The Finance Encylopedia

Table of Contents


Aging Issues

As we get older or we are helping our aging parents, we face many challenges. Some are financial while some are emotional. We have compiled some links below to assist you. In addition, we have many legal, medical, and financial professionals we work with, you can view them here.


More Resources

How to File for Medicare  is a great organization that provides a wonderful document called "The Five Wishes." You can order one from them or call our office for a copy. It is a must have for everyone!


What is "Normal" memory loss versus "Dementia?"


For more information visit the Administration on Aging website.


Asset Allocation


While asset allocation cannot provide complete protection against market downturns or loss of principle, it can be an important way to manage the volatility in your portfolio.


Often people think owning many investments is asset allocation but rather is is making sure you own different types of asset classes that will react differently. At The Athena Financial Group we will review all your holdings to see if there is a concentration in a particular company or sector of the market. We stive to make sure that your allocaiton matches your risk tolerance for both up markets as well as down markets. We also believe that everyone should be exposed to many parts of the global economy but how much will depend on thier time horizon, risk tolerence, need for current income, and their personal financial situation.


At The Athena Financial Group, we do not do market timing. We feel that a well-structure portfolio wil be focused on our client's long-term goals, not the day-to-day flucuation in the markets. It is very important for our clients to keep informed when their situation changes or they need additional income from their portfolio. That is why we implement a service strategy for our clients so we are reaching out to you proactively, not always waiting for you to call us.



Budgeting is an essential first step in understanding your finances.  Start by recording your expenses and income every month.  Some people rely on Quicken to record their spending, you can also use tools like the app Mint or stick with a simple spreadsheet.  A typical budget should look like this:

By taking the time to record your expenses you can start to visualize the way in which money flow in and out of your household and strategize ways to save more and spend less.



An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors who want to receive a steady income stream in retirement.

Here's how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment.

The size of your payments are determined by a variety of factors, including the length of your payment period.

You can opt to receive payments for the rest of your life, or for a set number of years. How much you receive depends on whether you opt for a guaranteed payout (fixed annuity) or a payout stream determined by the performance of your annuity's underlying investments (variable annuity).

While annuities can be useful retirement planning tools, they can also be a lousy investment choice for certain people because of their notoriously high expenses. Financial planners and insurance salesmen will frequently try to steer seniors or other people in various stages toward retirement into annuities. Anyone who considers an annuity should research it thoroughly first, before deciding whether it's an appropriate investment for someone in their situation.


Divorce Planning

Once you feel that you are going down the path of divorce, it is important to do some planning. Even before going to see a lawyer, make a list of all the assets and who owns them. Are they owned by you or your spouse? Jointly? Was the asset acquired before the marriage? Was it an inheritance? As a side note, if you do inherit money you may want to always keep it in a separate account so that is not comingled with joint assets. It becomes very difficult to claim it was your inherited asset if it is owned jointly. Also, make sure to check all the credit cards and debt and see who owes what. Running your free credit report on is a good idea. Sometimes people run up a lot of debt before and during a divorce. It is a good idea to keep an eye on it.


Make sure to get the retirement accounts as well. Old pension plans, 401k plans, and IRA’s are all included in the divorce. Do not think an asset is too small. Every dime counts, and can make a huge difference in retirement.


Next, think about living expenses. Where will you live and can you afford it? Many women fight tooth and nail to keep the marital home, for the sake of the children, only to find out later they cannot afford it and end up selling it. Really do a deep dive into your budget so you fully understand how much you are going to need after the divorce. Go over your checking account statements and credit card statements for the past six months to get a true picture of your expenditures.


Also, the days of alimony (Spousal Support) are dimming. Many women do get some support, especially if they were non-working spouses, but it is generally limited to a few years. It is also based on how long the marriage lasted. Keep in mind that it can go both ways - wives have to pay alimony too! With many women earning more than their husbands, they are having to pay spousal support now.


This will be a very difficult time. You and your spouse may say and do some dumb things during this process. Use professionals to guide you, put a plan together, and get counseling. Then pick yourself up, dust off and move forward!


Emergency Planning

An emergency fund is a great idea, but it also requires some effort to achieve. The first step in the process is to figure out how much you spend each month. Consumer expenditure statistics from the U.S. Department of Labor indicate that the average annual expenditure per consumer unit, which is similar to a household, is $53,495, as of 2014 (the most recent year for which data is available). So to have a safety net large enough to cover 3 months of expenses the average household would need to set aside roughly $13,400.

