you kow. 108

115 Fiacial Protectio 109

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117 Fiacial Resources Emergecy Fiacial Resources ad Seior Services (Directory) Resources for Veteras (Directory) 111

118 Fiacial Resources 112

119 Emergecy Fiacial Resources ad Services (Directory) The followig is a list of fiacial resources ad services: Food Assistace Coupos to purchase fresh fruits ad vegetables from farmers markets Office of Services to the Agig (OSA) If you re homeboud ad i eed of meals Eldercare Locator to coect with your local area agecy o agig Fiacial Resources Meals o Wheels Iformatio about local food baks or food patries Food Bak Coucil of Michiga To apply for food beefits Departmet of Huma Services (DHS) For older adults age 60 years ad older, assistace provided with applyig for food beefits Elder Law of Michiga MiCAFE Program If you ve bee deied food assistace from DHS, the Salvatio Army may be able to help. Cotact your local Salvatio Army office Housig Cocers Homeless ad special housig eeds, retal assistace, ad affordable assisted retal housig Michiga State Housig Developmet Associatio (MSHDA) I risk of losig your home, help with home repairs, weatherizatio, retal ad relocatio assistace Departmet of Huma Services (DHS)

120 Fiacial Resources Mortgage paymet assistace/home foreclosure Step Forward Michiga (MSHDA) If you ve bee deied housig or retal assistace from DHS, the Salvatio Army may be able to help. Cotact your local Salvatio Army office I Home Care For fiacial ad physical assistace to be able to maitai capacity withi your ow home Michiga Associatio for Home Care Home Care Service Directory Eldercare Locator to coect to your local area agecy o agig Michiga Departmet of Huma Services (DHS) Idepedet Livig Services Legal Services Free legal services for older adults age 60 years ad older Sixty Plus, Ic. Elder Law Cliic Lawyer referral service State Bar of Michiga Legal advice, iformatio, advocacy, traiig, ad professioal services Elder Law of Michiga Medicare ad Medicaid To apply for Medicaid Medicaid To apply for Medicare Medicare For help with issues regardig Medicare or Medicaid Medicare Medicaid Assistace Program (MMAP)

121 Nursig Homes To report abuse, eglect or exploitatio of a residet of a ursig home by aother residet or by a ursig home employee Departmet of Huma Services (DHS) Statewide 24 hour Hotlie Bureau of Health Services Abuse Hotlie Prescriptio Help ad Isurace Issues Free or Low cost Prescriptios, Free Cliics, Prescriptio Costs Michiga Departmet of Commuity Health (MDCH) For iformatio about isurace, questios about isurace, ad issues regardig isurace compaies Departmet of Isurace ad Fiacial Services Fiacial Resources Tax Preparatio ad Iformatio For free tax preparatio AARP Iteral Reveue Service Michiga Ecoomic Impact Coalitio (MEIC) Voluteer Icome Tax Preparatio (VITA) Call or Trasportatio To schedule trasportatio services ad obtai iformatio Eldercare Locator to coect with your local area agecy o agig Michiga Trasportatio Services Michiga Departmet of Trasportatio (MDOT)

122 Fiacial Resources Utilities If you are uable to pay your utility bills Cotact your local utility compay to egotiate paymet arragemets For help with utility ad weatherizatio paymets Departmet of Huma Services (DHS) For iformatio o utility bill programs, how to reduce eergy ad save moey o your eergy bills Michiga Public Service Commissio For a list of compaies that furish free cell phoes or plas at a discouted price i Michiga to low-icome people/families Lifelie Assistace Program If you ve bee deied utility assistace from DHS, the Salvatio Army may be able to help. Cotact your local Salvatio Army office Geeral Iformatio: For agig related topics ad issues, cotact the Natioal Istitute o Agig (NIA), a istitute of the U.S. Departmet of Health ad Huma Services, at The Michiga Associatio of Uited Way provides the Michiga telephoe helplie for Michiga residets. Michiga is a free, cofidetial service that coects you with local commuity-based orgaizatios across the state offerig thousads of differet programs ad services for people seekig aswers. 24-hours/day, 7 days/week, Michiga residets ca call to fid iformatio: u Arts, Culture & Recreatio u Clothig, Perso & Household Needs u Disaster Services u Educatio u Employmet u Food & Meals u Healthcare u Housig & Utilities u Icome Support & Assistace u Idividual, Family & Commuity Support u Iformatio Services u Legal, Cosumer & Public Safety u Metal Health & Addictios u Govermet & Ecoomic Services u Trasportatio u Voluteer & Doatio Services 116

