There are few things more frightening than a stock market doing one of its free falls. Intellectually, we know that it will rebound. It always has - even after 1929. But that doesn't make it much easier on our confidence level.
It's especially upsetting for those in retirement or just about to go there. A rule of thumb is that the market fluctuates from high to low and back in 7 to 8 year cycles. (Let's see, 2000 to 2008? Hmm. Coincidence?) Younger people can ride out a few cycles, but you may not have time to recover from a downturn if you are going to "pull the trigger" and retire soon.
In 2000, we saw a lot of people who had been planning to retire, but by 2002 they couldn't "pull the trigger"because their Nest Egg had shrunk so much. Their nest Egg could not sustain their planned retirement lifestyle. A lot of those people are still working today.
But I have clients who are unconcerned. Since 2000 they became aware of investments with Guarantees. Despite the fact that they can continue to invest in the market, their investment accounts will not go below what they invested. Plus the accounts will actually lock in gains on a periodic basis. That is, if the account increases in value at the designated time, the account will lock in the amount of that gain and will not go below that new, higher, value in the future.
What are these magical investments? They are Annuities.
Before we go on, this is a good time for a warning. Annuities are complex and they have special rules. Also, there may be extra costs. But, after a complete disclosure of all the points of Annuities, a confirmation of suitability for the prospect, and a full understanding of it, Annuities may be appropriate to help you protect your Nest Egg.
Annuities are offered by insurance companies and have special rules about when you can access the funds (age 591/2 is the minimum age without tax penalty), and where surrender charges for a period from 5 to 16 years are charged if you choose to liquidate your account. These are to be long term investments. Some Annuities even off an "Equity Bonus", which means the company adds to your invested amount. For that, you typically see a longer "surrender period".
But they were designed for retirement and the special treatment given by the IRS (tax deferred account growth, for example) are benefits you get in exchange for the complexity.
But what of the Guarantees and their costs? Sometimes, you do not pay extra for these Guarantees. But you often do, especially with Vairiable Annuities. When you do, here is how it works.
Simply put, you pay a relatively small amount annually to be sure your Nest Egg is safe and will not lose ground when the market turns. You insure your house, your life, your car, and your health, don't you? Why wouldn't you insure that one asset that you are counting on to help you through those "Golden Years"?
But, are the extra costs worth it? To decide that, you need to check the past annual returns to investors. See how that compares to returns of those who did not have guarantees on their Nest Eggs. When the stock markets are volatile the guarantees can be a big comfort to those looking to retire soon.
While those past returns are no assurance of future performance, they can give you some idea of whether the costs would be worth it. In most cases, you will probably find that the extra premium is worth the costs and the return is not noticeably lessened. If you don't agree, that is the time to say "No".
What about all those commissions you hear commentators criticize? They are higher than simple Mutual Funds.
That's the bad news. The good news is that - unlike mutual funds or most any other investments Annuities' commissions and costs typically do not come out of the invested amount. Thus, if you invest $100,000, that $100,000 goes to work for you right away. And it's tax deferred, too.
With Annuities, time is money. The cost of commissions and expenses are returned to the insurance company over a period of time from earnings. That's why there are surrender charges. They repay the company those costs if someone liquidates early.
But, the bottom line is still to check the returns reported against what you might find elsewhere, taking into consideration the tax deferred nature of the investment and the ability to have those Guarantees of principal.
Whew! This article started out as a simple discussion of how Annuities can help you sleep at night, not worrying about what the stock market is doing to your Nest Egg. But it ended up discussing a lot of the good news/bad news of Annuities. That's probably good, since they are complex and need to be thoroughly understood before investing.
But the concept embodied in Annuities is one of the precepts for Retirement Rescuers - to give clients the ability to earn returns that follow the upsides of the stock markets, and still have the peace of mind knowing that you will have your Nest Egg intact, no matter what the market does.
- Tom Willoughby, JD
This article is a general discussion of features available with some various types of Anuities and is not an offer to sell nor an invitation of an offer to buy any securities mentioned herein. Such an offer or invitation of an offer can only be made through an offering memorandum or prospectus, and then only after a thorough review of the offeree's suitability for such product.
