The death of a loved one is a paralyzing event. Many survivors find it difficult, if not impossible to start dealing with the financial afterlife of a spouse even if they’ve planned extraordinarily well.

Consider then, the one single element that can turn this difficult process into a lengthy nightmare and potential financial disaster for a surviving spouse – the deceased’s outstanding debt.

Married couples — particularly those who hold credit cards jointly and keep month-to-month balances on them – really need to pay attention. And we’re not simply talking about elderly spouses. A spouse can die at any time.

The earlier a married couple focuses on the joint issues of credit management and estate planning, the better. And a financial advisor like a CERTIFIED FINANCIAL PLANNER™ can tie the necessary elements of estate, retirement and debt planning together because they absolutely need to be.

While the following information can be a guide for individuals who have lost a spouse, it’s a much better guide for couples in good health who want to alleviate major financial problems for their survivors later on.

Just remember: The worst time to deal with joint or separate credit issues is after the funeral. Some key points to consider:

Joint credit in moderation…or not at all:  If spouses have separate credit, then their rating won’t be affected by the spouse’s bad credit behavior (late payments, charge-offs, bankruptcies, etc.).  Joint credit leaves the surviving spouse with a total obligation for any debt remaining on a car loan, credit card, mortgage or any other kind of debt.

Watch those “additional card” offers: Again, it might seem like a great idea for both spouses to carry credit cards on the same account, but in death, outstanding balances are often treated the same way as joint account is. It’s not unusual for an issuer to come after the holder of the additional card for that outstanding debt.

They will find you: You’ve never met Big Brother until you’ve tussled with today’s toughened-up lenders. Particularly as problem credit has grown to epidemic proportions, credit card companies in particular have gotten a lot better about determining whether customers have died so they can make a claim against the deceased’s assets. Most states have specific laws that put a timetable on a lender’s ability to make claims against an estate, and executors may have certain responsibilities under those laws to inform those creditors.  A planner or estate attorney can help you go over those requirements in your home state as you’re addressing your estate, retirement and debt issues.

Keep in mind that keeping separate credit won’t protect the estate’s assets: Granted, a deceased partner’s bad credit may not affect your ratings on your separate accounts, but creditors will go after the assets of your shared estate to settle up. So what’s the message here? Keep debt under control at all times.

If the worst happens, what’s the process? It’s important to contact all lenders swiftly to let them know your spouse has died for several reasons. First, identity thieves are getting more sophisticated about checking death notices and tracing that information to their credit accounts. Dealing with a deceased spouse’s debt is one problem. Dealing with an identity theft calamity based on your spouse’s accounts is even worse. Also, if you do have joint accounts, ask the issuer if it will issue the card in your name only, and keep in mind that you will still need to maintain payments on those balances to preserve your credit rating as a single person. Lastly, lenders tend to look askance at customers who fail to make disclosure of a spouse’s death. So matter how tough things are, you need to make these calls.

What about the last joint accounts? For joint accounts, removing the deceased’s name from the account should have no impact on the survivor’s credit score, but the survivor should think twice before he or she closes the account, because it cuts back the amount of credit available to the survivor.

Just get rid of the debt:  Debt-free is the best way to go through any crisis. Couples should strive to be debt-free not only for the good times, but for the awful ones as well.

July 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V. Higgins, CFP, CLU, AEP, a local member of FPA.

After a marriage breaks up, about the last thing most people want to do is sit down with one more attorney. But no matter how old you are or whether you have kids, it’s important to consult both financial and legal experts to make sure you have an updated estate and financial plan for your new life once the divorce decree is final.

It’s also best to blend estate planning with financial planning post-divorce. If you weren’t working with a financial or estate planner during the divorce process, it’s time to do so now. The immediate months after a divorce can be disorienting – even if you don’t move, you are literally starting a new household that you will have to direct yourself, and that means new money issues to face.

This is why that the weeks immediately after a divorce are a good time to revisit short- and long-term spending and planning goals. Here’s a general road map to that process:

Start with a financial planner: Whether you plan to stay single, remarry or move in with a new partner, it’s good to get a baseline look at your finances as early as possible after the divorce is final.  Expenses for the newly single can pile up quickly and unexpectedly, and a financial planning professional can help you review your new current spending and savings needs, compare strategies to achieve long-term goals like college and retirement and give you critical tools to protect your assets and loved ones if you die suddenly. Even if you have a good relationship with an ex-spouse and you addressed key issues for your children as part of the divorce proceedings, you need to revisit all these issues as a single individual before you move on to the next stage.