123 Resources for Veteras (Directory) Idividuals who have served i the Uited States Armed Forces ad their families have access to a wide variety of federal beefits ad state programs, icludig the followig: Disability compesatio Healthcare Aid & attedace Emergecy grats Skilled ursig ad domiciliary care Burial beefits If you are a vetera, or you are the spouse or depedet of a vetera, a accredited veteras service officer ca help you determie what beefits you may be eligible for ad help you claim the beefits you have eared at o cost to you. Cotact the Michiga Veteras Affairs Agecy at MICH-VET or visit MichigaVeteras.com to lear more or be coected with a service officer ear you. Fiacial Resources Disability Compesatio If you have a ijury or ailmet that was a result of, or made worse by, your military service ad you were discharged uder other tha dishoorable coditios, you may be etitled to disability compesatio. The basic beefit amout rages from $127 to over $3,100 per moth, depedig o your level of disability ad umber of depedets. This is a tax-free beefit. If you are a vetera who qualifies for a 100-percet disability ratig from the VA, you are etitled to additioal beefits. Cotact the Michiga Veteras Affairs Agecy at MICH-VET or visit MichigaVeteras.com to lear more or be coected with a service officer ear you. Healthcare Services The VA offers veteras a full spectrum of healthcare services, icludig ipatiet, outpatiet, pharmacy, detal care ad others. If you served i the active military, aval or air service ad are separated uder ay coditio other tha dishoorable, you may qualify for VA healthcare beefits. For questios related to VA healthcare services cotact the Health Beefits Service Ceter: healthbeefits/apply/ or call Pesios The VA helps veteras ad their families cope with fiacial challeges by providig supplemetal icome through the Veteras Pesio program. This is doe through tax-free moetary beefits payable to wartime veteras with low icomes, who are permaetly ad totally disabled, or are age 65 ad older. These veteras may be eligible for moetary support if they have 90 days or more of active military service with at least oe day of which was durig a period of war. Cotact the Michiga Veteras Affairs Agecy at MICH-VET or visit MichigaVeteras.com to lear more or be coected with a service officer ear you. 117

124 Fiacial Resources Aid & Attedace Veteras ad survivig spouses who qualify for a VA pesio may be eligible for additioal fuds if they are houseboud or require the aid of aother perso to perform everyday tasks, such as bathig, feedig ad dressig, amog others. These additioal fuds ca help offset the cost of that additioal care, icludig ursig home expeses. Eve if a vetera or survivig spouse s icome is greater tha the cogressioally madated legal limit for a VA pesio, he or she may still be eligible. A accredited veteras service officer ca assist you i determiig your eligibility ad filig a claim. Cotact the Michiga Veteras Affairs Agecy at MICH-VET or visit MichigaVeteras.com to lear more or be coected with a service officer ear you. Michiga Homes for Veteras The State of Michiga operates two veteras homes, i Grad Rapids ad Marquette. At the Grad Rapids Home for Veteras ad the D.J. Jacobetti Home for Veteras, eligible veteras ad their spouses beefit from skilled ursig, demetia, special eeds or domiciliary care i safe, carig eviromets. If you or a loved oe is i eed of our services, cotact the Michiga Veteras Affairs Agecy at MICH-VET or Michiga Veteras Trust Fud The Michiga Veteras Trust Fud (MVTF) offers fiacial assistace to combat-era veteras whe uforesee circumstaces cause a temporary fiacial emergecy or hardship that a grat, if approved, would resolve. You must be able to show that you will be able to meet future expeses after the grat. Trust Fud applicatios are accepted i the couty where you reside. To locate your MVTF Couty Couselor, visit or call MICH-VET. Life Isurace The VA offers may varieties of isurace programs for ew erollees as well as disabled veteras. The VA Life Isurace Office has specialists available betwee 8:30 a.m. ad 6:00 p.m. easter stadard time (EST) to discuss premium paymets, isurace divideds, address chages, policy loas, amig beeficiaries, ad to report the death of a isured. For questios related to life isurace cotact: or call Property Tax Exemptio for Disabled Veteras Public Act 161 of 2013 provides totally disabled military veteras a exemptio from property taxes o their primary residece ad exteds that exemptio to a disabled vetera s spouse, if the vetera dies before the tax break is grated. Previously, a vetera could qualify for a property tax exemptio oly if he or she was receivig assistace for specially adapted housig. To apply for the exemptio, the disabled vetera, their u-remarried survivig spouse or their legal desigee must aually file a affidavit with their local uit of govermet. A disabled vetera must meet oe of the followig qualificatios: The Uited States Departmet of Veteras Affairs has determied the vetera is permaetly ad totally disabled as a result of military service ad etitled to vetera beefits at the 100 percet rate. The vetera has a certificate from the Uited States Veteras Admiistratio, or its successors, certifyig that he or she is receivig or has received pecuiary (fiacial) assistace due to disability for specially adapted housig. 118