Wednesday, January 23, 2008
Myths & Urban Legends About Wills & Probate
Over the years I've heard a lot of misconceptions about wills and probate. Here are a couple of them that keep popping up:
#1. Without a will the state will take your estate.
#2. If you have a will you avoid probate.
#3. Probate costs and death taxes can rob your estate.
#4. I have to leave my child at least a dollar to effectively cut him out of the will.
#5. I can write my spouse out of the well entirely.
#6. You are only allowed to give $12,000 a year to others during your lifetime.
Maybe you already know that these are not correct statements. Let's take a closer look to see where these miss the mark.
#1. Without a will the state will take your estate.
Lawyers who advertise generally will not dispel this rumor, but what they typically say in their ads is that "If you don't have a will, the state has a will for you", which is true. More on that later.
But, really, does the state ever actually take your estate? Yes, but very, very rarely. And they can do this with or without a will. When there are no heirs at law (i.e., family) or no one named in the will can be found, no matter how hard you look, the state will eventually take over the assets. There really is no other place for them to go at that point. It's when the estate “escheat’s” to the state of residence of the deceased.
If a person doesn't have a will, it is called an intestate estate. The state does truly have it's own the will for you. And, as the advertising attorneys are quick to point out, you probably aren't going to like it. Especially if you leave a spouse.
It's reasonable to expect that you would want your entire estate to go to your spouse. But, the states -- and to my knowledge, each and every state -- has decided that you really wanted your kids to get a portion of the estate, too. In most (all?) states the spouse has an automatic claim to fairly a small amount off the top (perhaps $20,000 to $75,000) of the estate. Then a surviving spouse might receive half of the decedent’s estate if there is one child surviving. If there is more than one child, the spouse may only receive one third of the estate. The rest goes to the kids. Each state varies, but the flavor remains the same.
If there is no spouse, the will that is “written by the state” usually makes pretty good sense, assuming you want your closest relatives to receive your estate equally.
#2. If you have a will you will avoid probate.
This is not true. In fact a will virtually guarantees probate. The will just tells the court who is to receive your estate and nominates those whom you want to handle your affairs.
#3. Probate costs and Estate Taxes can rob your estate.
This is not true in Florida and in most other states. Many states have no estate taxes at all. Others have them, but close relatives (e. g., spouse, children, parents, siblings) are exempt. In several other states, the taxes don't kick in until the estate values exceed a very large amount. That's the good news
But, in some states the estate taxes, inheritance taxes, or death taxes (take your pick on the terminology) are still in place. Most of the taxes are graduated, such as the low rate in Iowa at 1%. But Iowa does grow to 15% for the largest estates. The "Greed Factor Award", however, goes to Nebraska which takes 5.6% of estates under $100,000 up to a whopping 16.8% on estates in excess of $9 million.
Therefore, I guess this is an "Urban Legend", if you live in Florida or most states. Give me a call to find out all of the various tax rates in a state that interests you.
Actual court costs for probate is relatively inconsequential. But be aware of attorney fees. Typically, as in Florida, attorneys have the right to negotiate fees based on an hourly rate or a set fee. If no arrangement has been made ahead of time, the default fee – at least in Florida - is 3% of the gross estate. Any amounts charged above that would require court approval. States vary, so don't be afraid to bring up the fee issue with the attorney ahead of time, if they don’t.
#4. I have to leave my child at least a dollar to effectively cut him out of the will.
Not true. But if you don't at least say something about the kid, you could run into complications.
Picture the funeral. The prodigal child shows up and finds out that he is not in the will. He hasn't seen mom in 40 years, but, leaking crocodile tears, he cries, "Poor mom. Towards the end she couldn't remember any of us. She must have forgotten me."
So, it's better to say something. How about, "To my ne'er-do-well son, Alfonzo, whom I promised to remember in my will no matter what, ‘Hello, Alfonzo’”. It works and no one can question if someone had forgotten one of his "objects of natural affection". Maybe you would like to use more polite language.
#5. I can write my spouse out of the well entirely.