Talk with a trained estate planning attorney about wills and other critical documents: True, there are software programs and other kit solutions available to write basic wills, powers of attorney and certain simple trust agreements. But it makes sense to coordinate the activities of a financial planner with an estate planning attorney who can tailor an overall estate plan specific to your needs no matter how basic they might be right now. Even if you are very young with few assets, it makes sense to get some solid advice in this area so you’ll be able to manage such planning as you age and your finances get more complex. Particularly if you have kids, such planning is important if you plan to remarry and if you want to guarantee that specific assets are guaranteed for them when you die.  In some cases where a spouse dies unmarried with minor children, an ex-spouse might automatically gain control of assets that were supposed to be earmarked for the kids. If you don’t want that to happen, you need to plan for that legally.

Make a guardianship game plan for your kids: It’s not enough to plan how money and assets will go to your children if you or your ex-spouse die suddenly or are incapacitated.  If your children are minors, it’s particularly important to make sure you and your ex-spouse have a guardianship plan for their upbringing as well as any assets they may inherit. You might completely trust your ex-spouse’s new husband, wife or partner to raise your kids if your ex-spouse dies before you, but there may be others better-equipped to do so – spell that out now.  Also, if there are any trust or wealth issues that will become effective for your children once they reach adulthood, it’s also important to establish an efficient legal structure for distributing those assets as well as appointing a trustee in a will to train and guide your kids through that financial transition.

Plan for special needs kids: If one of your children is disabled and is expected to need lifetime assistance of some type, then you should consult a qualified attorney to help you create a special needs trust. It will help protect your child from having to give up any public or social financial assistance as well as access to special doctors, medical help, special prescriptions or treatments that could be taken away if they were to personally inherit assets that would disqualify them for these programs. When such assets are held in trust, they are not counted as the child’s assets. The advantage is that those inherited assets may still be used to support their housing or other personal living needs.

Get solid protection in place: Most people focus on what may happen to their health insurance if they get divorced, but insurance issues like life, property/casualty and disability insurance are sometimes put on the back burner.  If you’re newly single, you definitely need the best health coverage you can afford for yourself and your kids, but life, property, liability and disability insurance becomes doubly important, particularly if you failed to address those needs during the divorce.  Even if your ex-spouse is cooperative with financial support, it’s wise to insure yourself as if they weren’t. A financial planner should be able to go through those options in detail.

Review all your investments for primary ownership and beneficiary information: Even if you were advised correctly to change the names on assets you and your spouse were dividing between yourselves, it still makes sense post-divorce to review that the names are indeed correct on those assets, and most important, to make sure all beneficiary information is correct.

June 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Martin V Higgins,CFP,CLU,AEP, a local member of FPA.

Maximizing Your Pension with Life Insurance

Introduction

If you participate in a traditional pension plan (known as a defined benefit plan) with your employer, you may receive monthly benefits from the plan after you retire. These benefits are generally based on your age at retirement, as well as your years of service and your average earnings with the company. Depending on your plan’s provisions, you may have more than one payout option to choose from. You want to select an option that will provide you with sufficient retirement income. In addition, if you are married, you want to be sure that your spouse will have sufficient income in the event that he or she outlives you.

When you retire, a defined benefit plan must offer you and your spouse a joint and survivor annuity. If your spouse consents in writing, you can generally decline the joint and survivor annuity and elect a single-life annuity instead. Some defined contribution plans offer similar options, so consult your plan administrator or benefits department if you participate in one of these plans.

With a joint and survivor annuity, payments continue as long as either you or your spouse is alive. When one spouse dies, the benefits paid to the surviving spouse generally cannot be less than 50 percent (or more than 100 percent) of the joint benefits. By contrast, with a single-life annuity, payments last for your lifetime and cease upon your death. For example, if you received one payment after retirement and then died, the single-life annuity would provide no further payments from your pension. Your spouse would receive nothing.

So why would you choose a single-life annuity knowing that payments will stop at your death? One reason is that the single-life annuity generally pays a larger monthly benefit than the joint and survivor annuity. This is because the payments are designed to last for a smaller number of years (i.e., one life expectancy instead of two). Retirees who want to maximize their monthly income sometimes choose the single-life annuity for this reason. The retiree can then use the additional income to purchase life insurance with his or her spouse as the beneficiary, thereby protecting the spouse’s financial future. This strategy, commonly called pension “maximization” using life insurance, may be appropriate for you.

Caution: Be sure to seek qualified professional advice, since choosing a pension payout option and life insurance coverage can be complex and will impact both your financial future and your spouse’s.