While your household expenses may be higher or lower than the average, there's no doubt that three months' worth of expenses is a big number. One look at that number and the average person's first reaction is, "I can't come up with that kind of money." But with careful planning it is possible to set aside an appropriate emergency fund.


Estate Planning

Follow this checklist for estate planning:

1. Designate a Power of Attorney

A power of attorney allows you to name someone you trust to make financial and legal decisions for you if you are unable to do so yourself. For instance, if you want your spouse to have power of attorney, you can legally designate him to have decision-making ability.

Without a power of attorney, your spouse will have limited authority over the property you own together. If you don’t have a power of attorney, your family members will have to go to court to have someone appointed to manage your finances.


2. Appoint a Durable Power of Attorney for Healthcare

A durable power of attorney, or healthcare power of attorney, lets you name someone to make medical decisions and adjustments to your end-of-life care plan for you if you’re unable to make them yourself. Depending on the state you live in, there might be limitations on who you can designate as your healthcare agent. You might not be allowed to appoint your doctor, for example.

As you figure out your power of attorney and durable power of attorney, consider consulting an elder law attorney who can help you figure out details how to fund a nursing home or what to do if you’ve outlived your retirement funds. Such an attorney can help you navigate elder law, which is specifically designed to address the needs of senior citizens.


3. Draft a Living Will

Your living will outlines the medical care you would want if you become unable to make your own healthcare decisions. For example, you can specify whether you would want to be kept alive on life support, and for how long.

Even after you make a will, be sure to check with your state to find out if the living will and healthcare power of attorney is combined into a single advance healthcare directive document.


4. Write Out Your Will

Writing a will is your first step to ensuring that your wishes are carried out. In a will, you can specify who should receive your assets and who will be your children’s guardian. Be aware, though, that a will won’t direct where all your property and money goes.

For example, money in retirement and pension plans or proceeds from life insurance policies go to the beneficiaries you’ve named for those accounts. You also can’t use your will to leave property you hold in joint tenancy or property you’ve transferred to a living trust.

Read: 5 Things People Forget to Include in Their Will


5. Draft a Living Trust

The key benefit of a trust is that it allows you to transfer property to your heirs without the probate process, which can be lengthy, expensive and public. If you have just a will, any property that’s only in your name at your time of death will go through probate court to be distributed. But if you transfer your assets to a living trust before your death, those assets can go directly to your family. A trust can also allow you to dole out assets to heirs over a period of time or in one lump sum. For a trust to be effective, however, you have to go through the process of actually transferring your assets to it, which can take a lot of time and paperwork. You’ll need to weigh the pros and cons to decide whether a trust is right for you, Mayoras said.

6. Write Funeral or Memorial Instructions

Be sure that your friends and family are aware of your wishes by creating a document deatiling what sort of memorial you want, and give them copies of this document or tell them where to find it. Also, if you have a deed to a cemetery plot, make sure your family knows where it is, Sweeney said.

7. Create a List of Accounts and Documents

Create a list of your financial accounts, insurance policies and the contact information for any professionals you work with, such as attorneys, accountants, brokers and financial planners. You also need to make copies of your estate planning documents, mortgage or deed to your house, and titles to cars and other property.

Keep your list and documents in a secure place — such as in a home safe or safety deposit box — and let family members know where they can access your information if something happens to you. “It doesn’t do anyone good if they can’t find your documents,” said Mayoras.

Read: What to Do If You Become the Executor of Your Parent’s Will

9. Review the Plan Yearly

Creating a comprehensive estate plan is a major undertaking and one that most people are happy to finish. But an estate plan isn’t something you work on once and never look at again. As circumstances and laws around estate taxes and other issues change, it’s important to review your plan at least once each year to ensure your plans will still work.

Information gathered from



For starters, you will need health insurance. Everyone needs medical care. Even if you're in good health and you don't get sick a lot, there is no way to anticipate accidents and injuries, and having regular checkups is a crucial part of living a long and healthy life. The cost of medical care is now so high, that one minor accident can send you into debt for years or bankrupt your family.

You might also need life insurance, though not everyone does. For example, if you're healthy and have no dependents, you probably don't need life insurance. But if you have a child, a spouse, a parent or sibling that depends on you financially, you'll want to make sure they're taken care of should anything happen to you. Even if you don't have dependents, you might just want a policy that will at least relieve your relatives of the burden of funeral costs.