Not so. At least not in any state I have seen. The states protect the surviving spouse by granting them an "Elective Share" or “Spousal Share”, which typically runs in the range of 30% to 35% of the gross estate. That is, the Out-of-the Will Spouse gets that much off the top, before the balance goes to the heirs under the will.
Also, since so many assets no longer go through probate without being subject to it, such as insurance death benefits, qualified plans, annuities, transferable on death investment accounts and payable on death bank accounts, the states are also including those assets to be subject to the spousal share claim, even though they did not go through probate.
If this wasn't the case, a spouse could be left completely out in the cold
#6. You are only allowed to give $12,000 a year to others during your lifetime.
This is getting a federal estate tax exemption mixed in with plain old gifting. Federally, if your estate is large enough ($2,000,000 in 2008) to require filing a federal estate tax form on death, then, you can gift $12,000 per year to as many people as you choose, without having to file a gift tax exemption report. That’s all it is and it has nothing to do with probate or any limitation on gifts.
But while we are on the subject, the $12,000 figure also has nothing to do with Medicaid qualification, either. Any gift (i. e., a “transfer for less than value”) is subject to a penalty of Medicaid disqualification, if done within 5 years of needing Medicaid for long term care. The $12,000 has nothing to do with it.
Well now. There you have it. I’m glad we could get together and straighten this out.
#1. Without a will the state will take your estate.
#2. If you have a will you avoid probate.
#3. Probate costs and death taxes can rob your estate.
#4. I have to leave my child at least a dollar to effectively cut him out of the will.
#5. I can write my spouse out of the well entirely.
#6. You are only allowed to give $12,000 a year to others during your lifetime.
Maybe you already know that these are not correct statements. Let's take a closer look to see where these miss the mark.
#1. Without a will the state will take your estate.
Lawyers who advertise generally will not dispel this rumor, but what they typically say in their ads is that "If you don't have a will, the state has a will for you", which is true. More on that later.
But, really, does the state ever actually take your estate? Yes, but very, very rarely. And they can do this with or without a will. When there are no heirs at law (i.e., family) or no one named in the will can be found, no matter how hard you look, the state will eventually take over the assets. There really is no other place for them to go at that point. It's when the estate “escheat’s” to the state of residence of the deceased.
If a person doesn't have a will, it is called an intestate estate. The state does truly have it's own the will for you. And, as the advertising attorneys are quick to point out, you probably aren't going to like it. Especially if you leave a spouse.
It's reasonable to expect that you would want your entire estate to go to your spouse. But, the states -- and to my knowledge, each and every state -- has decided that you really wanted your kids to get a portion of the estate, too. In most (all?) states the spouse has an automatic claim to fairly a small amount off the top (perhaps $20,000 to $75,000) of the estate. Then a surviving spouse might receive half of the decedent’s estate if there is one child surviving. If there is more than one child, the spouse may only receive one third of the estate. The rest goes to the kids. Each state varies, but the flavor remains the same.
If there is no spouse, the will that is “written by the state” usually makes pretty good sense, assuming you want your closest relatives to receive your estate equally.
#2. If you have a will you will avoid probate.
This is not true. In fact a will virtually guarantees probate. The will just tells the court who is to receive your estate and nominates those whom you want to handle your affairs.
#3. Probate costs and Estate Taxes can rob your estate.
This is not true in Florida and in most other states. Many states have no estate taxes at all. Others have them, but close relatives (e. g., spouse, children, parents, siblings) are exempt. In several other states, the taxes don't kick in until the estate values exceed a very large amount. That's the good news
But, in some states the estate taxes, inheritance taxes, or death taxes (take your pick on the terminology) are still in place. Most of the taxes are graduated, such as the low rate in Iowa at 1%. But Iowa does grow to 15% for the largest estates. The "Greed Factor Award", however, goes to Nebraska which takes 5.6% of estates under $100,000 up to a whopping 16.8% on estates in excess of $9 million.
Therefore, I guess this is an "Urban Legend", if you live in Florida or most states. Give me a call to find out all of the various tax rates in a state that interests you.