Factors to consider

Difference in benefits between the two payout options

As mentioned, a single-life annuity pays larger monthly retirement benefits than a joint and survivor annuity. The amount of the difference is a key factor when deciding between the two payout options. This information is generally provided to you prior to distribution as part of the spousal consent/waiver process. If the single-life annuity pays significantly more than the joint and survivor annuity, then electing the single-life annuity along with the purchase of a life insurance policy may be a viable strategy. The larger the monthly benefits under the single-life annuity, the more income you will have to pay the premiums for the life insurance policy. However, if the difference between the two payout options is relatively small, it may be better to elect the joint and survivor annuity. This is especially true if the single-life annuity will not provide enough income to pay the insurance premiums.

Tip: Always consider the impact of federal and other income taxes on annuity payments when determining the net amount of benefits available for you (and your spouse).

Insurability and cost of insurance

If you are not insurable because of your health and/or other reasons, then electing the single-life annuity along with the purchase of a life insurance policy is not an option. If you are insurable, determine how much life insurance coverage would be needed to compensate your spouse for the loss of your pension income if you elected the single-life annuity. Then look at the cost of that amount of coverage, and compare it with your monthly income from the single-life annuity. This will help you decide if using the pension maximization strategy makes financial sense. If you are relatively young and in good health, the insurance premiums may be much more affordable than if you are older and/or in poor health. However, as the cost of the insurance becomes more expensive, using life insurance to maximize your pension payout becomes less attractive.

Cost-of-living adjustment

Some pension plans have a cost-of-living adjustment (COLA) feature that allows the monthly benefits to be periodically increased to keep pace with the rate of inflation. If your pension contains this feature, you may need to consider a larger insurance policy to protect your surviving spouse from the loss of your pension income (assuming you elect the single-life annuity). This is because your surviving spouse would receive an ever-increasing amount of annual income over his or her lifetime if you elected the joint and survivor annuity with a COLA feature, and the rate of inflation goes up over time. Thus, the presence of a COLA clause in your pension plan may be a factor against using life insurance to maximize your pension. You will have to work through the numbers to see if it makes more sense to elect the single-life annuity and buy an insurance policy, or to simply elect the joint and survivor annuity.

Health and life expectancy of your spouse

If your spouse is in poor health or has a short life expectancy, then selecting the single-life annuity along with the purchase of a life insurance policy often makes more sense than selecting the joint and survivor annuity. This strategy is more practical if your spouse is more likely to die before you. As the plan participant and the surviving spouse, you will then have the benefit of the higher monthly payout from the single-life annuity for the rest of your life. You can then choose to discontinue the life insurance policy, or continue to make the premium payments and name a new beneficiary (as long as an irrevocable designation of beneficiary has not been made).

Age difference between you and your spouse

If there is a large difference between your age and your spouse’s age (with you being much older), then opting for the single-life annuity along with the purchase of a life insurance policy may make more sense because the difference in benefits between the single-life annuity and the joint and survivor annuity will typically be greater. If your spouse is considerably younger than you, his or her longer life expectancy will be factored into the calculation of the joint and survivor annuity benefits, resulting in smaller monthly payments. This could leave you and/or your spouse without sufficient retirement income using a joint and survivor annuity. However, if you select a single-life annuity that ends because you die soon after retiring, your much-younger spouse may have to survive financially without the benefit of your pension for a long period of time.

Gender of the plan participant

If you (the plan participant) are female and insurable at an affordable cost, then selecting the single-life annuity along with the purchase of a life insurance policy may make more sense than selecting the joint and survivor annuity. The reason: All other factors being equal, women are statistically more likely to outlive men of the same age. You will benefit from the higher monthly payout under the single-life annuity while you are alive, and the life insurance coverage will protect your spouse in the event that you die first. By contrast, if you select the joint and survivor annuity and your spouse dies first, you may be stuck with a smaller payout for the rest of your life (unless the plan has a “pop-up” provision–see below).

“Pop-up” provision

Some pension plans offer their participants a “pop-up” provision specifying that if they initially select a joint and survivor annuity payout and the spouse dies first, they can then retroactively select a single-life annuity payout. This gives you flexibility to adapt if things do not go as planned. If your pension plan offers this option, you may not want to select a single-life annuity with the purchase of a life insurance policy. It may be better to initially select the joint and survivor annuity.

Advantages of maximizing your pension with life insurance

It may increase your retirement income

Most people who use a single-life annuity with life insurance to maximize their pension payouts are trying to increase their income during their retirement years. Under most pension plans (and depending on various factors such as the age of the two spouses), a single-life annuity will pay out substantially more per month than a joint and survivor annuity. Most people would like to have that extra income during their retirement years. However, most people are also concerned about providing for their spouses if they should die first. By selecting a single-life annuity along with the purchase of a life insurance policy on the participant’s life, some couples can increase their income during retirement and provide for the surviving spouse’s financial future.