Now, here's where it gets really morbid - what if you're in an accident and you don't die, but become incapacitated and unable to care for yourself? That can be a huge burden on your family, and even more expensive than funeral costs. That's where long-term care insurance comes in. And if you're lucky enough to live a long, healthy life, long-term care insurance will cover nursing home costs for you when you're elderly, or even pay for your elderly parents' stay.


529 Plans: Education Savings

Like the education savings account (ESA), the 529 plan is an excellent way to save for education expenses. Earnings accumulate on a tax-deferred basis and distributions that are used for qualified education expenses are tax- and penalty-free. Unlike the ESA, the 529 plan may be set up in a way that allows individuals to prepay a student's qualified higher-education expenses at an eligible educational institution. Also, the contribution limits for a 529 plan are considerably higher than those for an ESA. Here we take a look at 529 plans, how they work and how you can use them to save for a child or grand-child's college education.

  • Prepaid tuition programs, which may be offered by the state of an eligible educational institution. Prepaid tuition programs allow for the advance purchase of credits for the designated beneficiary. These are usually established during enrollment periods established by the state of the eligible educational institution.

  • College savings plans allow contributions to be made to the account on behalf of the designated beneficiary. These can usually be established at any time, including immediately after the designated beneficiary is born.

Individuals would review the feature and benefits of both types of 529 plans to determine which is more suitable for the designated beneficiary.

The designated beneficiaryunder a 529 plan is the student the plan is established for. The designated beneficiary can be changed to an eligible person. Typically, the designated beneficiary is changed if the current designated beneficiary will not need the funds in the 529 plan for eligible education expenses. If a state or local government or certain tax-exempt organizations purchase an interest in a 529 plan as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship.

For purposes of a 529 plan, an eligible educational institution is any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the Department of Education. This includes virtually all accredited public, nonprofit and proprietary (privately owned profit-making) post-secondary institutions.


Health Savings Accounts


A health savings account, or HSA, is a special type of account that you can use to make healthcare expenses more affordable. You contribute pre-tax dollars to your account, and withdrawals aren’t taxed either, as long as you use the money for qualified medical expenses. What’s more, you can place your HSA balance in an interest-bearing savings account or even invest it, and any returns you earn won’t be taxed, either.

The Tax Advantage

This combination of cost-saving features is why you’ll read that HSAs have a triple tax advantage. It’s a unique characteristic that can help you accumulate money faster than you would in a Roth IRA, where your contributions are taxable but investment returns and withdrawals aren’t taxed; in a traditional IRA, where your contributions come from pre-tax dollars and investment returns aren’t taxed but withdrawals are taxable; or in a regular savings or investment account, where your contributions come from after-tax dollars and your investment earnings are taxed every year, too.

What’s the catch? There are two. First, you can only use an HSA if you have a high-deductible health insurance plan (HDHP). And second, you can only contribute a limited amount to your HSA each year.

The good news is that when you pick an HDHP, the premiums will be lower than if you chose an equivalent insurance plan with a lower deductible. If your healthcare expenses for the year are low, you can save money this way.

Additional Benefits

Another benefit of HSAs is that they are portable. If you change jobs, you can take your HSA with you; it isn’t tied to your employer. You can also carry over any unused balance from one year to the next; your contributions aren’t “use it or lose it.” You can contribute to an HSA through payroll deductions or from your bank account. Someone else, like an employer or relative, can also contribute to your HSA.

In this tutorial, we’ll cover all the basic information you need to know about HSAs, such as how to qualify, how much to contribute, how to use your contributions and how an HSA can benefit you in different life stages. We’ll make sure you know the difference between HSAs and the similarly named FSAs, or flexible spending accounts (aka flexible spending arrangements). We’ll also provide some advanced tips on how to make the most of your HSA by using it as a retirement savings tool.

Follow this checklist for estate planning:



  • What they are: Employer-sponsored plans that offer automatic savings, tax incentives and possible matching contributions.

  • Pros: Contributions may be tax deductible; tax-deferred growth; matching contributions; possible to borrow from plan or use funds for “hardship” withdrawals.

  • Cons: Penalties for early withdrawals; annual contribution limits.

  • Tip: Contribute at a level that allows you to take full advantage of your employer’s match (otherwise, you’re giving away free money).