Actual court costs for probate is relatively inconsequential. But be aware of attorney fees. Typically, as in Florida, attorneys have the right to negotiate fees based on an hourly rate or a set fee. If no arrangement has been made ahead of time, the default fee – at least in Florida - is 3% of the gross estate. Any amounts charged above that would require court approval. States vary, so don't be afraid to bring up the fee issue with the attorney ahead of time, if they don’t.
#4. I have to leave my child at least a dollar to effectively cut him out of the will.
Not true. But if you don't at least say something about the kid, you could run into complications.
Picture the funeral. The prodigal child shows up and finds out that he is not in the will. He hasn't seen mom in 40 years, but, leaking crocodile tears, he cries, "Poor mom. Towards the end she couldn't remember any of us. She must have forgotten me."
So, it's better to say something. How about, "To my ne'er-do-well son, Alfonzo, whom I promised to remember in my will no matter what, ‘Hello, Alfonzo’”. It works and no one can question if someone had forgotten one of his "objects of natural affection". Maybe you would like to use more polite language.
#5. I can write my spouse out of the well entirely.
Not so. At least not in any state I have seen. The states protect the surviving spouse by granting them an "Elective Share" or “Spousal Share”, which typically runs in the range of 30% to 35% of the gross estate. That is, the Out-of-the Will Spouse gets that much off the top, before the balance goes to the heirs under the will.
Also, since so many assets no longer go through probate without being subject to it, such as insurance death benefits, qualified plans, annuities, transferable on death investment accounts and payable on death bank accounts, the states are also including those assets to be subject to the spousal share claim, even though they did not go through probate.
If this wasn't the case, a spouse could be left completely out in the cold
#6. You are only allowed to give $12,000 a year to others during your lifetime.
This is getting a federal estate tax exemption mixed in with plain old gifting. Federally, if your estate is large enough ($2,000,000 in 2008) to require filing a federal estate tax form on death, then, you can gift $12,000 per year to as many people as you choose, without having to file a gift tax exemption report. That’s all it is and it has nothing to do with probate or any limitation on gifts.
But while we are on the subject, the $12,000 figure also has nothing to do with Medicaid qualification, either. Any gift (i. e., a “transfer for less than value”) is subject to a penalty of Medicaid disqualification, if done within 5 years of needing Medicaid for long term care. The $12,000 has nothing to do with it.
Well now. There you have it. I’m glad we could get together and straighten this out.
Being a Caregiver is a Dangerous Job!
Question: When do loved ones go to a Nursing Home?
Answer: When the Caregiver gives out.
Several reasons are given. “We ran out of money to care for her.” “The house isn’t equipped for his needs.” “I can’t lift her anymore.” And the most frightening: "I just can't do it anymore". Nearly every reason that is given points back to the Caregiver’s inability to continue to perform for their family member.
It is a dangerous time for a Caregiver, and the family needs to be aware of the signs of Caregiver stress. You can probably come up with more than eight, but these should help you to indentify it when a problem comes up.
The eight signs of Caregiver stress according to the Wisconsin State Journal are:
Anger
Social withdrawal
Anxiety, depression
Exhaustion, sleeplessness
Irritability, moodiness
Inability to concentrate
Health problems
Denial of elder’s disease
It’s no wonder that physical and emotional symptoms arise. One client of mine once admitted that caring for her parents was “the toughest job I have ever had”. And her parents were both mentally fit, in pretty good physical shape, living in a nearby Assisted Living Center, and both had Long Term Care Insurance! Imagine the dangers for someone in a less ideal situation.
Prevention Magazine in its August, 2007 issue, came up with some surprising figures and some good advice, too.
Problem: Studies found that Caregivers have immune systems that are 15% weaker than the rest of us. Long term stress suppresses cells’ abilities to fight such enemies as viruses and tumors.
Solution: Make time to exercise sometime each day and be sure to take flu shots and the like. Care for yourself first, even if you feel guilty about. Remember, you are staying fit to help your loved one.
Problem: Women caring for a spouse for 9 hours a day have almost twice the risk of heart disease. Mental strain is the culprit. Stress increases adrenaline and other hormones, raising blood sugar, contributing to hypertension and plaque buildup.
Solution: The usual for Americans: a low fat diet with lots of potassium. And medication for cholesterol, etc.