It may work well even if the nonparticipant spouse dies first

Using life insurance to maximize your pension payout will work well financially if your nonparticipant spouse should die first. In fact, this strategy may actually produce greater financial benefits if your nonparticipant spouse does die first, because you (the surviving spouse) will receive the higher single-life annuity payout for the rest of your life. You can then either discontinue the insurance policy or name a new beneficiary and continue to pay the premiums.

It may provide assets for your heirs and beneficiaries

Another benefit to selecting the single-life annuity with the purchase of a life insurance policy is that there may be assets left over for your heirs and beneficiaries. If you and your spouse select a joint and survivor annuity, no benefits from your pension plan will be paid to your heirs and beneficiaries (e.g., your children) when the surviving spouse finally dies. If, however, you select a single-life annuity and purchase a life insurance policy on your life, some of the insurance proceeds may still be left for your heirs and beneficiaries after the death of your surviving spouse. This is especially true if your surviving spouse invests the proceeds wisely and does not spend them rapidly, or if your spouse predeceases you and the life insurance proceeds are paid to your beneficiaries upon your death.

Disadvantages of maximizing your pension with life insurance

The income earned on the insurance proceeds may not meet expectations

This strategy may not work well if, for some reason, the investment earnings on the insurance proceeds are too low to adequately provide for the surviving spouse. To illustrate, consider the following hypothetical scenario.

Example(s): Upon your retirement, you select a single-life annuity for your pension and purchase a $300,000 life insurance policy on your life with your spouse as beneficiary. Based on market conditions at the time of your retirement, you believe that the earnings generated by the insurance proceeds will provide sufficient income for the rest of your spouse’s life if you die first. You die three years later, when market conditions have deteriorated substantially. The life insurance proceeds may now not provide enough income for your surviving spouse.

Your surviving spouse may squander the insurance proceeds

Another potential problem with this strategy is that your surviving spouse may make poor investments with the insurance proceeds, spend them too quickly, or otherwise squander the money. If this happens, your surviving spouse may be in a difficult financial situation for the remainder of his or her lifetime. With the joint and survivor annuity, you minimize this risk because your surviving spouse would at least be assured of receiving the designated pension payout each year.

The life insurance policy may lapse

If you choose to maximize your pension with life insurance and then stop paying the insurance premiums due to financial problems or other reasons, the insurance policy may lapse. With no insurance proceeds and no pension benefits, your surviving spouse may be in a difficult financial position after your death. In this case, your surviving spouse would have been in a much better position if the two of you had selected the joint and survivor annuity for your pension.

When this strategy makes sense: a short case study

Example(s): Assume you are about to retire at age 65, and your spouse is age 62. Your pension plan gives you the option of either a single-life annuity or a joint and survivor annuity. If you select the single-life annuity, you will receive $4,500 per month for the rest of your life, but your spouse will receive nothing if you die first. If you select the joint and survivor annuity, you and/or your spouse will receive $3,000 per month as long at least one of you is alive. That’s an additional $1,500 per month (or $18,000 per year) with the single-life annuity.

That sounds attractive, but what will happen to your spouse if you select the single-life annuity and you die before your spouse? Your spouse gets no survivor benefit. Your spouse may need a way of replacing that lost pension income. One way to accomplish this may be to purchase a life insurance policy on your life, and name your spouse as the beneficiary of the policy.

You need to determine whether the extra $1,500 per month under the single-life annuity (less income taxes) will buy enough insurance coverage to produce a replacement income of $3,000 per month if you die before your spouse. That is the amount of income your spouse would have received had you selected the joint and survivor annuity. You also need to determine whether your spouse will live off of only the income from the insurance proceeds, or need to dip into principal as well. You must run the numbers to see what is affordable and what makes financial sense.

Income tax considerations

The monthly retirement benefits you and your spouse receive from your pension are generally treated as taxable income, subject to federal (and possibly state and local) income tax. This is true regardless of whether you elect a single-life annuity payout or a joint and survivor annuity payout. However, since the pension benefits are larger with a single-life annuity, electing this payout option will increase your taxable income during retirement.

If you elect the joint and survivor annuity payout, when the first spouse dies, the pension payout to the survivor will be included in the survivor’s taxable income. If you instead use the pension maximization strategy and die before your spouse, the life insurance death benefits will not be included in your surviving spouse’s taxable income. This is because life insurance death benefits generally pass free from income tax to the beneficiary of the policy. Of course, your surviving spouse may invest the insurance proceeds in taxable investments. Any earnings from such investments (e.g., interest, dividends, and capital gains) will generally be included in your spouse’s taxable income.