401(k)s and other company plans are known as defined-contribution plans because you – as an employee – contribute to the plan, normally through regular payroll deductions. You decide how much to contribute (as a percentage of your salary), and contributions are automatically deducted from each paycheck.


The types of plans offered by employers depend upon the company’s or organization’s structure:

  • 401(k): Offered to public or private for-profit companies

  • 403(b): For tax-exempt and non-profit organizations (e.g., schools and hospitals)

  • 457: For state and local municipal governments, plus some local and state school systems

  • Thrift Savings Plan (TSP): Offered to U.S. government civil and military service



IRA stands for Individual Retirement Account, and it's basically a savings account with big tax breaks, making it an ideal way to sock away cash for your retirement. A lot of people mistakenly think an IRA itself is an investment - but it's just the basket in which you keep stocks, bonds, mutual funds and other assets.

Unlike 401(k)s, which are accounts provided by your company, the most common types of IRAs are accounts that you open on your own. Others can be opened by self-employed individuals and small business owners. There are several different types of IRAs, including traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs.

Roth IRAs vs Traditional.

The main difference is when you pay income taxes on the money you put in the plans. With a traditional IRA, you pay the taxes on the back end - that is, when you withdraw the money in retirement. But, in some cases, you may escape taxes on the front end - when you put the money into the account.

With a Roth IRA, it's the exact opposite. You pay the taxes on the front end, but there are no taxes on the back end.

And remember, in both traditional and Roth IRAs, your money grows tax free while it's in the account.

There are other differences too. While almost anyone with earned income can contribute to a traditional IRA, there are income limits for contributing to a Roth IRA. So not everyone can take advantage of them.

Roth IRAs are more flexible if you need to withdraw some of the money early.

With a Roth IRA, you can leave the money in for as long as you want, letting it grow and grow as you get older and older. With a traditional IRA, by contrast, you must start withdrawing the money by the time you reach age 70½.



What Should you invest in? Good question. And though zillions of books have been written about this, the basics are hardly rocket science.

There are three main kinds of investments, or "asset classes": stocks, bonds and cash. Your retirement accounts should probably contain a mix of stocks and bonds - and maybe cash too.

You can invest in stocks and bonds in one of two ways: by buying them individually or by buying them via a mutual fund. A mutual fund is simply a collection of stocks, or bonds, or cash equivalents - or sometimes a mix of all three.

Some people also invest in "hard assets" like real estate or gold, but those aren't always great choices for the average person's retirement account.


Social Security

The Social Security system is funded through payroll taxes. The Federal Insurance Contributions Act (FICA) mandates a 12.4% levy on the first $118,500 (2016 limit) of each individual's earned income each year. The employer pays 6.2% and the employee pays 6.2%. Self-employed individuals pay the full 12.4%.Contrary to popular belief, this money is not put in trust for the individual employees who are paying into the system, but is used to pay existing retirees. Any excess is invested in U.S. Treasury bonds.

Earning Social Security Credits

Eligibility for Social Security benefits is accrued over time. Prior to 1978, workers were required to earn $50 in a three-month quarter in order to receive one Social Security credit. The achievement of 40 credits, accrued over 10 years of working, provided eligibility. Today, employers report earnings once per year instead of quarterly. Credits are accrued based on your earnings, not on a quarterly basis, so it is possible to earn all four credits for the year even if you only work a short amount of time each year. In 2016, workers will be required to earn $1,260 per credit.


Collecting Social Security Benefits

The amount of your Social Security benefit is calculated by averaging the earnings from your 35 highest income-generating years. The maximum monthly Social Security check that you can earn is $2,639 per month in 2016. To sign up for Social Security benefits, it is recommended that you apply three months prior to your retirement date. (For additional information about how and where to apply for Social Security benefits, go to

The Wobbly Three-Legged Social Security Stool

According to the Social Security Administration, "the three major elements of your retirement portfolio are benefits from pensions, savings and investments, and Social Security benefits." Just keep in mind that the Social Security Administration expects the program to be unable to meet its financial obligations beginning in 2035. Simply put, the number of people taking money out of the system will be greater than the number of people putting money into it. According to statistics released by the Social Security Administration, by 2031, there will be almost twice as many older Americans than there are today, rising from the current 37 million to 71 million over that period. (For more on the future, see How Secure Is Social Security?)

At present, the government's solution for addressing this imbalance is to raise the retirement age, delaying payouts to younger workers.