Problem: You are so focused on Caregiving that you do not see your own doctor enough. Seventy-five percent of reported Caregivers say their health has suffered and they haven’t seen their physician as they should.
Solution: Like every other problem listed. Take time for yourself. See the doctor. Consider it a one hour respite every so often.
Problem: Consider all the other signs of stress listed above as one problem.
They relate to your mental health.
Solution: This where your support group needs to step in. While you should keep track of your physical and mental condition, it’s far easier for your loved ones to be aware of the dangers and monitor your health accordingly.
Caregivers may have the toughest job of all. But, as my client, above, found out with her parents, we’re not looking to replace Caregivers. Just help do their job better, longer, and make it a bit easier.
Answer: When the Caregiver gives out.
Several reasons are given. “We ran out of money to care for her.” “The house isn’t equipped for his needs.” “I can’t lift her anymore.” And the most frightening: "I just can't do it anymore". Nearly every reason that is given points back to the Caregiver’s inability to continue to perform for their family member.
It is a dangerous time for a Caregiver, and the family needs to be aware of the signs of Caregiver stress. You can probably come up with more than eight, but these should help you to indentify it when a problem comes up.
The eight signs of Caregiver stress according to the Wisconsin State Journal are:
Anger
Social withdrawal
Anxiety, depression
Exhaustion, sleeplessness
Irritability, moodiness
Inability to concentrate
Health problems
Denial of elder’s disease
It’s no wonder that physical and emotional symptoms arise. One client of mine once admitted that caring for her parents was “the toughest job I have ever had”. And her parents were both mentally fit, in pretty good physical shape, living in a nearby Assisted Living Center, and both had Long Term Care Insurance! Imagine the dangers for someone in a less ideal situation.
Prevention Magazine in its August, 2007 issue, came up with some surprising figures and some good advice, too.
Problem: Studies found that Caregivers have immune systems that are 15% weaker than the rest of us. Long term stress suppresses cells’ abilities to fight such enemies as viruses and tumors.
Solution: Make time to exercise sometime each day and be sure to take flu shots and the like. Care for yourself first, even if you feel guilty about. Remember, you are staying fit to help your loved one.
Problem: Women caring for a spouse for 9 hours a day have almost twice the risk of heart disease. Mental strain is the culprit. Stress increases adrenaline and other hormones, raising blood sugar, contributing to hypertension and plaque buildup.
Solution: The usual for Americans: a low fat diet with lots of potassium. And medication for cholesterol, etc.
Problem: You are so focused on Caregiving that you do not see your own doctor enough. Seventy-five percent of reported Caregivers say their health has suffered and they haven’t seen their physician as they should.
Solution: Like every other problem listed. Take time for yourself. See the doctor. Consider it a one hour respite every so often.
Problem: Consider all the other signs of stress listed above as one problem.
They relate to your mental health.
Solution: This where your support group needs to step in. While you should keep track of your physical and mental condition, it’s far easier for your loved ones to be aware of the dangers and monitor your health accordingly.
Caregivers may have the toughest job of all. But, as my client, above, found out with her parents, we’re not looking to replace Caregivers. Just help do their job better, longer, and make it a bit easier.
Monday, December 3, 2007
I Love Insurance. Maybe You Don't.
Life Insurance is an incredible tool when used in the right way for the right purposes. Long Term Care Insurance can create a peace of mind for the caregivers and families that is hard to explain if you haven’t been there.
But for some reason, some people don’t like insurance. Won’t consider it. Why?
A couple of reasons come to mind:
1. No one wants to think about the bad things that happen that trigger the need for insurance;
2. The monthly premiums can disrupt a family’s budget;
3. With some types of insurance, you may not get your premiums back if you don’t need the coverage; and
4. Sometimes you simply can not get coverage due to age or health.
When you look at Long Term Care protection, there are options for people who don’t choose to buy insurance for whatever reason, or who can’t buy insurance due to age or health considerations. Let’s look at little closer.
First, consider the family that objects to LTC Insurance because the premiums “are gone if you don’t make a claim”. (Strangely, these same people do not object when they don’t have to make a claim on their auto, health or home insurance.)