Caution: While life insurance proceeds are generally free from income tax to the beneficiary, estate taxes are another matter. If this is a concern, you should consult a qualified estate planning attorney for appropriate strategies.

Forefield Inc. does not provide legal, tax, or investment advice. All content provided by Forefield is protected by copyright. Forefield is not responsible for any modifications made to its materials, or for the accuracy of information provided by other sources.

by Robert Stall MD, Geriatrician

If you’re fortunate enough to have one or both parents still living, you may have noticed a role reversal taking place in your relationship. Remember the days when Mom shuttled you to the doctor whenever you were sick? Now, it may be you who’s driving her to her medical appointments. Perhaps you’ve become even more involved in managing her healthcare needs – serving as her healthcare proxy, moving her into your home to care for her, or even having to select a nursing home for her to live in.

Whatever the case, it’s natural to feel challenged – and, yes, intimidated – in the role you’ve undertaken. But if you stay positive and proactive, you’ll be in a great position to advocate for your parents’ optimal care. And, really, what better way is there to say “Thank You” for all they’ve done for you over the years?

The following six recommendations will help you understand what may be happening to your parents as they age – and what you can do to help.

1. Stay vigilant to sudden changes.
Typically, sudden changes arise from sudden problems. Your elderly father who becomes confused one week but was alert and oriented the week before, or becomes unsteady walking and starts falling, is likely experiencing an acute problem – an infection, medication side effect, or perhaps, a heart attack or stroke.

If you pay attention to your parent’s baseline health and behavior, you’ll be alert to sudden, and subtle, fluctuations. Being attuned to what’s “normal” for your parent is critical in advocating for his care. By informing his physician of these changes, you help ensure that he receives a proper diagnosis and timely treatment – especially important in acute conditions.

2. Investigate the source of gradual decline.
Several years ago, I met an elderly woman living in a nursing home. Her family, assuming she had dementia, had moved her there after she had gradually stopped speaking.

After performing a brief procedure on her, I asked how she was doing. “I’m OK,” she replied.

A miracle? Not exactly. I’d removed bullet-sized pieces of wax from her ears. She’d stopped speaking because her ears were too plugged to hear.

A host of conditions can cause gradual decline. Before jumping to the conclusion – as many people do – that Alzheimer’s disease is the culprit, recognize that your parent may be experiencing an altogether different problem: a vitamin B12 deficiency, an underactive thyroid, Parkinson’s disease or depression, to name a few.

When discussing your parent’s decline with her physician, make sure the two of you consider all the possibilities. To prepare for the appointment, make notes detailing how her decline has manifested itself – loss of appetite, a failing short-term memory and so forth – and how long you’ve noticed these changes. That way, you won’t leave anything out. To help you, I’ve created a free checklist that either you or your parent can complete at seniorselfassessment.com – make sure you print or email the “Test Result Details” at the bottom of the page to analyze your responses and give you advice based on your answers.

3. Know thy parent’s medicine cabinet.
Familiarize yourself with the medications your parent takes: what each one is for and how often he takes them. Make sure you notify each doctor your parent visits of all the medicine he takes, including over-the-counter products. Ask what side effects you might observe from each medication and whether it’s potentially dangerous if your parent takes them together. You also want to tell the doctor whether your parent drinks alcohol or caffeinated drinks and whether he smokes, as these substances can affect some medications’ efficacy and safety. To recognize which medications might cause the symptoms your parent experiences, check out  drugscanmakeyousick.com .

4. Discourage ageist attitudes.
Simply put, ageism is prejudice against the elderly. It exists in many forms but can be particularly damaging to an older person’s self-esteem when it assumes that all of her woes are age-related. Here are a couple of ways of expressing ageism to an elderly parent:

“What do you expect at your age?”
“You’re not getting any younger.”

If you’re ever tempted to utter something similar, remind yourself that by chalking up everything that ails her to her age, you sell your parent short. If she’s depressed, it may have nothing to do with the fact that she’s 80 and everything to do with a biological predisposition to depression. And remember that right-knee pain in a 90 year-old can’t be just from age if there’s no problem with her left knee. (More about Dr. Stall and a more in-depth article on the attitude of society towards medical care for the elderly can be found at http://www.longtermcarelink.net/eldercare/medical_care_issues.htm )

5. Address not just symptoms—but emotions, too.
There is disease and then there is “dis-ease” – that is, a lack of ease, security or well-being. “Dis-ease” can manifest itself as myriad emotions in an elderly person: fear, grief, boredom, embarrassment and sadness among them. The fact is, these emotions can be every bit as debilitating as disease.

Take the case of a parent who’s incontinent. Too embarrassed to socialize, she cuts herself off from friends. Without companionship, she becomes lonely. Instead of allowing her to become a hermit, discuss with her doctor how to address the incontinence. Together, you can consider different solutions that will ease her embarrassment and reinvigorate her social life.

