Mother’s always know best, but yet we still question some of the advice given to us by our mom’s. Especially when it sounds crazy and old-fashioned. Here are some interesting topics involving mom’s financial advice.
“My mother told me that I need a pre-nuptial agreement before I get married, I think she’s crazy! She went on to say, “I am 29 years old and getting married in a few months, my fiancé and I both own the house and we each have our own 401k plans. I don’t have anything to hide from my future husband!”
“How much money is in your 401k?” the advisor asks. “Only about $100,000” says the bride to be.
Aside from the $100,000 being considered substantial savings for a young woman, think about its potential value 36 years from now. If she never contributed another penny to her 401k plan, and it earned a hypothetical 5% a year, it could be worth over $600,000 when she turns 65. Remember, CT is one of the 41 states where assets are divided equally in a divorce.
However, pre-nuptials are often viewed in a very negative light, especially if it is for a young couple who will be celebrating their first marriage. Perhaps Mom is insistent because she has a sizable nest egg she only wants you to inherit. When there is money involved, a pre-nuptial should be discussed…together…alone as a couple…not with Mom or Dad, and certainly not individually with an attorney. Many marriages fail or thrive because of financial issues. Telling your future husband you already went to see an attorney for a pre-nup will not go over well with your fiancé or his family.
“My mother told me I should be contributing to my retirement plan at work. I just got my first job after college and she insists I contribute to the company’s 401k plan. I have college loans to pay off and can’t afford to save anything right now!”
Mom is right on this one, especially if your employer matches your 401k contribution. For example, if you contribute 3% of your pay, they will contribute 3% as well. That is a gift! If you are single, and not a home-owner and perhaps living at home – now is the time to save! Also consider that the individual tax rate for incomes between $37,450 and $90,750 is 25%. Contributing to the 401k will give you immediate tax benefits and help you save for your future.
“My mother told me I need to buy more life insurance. My husband and I are both 32 and just bought our dream home. My mom keeps bugging me about it. She knows we both have life insurance at work, but she says it’s not enough.”
The life insurance coverage you have at work is generally based on 1 or 2 times your salary, and only valid if you continue to stay with your current employer. If you lose or change jobs, your new employer may not even offer life insurance options. Also consider the amount of insurance, would 2 times a spouse’s salary pay off the mortgage? Even if it did, what about income replacement? Being young and in good health is another reason. Insurability is a key factor these days and underwriting with life insurance companies is more stringent than ever. One’s health can change quickly and if providing a home, having children and ultimately putting them through college is in the picture, additional life insurance can’t hurt.
As always, Mom’s know best!
Roberta L. Nestor is a financial advisor practicing at 491 New Haven Avenue in Milford, CT offering retirement, long term care, investment and tax planning services. She also offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or firstname.lastname@example.org.