125 The vetera has bee rated by the Uited States Departmet of Veteras Affairs as idividually uemployable. Cotact your local uit of govermet for iformatio o how to apply for the exemptio. Veteras Crisis Lie The VA offers family members, caregivers, ad loved oes cofidetial support from a experieced, carig VA respoder. If you are cocered about the safety ad well-beig of a vetera, cotact the Veteras Crisis Lie at , ad press 1. Military Fueral Hoors By law, eligible veteras are etitled to Military Fueral Hoors at the time of their passig. This icludes, at a miimum, a two-perso uiformed hoor detail to perform a ceremoy that icludes foldig ad presetig of the America flag to the ext of ki ad the playig of Taps. Additioal elemets may be available if resources allow. Your local fueral home ca assist you with arragig military fueral hoors. If you eed assistace obtaiig a copy of the vetera s discharge papers, cotact the Michiga Veteras Affairs Agecy at MICH-VET. Fiacial Resources Burial Beefits Veteras (discharged uder coditios other tha dishoorable) ad their spouses are eligible for burial i a atioal cemetery, space permittig. This icludes opeig ad closig of the grave, perpetual care, a govermet headstoe or marker, a burial flag ad a Presidetial Memorial Certificate. Some veteras may also be eligible for burial allowaces, icludig wartime veteras, lowicome veteras, ad those drawig vetera pesios or compesatio. To schedule a burial at a atioal cemetery, fax all discharge documetatio to the Natioal Cemetery Schedulig Office at ad follow-up with a phoe call to Natioal cemeteries i Michiga with space available iclude: Fort Custer Natioal Cemetery i Augusta, Great Lakes Natioal Cemetery i Holly, Presidetial Memorial Certificates Presidetial Memorial Certificates (PMC) are give to recogize hoorably discharged deceased veteras. Next of ki, relatives, or frieds may request certificates at ay local office or by mail at Presidetial Memorial Certificate (41A1C), Departmet of Vetera Affairs, 5109 Russell Road, Quatico, VA These certificates ca be requested at ay time. To request a certificate, you eed a copy (ot origial) of the vetera s discharge documet ad a retur address to which you would like the certificate set. If you have already requested a PMC more tha (16) weeks ago ad have ot received it yet, please call to fid out the status of your request. 119

126 Fiacial Resources ONLINE RESOURCES The followig resources were used i the compilatio of the Reivetig Mi Retiremet fiacial toolkit: AARP Free comprehesive credit report Bak of America ad Natioal Coucil o Agig, Savvy Savig Seiors Tools, ivestmets, ad ews Carig Coectios (Natioal Hospice ad Palliative Care) Cosumer Fiacial Protectio Bureau (CFPB) Tools, ivestmets, ad ews Edward Joes, Makig Sese of Ivestig, Steps to Take Whe a Loved Oe Dies Federal Deposit Isurace Corporatio (FDIC), Moey Smart for Older Adults Federal Trade Commissio (FTC), a bipartisa federal agecy with a uique dual missio to protect cosumers ad promote competitio Fiacial Idustry Regulatory Authority (FINRA), the largest idepedet securities regulator i the U.S. Hospice ad Palliative Care Associatio of Michiga Hutigto Bak, retiremet plaig ad tools Ivestopedia, a comprehesive fiacial dictioary with over 13,000 terms Michiga Legislature, Chages ad Choices Legal Rights of Seiors Michiga Attorey Geeral s Office Michiga Departmet of Commuity Health (DCH) Michiga Departmet of Isurace ad Fiacial Services (DIFS) Michiga State Housig Developmet Authority (MSHDA) Michiga Office of Services to the Agig (OSA) Michiga Associatio of Certified Public Accoutats Michiga State Uiversity Extesio Motaa State Uiversity Extesio The Mortgage Ecyclopedia, by Jack Guttetag Fair Isaac Corporatio, credit score provider Natioal Edowmet for Fiacial Educatio (NEFE) Natioal Associatio of Isurace Commissioers (NAIC), orgaizatio of isurace regulators from all states ad depedet areas New Retiremet Secure Your Future Natioal Foudatio for Credit Couselig NOLO, olie legal iformatio The Uited States Govermet Wikipedia, free Iteret ecyclopedia 120

127 Fiacial Resources 121

128 The publicatio re-prit of this toolkit was made possible with geerous support from: Michiga Associatio of CPAs Mass Mutual Michiga Metro MB Fiacial Group MSU Federal Credit Uio Michiga Bakers Associatio Michiga Schools ad Govermet Credit Uio Chemical Bak TLC Commuity Credit Uio Flagstar Bak Quicke Loas FiacialEdge Commuity Credit Uio Detroit Youg Professioals Michiga Departmet of Isurace ad Fiacial Services DIFS is a equal opportuity employer/program. Auxiliary aids, services ad other reasoable accommodatios are available upo request to idividuals with disabilities. Visit DIFS olie at Phoe October 2015