6. Strive to maximize your parent’s quality of life.
No matter our age, we all want to enjoy life to the fullest and have the capability to do the things we want to. Improving the enjoyment of life and a patient’s functional ability are the cardinal goals of geriatric care. But you don’t need a medical diploma on your wall to help your parent achieve either of those goals.

Being there to solve a problem or provide company are tremendously worthwhile services you can provide – no expertise required. Remember, as your parent gets older, his quality of life becomes more important to him than how much longer he lives. And he doesn’t necessarily need medications or surgery to ensure that he’s living the latter part of his life to the fullest.

If he enjoys books but has difficulty reading regular-sized type, check out sight-saving titles at the library. If he’s grieving the loss of his best buddy, introduce him to new acquaintances at the senior center. If he’s living in a nursing home, bring your kids there to share a meal with him.

Sometimes, it’s the small gestures that have the most profound impact. As the child of an elderly parent, you are uniquely positioned to deliver these life-changing gifts.

Dr. Robert Stall is a geriatrician practicing in Tonawanda, New York and a clinical associate professor at the University of Buffalo’s School of Medicine and Biomedical Sciences. He serves as medical director and attending physician at Beechwood Homes in Getzville and Blocher Homes in Williamsville. To learn more about senior care issues, visit his website at stallgeriatrics.com or call 716-213-4345. For information on a new program offering balance assessment and fall prevention tips, call 716-213-0772.

By: Brian Tracy

To deal with change, perhaps the most valuable quality you can develop is flexibility. Form the habit of remaining open-minded and adaptable to new information and circumstances. When things go wrong, as they sometimes will, instead of becoming upset or frustrated, practice looking into the change or reversal for the opportunity or benefit it might contain.

Superior men and women are invariably those who remain calm and keep their wits about them in the midst of unexpected turbulence. They take a deep breath, they relax, and they assess the situation objectively. They keep themselves calm and unemotional by asking questions and seeking information when things don’t work out as they expected. For example, if someone doesn’t fulfill a commitment, or if a sale is canceled, or fails to go through, they keep their minds clear and steady by asking questions, such as “What exactly happened in this situation?” They deal with change by focusing on getting the facts before reacting. They develop the ability to cut through the confusion and ask questions such as “Why did this happen? How did it happen? How serious is it? Now that it has happened, what are the various things we can do?”

The critical issue in dealing with change is the subject of control. Most of your stress and unhappiness comes as a result of feeling out of control in a particular area of your life. If you think about the times or places where you feel the very best about yourself, you will notice that you have a high degree of control in those places. One of the reasons why you like to get home after a trip is that, after you walk through your front door, you feel completely in control of your environment. You know where everything is. You don’t have to answer to anyone. You can relax completely. You are back in control.

With a clear idea of where you’re going and what you want to accomplish, you develop resilience, which is the ability to bounce back rather than to break. You develop what is called the “hardy personality” and become the type of person who is resistant to the negative emotions that affect people who have no goals or direction.

The first step in dealing with any change is simply to accept the change as a reality. Acceptance is the opposite of rejection or resistance. Acceptance keeps your mind calm and positive. The minute you accept that a change has occurred, and that you can’t cry over spilled milk, you become more capable of dealing with the change and turning it to your advantage.

One of the best ways to deal with the worry that is often generated by unexpected changes is to sit down and answer, on paper, the question: “What exactly am I worrying about?”

In medicine, it is said that accurate diagnosis is half the cure. When you sit down and define a worry situation clearly on paper, it suddenly becomes less stressful to you, and it will often resolve itself. In any case, when it is clearly defined, you have diagnosed it, and you can now do something about it.

The second step is to ask yourself, “What is the worst possible thing that can happen in this worry situation?” Much worry and stress comes from the refusal to face what might happen as a result of your difficulty or problem. When you clearly define the worst possible outcome, and write it down next to the definition of the problem, you will find that, whatever it is, you can handle it. Often your worries will begin to evaporate as soon as you have clearly determined the worst that might happen as a result.

Now decide to accept the worst possible outcome should it occur. Mentally resolve that, even if the worst possible consequences ensue from this situation, it will not be the end of the world for you. You will accept it and carry on. In fact, it could probably be a lot worse. The very act of accepting the worst possible outcome completes the cycle of eliminating from your mind the stress and anxiety associated with the situation.

You are now ready for the third step in dealing with change, and that is to adjust your behaviors and actions to the new situation. Ask yourself, “What are all the things I can do to make sure that the worst possible outcome does not occur?” Sometimes we call this “damage control.” In the business schools, this is an important part of decision making, and it is called the “mini-max regret solution.” What can you do to minimize the maximum damage that can occur from an unexpected change or setback? As you begin thinking of all the things you can do, you are adjusting your mind to the new information and preparing to take steps to deal with the change effectively.

The final part of this four-step method for dealing with change is to improve on the existing situation. Often, a change signals that your plans are incomplete or that you might be heading in the wrong direction. Serious changes, which seemingly create real problems, are often signals that you are on the wrong track. There is an old saying, “Crisis is change trying to take place.” If, instead of resisting change, like a pine tree that snaps in a strong wind, you bend with change, like a willow tree, you will often find that the change is a healthy and positive step toward achieving your goals.

W. Clement Stone, the founder of Combined Insurance Company of America, is famous for his attitude of being an “inverse paranoid.” He is convinced that everything that happens is part of a conspiracy to help him to be more successful. Whenever something unexpected occurs, he immediately says, “That’s good!” and then looks into the situation to find out exactly what is good about it.

The mark of a superior person is what is called “tolerance for ambiguity.” This simply means that you have the capacity to deal effectively in a rapidly changing situation. The higher up you gothe greater your income and responsibilities, the higher your status and positionthe faster the rate of change will be around you. At every stage, it will be your ability to function with calmness, clarity and quiet assurance that will mark you as the kind of person who is going places in life. In the final analysis, your ability to perform effectively in a world of ongoing change is the true measure of how well developed a person you really are. And the keys are to accept change, to adjust to change, to improve upon change, and then to move on to the next situation. As you continue to do this, you will have such a wonderful feeling of self-control and self-determination that your whole life will be bright and positive, and so will your results.

About the author:

Brian Tracy is legendary in the fields of management, leadership, and sales.  He has produced more than 300 audio/video programs and has written 28 books, including his just-released book “The Psychology of Selling.” Special offer: To receive your free copy of “Crunch Time!, just visit www.briantracy.com and click on the Crunch Time! icon.  He can be reached at (858) 481-2977 or www.briantracy.com.

Money worries are the most common cause of holiday stress, according to Mental Health America. The 2006 study showed that parents are more stressed than all other demographic groups by finances and females are more likely than men to feel stressed by finances.

Money isn’t everyone’s No. 1 worry, but if it’s yours, why not consider the following New Year’s resolutions to improve your financial life?

Resolve:

1. To write down your goals: Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers.  Putting goals in writing gives them a formality and a starting point for the planning you must do.
2. To evaluate your risk tolerance: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. With the market turbulence that’s marked 2008, many individuals would benefit from an analysis of how much risk they want – or need – to take given what they want to achieve with their money.
3. To track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order.
4. To consider advice on taxes and planning: Maybe you’ve always winged it with your taxes and considered your company 401(k) the ticket to your financial future. Chances are your planning is inadequate. Start getting references on good tax professionals and consider sitting down with a CERTIFIED FINANCIAL PLANNER™ professional to discuss your current retirement savings picture and what you can do to improve it.
5. To cut your credit card debt: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum – on time, every month.  Oh, and pay cash from now on.
6. To save: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5-10 percent of your take-home pay based on your cash flow, and place the maximum in whatever retirement savings plans you qualify for.
7. Get ahead on your mortgage: This advice isn’t for everybody, but if you’ve paid off your credit cards by paying more than the minimum, you can apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut at least five years of payments on a 30-year loan.  Just don’t short your retirement investment plans to accomplish this.
8. Invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually makes sense for your health as well as your insurance costs, do it.
9. To redefine the way you shop: If you’re an impulse shopper, break the habit in ’09. As a suggestion, get a legal pad and make that your centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.
10. To attack that miscellaneous column: Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and start setting that money aside on a regular basis.

The average college graduate is $20,000 in debt, and today’s young adults are clearly exposed to more opportunities for self-directed financial disaster than any group in history.

Despite the current credit crunch, credit cards are still a common way most young people afford their new adult lifestyle, and rising costs on everything from rent to gasoline presents deeper challenges.

So it happens. Your kid gets in trouble with those credit cards, loses a job, or can’t find a job to pay the sum total of the rising debt he or she has. What can you do?

Make sure you can afford to help: It’s tough to say no to a financial bailout for your kid, but depending on the level of trouble he or she is in and your own financial responsibilities, you may need to.  Here are some ideas:

Both sides should come clean: Remember that this situation is as much about the relationship as about money. The decision to help a family member with money problems requires understanding – lecturing tends to work not so well. But it’s right to encourage your kid to take a frank look at their financial situation and if they are in debt trouble of any kind, they should get help. It’s also important that you show confidence that they will make it through this.

Consider a joint talk with a financial planner: A financial planner, such as a CERTIFIED FINANCIAL PLANNER™ professional, can look at their financial situation and your own and give you both a road map on how to work through your child’s money problems and set up better money management techniques for after the crisis.

Should help be considered a gift? Actually, this is a good first question in any scenario where you offer help to a friend or family member. What happens if you don’t get the money back? For the sake of the relationship involved, it might make sense to think through that possibility. Would the potential loss of money injure you, and worse, will it injure the relationship? This is why it might be a very good idea to present this solution as a one-time gift – and then stick to it.

But if it’s a loan: You need to structure it professionally with clear consequences if it goes unpaid. Handled correctly, such a solution can offer benefits for the borrower and lender alike. Terms should be at arm’s length to meet IRS rules but it can still be more attractive than the child could obtain in the current marketplace. But there’s the potential for incredible downside. Unclear agreements can lead to missed payments or default. If the borrower dies suddenly, the lender’s investment may be lost if the agreement isn’t structured correctly. A properly executed promissory note is still an obligation of the estate, and may continue to be paid to an heir or other person or entity based on the terms as agreed.  It is advisable that the loan agreement be in writing and properly executed to meet IRS rules.

Work with them on budgeting: It’s not going to be enough to solve the immediate problem. Even if you don’t use a financial planner to help you both work through the situation, it’s important to set a clear financial course for your child going forward. They obviously have to have a stake in the planning, but you’re going to have to provide guidance.

Encourage them to start an emergency fund: Even if your child only has a few cents in their pocket after settling their troubles, encourage them to start an emergency fund. Optimally, they’ll need to stash away three to six months’ worth of living expenses, and even if it’s just a small start, it’s part of the recovery effort.

By Steve Martin, CMCT

Most people will happily agree to help a colleague out at work who has helped them out previously, take their turn to buy lunch when others have bought lunch before and remember to send a birthday card to the people who have sent them a card on their birthday.

The principle of reciprocity is a well accepted societal norm and has been extensively studied by social scientists. Its influence runs so deep that obligations can reach long and powerfully into the future (Cialdini 2001). But will people be just as likely to live up to the rule of reciprocity and return a favor in situations where nobody will ever know if the favor is returned?

Researchers Jerry Burger and his colleagues from the Department of Psychology at Santa Clara University tested this idea by setting up a study in which participants were asked to take part in a series of tasks to test “personality and perception skills”. In fact the “personality and perception” tests were a cover for the real study which involved certain participants being given a bottle of water by another study participant (the favor condition). The person who gave out this unexpected gift was actually a research assistant involved in the study. In a second condition the research assistant didn’t hand out bottles of water to anyone (the no-favor condition).

At the end of the test the researcher asked all the participants if they would be willing to complete a survey and return it a couple of days later. Half the people asked to complete the survey were led to believe that the person would be present when they returned the survey but the other half were told to leave the survey anonymously in a drop off box.

As you would expect, significantly more people who were given a bottle of water complied with the request to complete and return the survey compared with the group that were not given a bottle of water (30% v 5%). A good example of the reciprocity effect in action.

What is potentially more interesting is the fact that the people who believed their response would be anonymous were just as likely to live up to the rule of reciprocity and return the survey as those who believed that their act of repayment would be witnessed.

This means that even in situations where the giver of the original favor is unlikely to find out whether their favor has been reciprocated, they can be confident there is a good chance it will be.

This fact should be especially comforting for those working in certain business environments.

Leaders who employ large teams of people and manage them through groups of other managers, or managers who lead teams who work in different office locations (or even different countries) can be assured that even if they only rarely see their staff they should never fail to seek ways to employ the principle of reciprocity. Giving your time, trust, attention and providing useful information will be useful activities that teams will be likely to reciprocate even if you are not around to witness it.

Another situation where this study could provide useful insights is for those who do business online and as a result rarely, if ever, come face to face with their customers and consumers.

Given the increased anonymity of online environments and the fact that people are just as likely to live up to their obligations even when there are no witnesses, should mean that anything your business does to promote new custom (such as offering trial periods, newly published reports or exclusive software) should be an effective use of the societal rule of the ‘good old give and take’.

Either way, known or unknown, the principle of reciprocity continues to be a powerful force in persuading others.

Source:
Jerry M. Burger, Jackeline Sanchez, Jenny E. Imberi, & Lucia R. Grande. The norm of reciprocity as an internalized social norm: Returning favors even when no one finds out.

Social Influence 2008

Almost everyone would like to live longer, but only a few tactics actually have been shown to stretch and improve lives. Here are the factors that make a difference.

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