For them, I ask, “How would you feel if I showed you (1) LTC Insurance that would return your premium if you did not make a claim, or (2) Permanent Life Insurance that allows you to tap into the death benefit for Long Term Care expenses, or (3) Asset based options that do not have monthly premiums and can guarantee a lifetime income stream to help cover LTC expenses?”
I have been involved in many “Medicaid Meetings”. These are very sad times. I have these meetings with the children of family members who have been diagnosed with something that is going to put them into some type of a Long Term Care program. It is too late for insurance.
Now, thanks to some unique products offered by excellent companies, we may be able to avoid Medicaid and the dreaded “Spenddown” that can wipe out a life savings.
The first criterion is that they have enough assets to work with. The amount determines how much guaranteed cash flow that will paid out for life. If there is more than enough to cover his or her expenses, it may be possible to also recover all or a part of the initial single premium that was paid.
Whatever the mindset that your family may have regarding insurance to protect your lifestyle, there are options that can provide solutions for the growing, critical problems of outliving your Retirement Nest Egg, including if a loved one needs Long Term Care.
But for some reason, some people don’t like insurance. Won’t consider it. Why?
A couple of reasons come to mind:
1. No one wants to think about the bad things that happen that trigger the need for insurance;
2. The monthly premiums can disrupt a family’s budget;
3. With some types of insurance, you may not get your premiums back if you don’t need the coverage; and
4. Sometimes you simply can not get coverage due to age or health.
When you look at Long Term Care protection, there are options for people who don’t choose to buy insurance for whatever reason, or who can’t buy insurance due to age or health considerations. Let’s look at little closer.
First, consider the family that objects to LTC Insurance because the premiums “are gone if you don’t make a claim”. (Strangely, these same people do not object when they don’t have to make a claim on their auto, health or home insurance.)
For them, I ask, “How would you feel if I showed you (1) LTC Insurance that would return your premium if you did not make a claim, or (2) Permanent Life Insurance that allows you to tap into the death benefit for Long Term Care expenses, or (3) Asset based options that do not have monthly premiums and can guarantee a lifetime income stream to help cover LTC expenses?”
I have been involved in many “Medicaid Meetings”. These are very sad times. I have these meetings with the children of family members who have been diagnosed with something that is going to put them into some type of a Long Term Care program. It is too late for insurance.
Now, thanks to some unique products offered by excellent companies, we may be able to avoid Medicaid and the dreaded “Spenddown” that can wipe out a life savings.
The first criterion is that they have enough assets to work with. The amount determines how much guaranteed cash flow that will paid out for life. If there is more than enough to cover his or her expenses, it may be possible to also recover all or a part of the initial single premium that was paid.
Whatever the mindset that your family may have regarding insurance to protect your lifestyle, there are options that can provide solutions for the growing, critical problems of outliving your Retirement Nest Egg, including if a loved one needs Long Term Care.
Sunday, December 2, 2007
The Stock Market Roller Coaster Rides Again
I am getting too old for roller coaster rides. And if you are within 15 years of planned retirement, you are, too.
Decades ago, when the real estate market, dragging hundreds of savings and loan associations with it, came crashing down thanks to the ’86 Tax Act, a financial salesman I knew said to me, "Well, we'll just have to wait for a whole new group of suckers".
That was crass and nasty, but contained a measure of truth. He understood that financial advisers have a hard time convincing their clients to seek financial goals in logical, ways. And too often they will gravitate to the “hot product” as a better solution. Sadly, by the time a “good investment” becomes a “hot product”, the latecomers are the ones who “buy high/sell low”. And the client becomes angry, frustrated and disenchanted.
By the late ‘90s, the stock market was roaring. Outrageous gains were being made by those who were in the market. On TV the talking heads stared right into the cameras and confidently told us all that there was no reason to think that the market would stall out any time soon.
Back then a number of friends who were planning to retire soon are still working eight years later, thanks to that Nest Egg Meltdown. That should have never happened and could have been avoided.
The market reached its peak and could not sustain itself. Far too many watched the market – and their nest eggs - tumble, bravely hanging on until their portfolios settled back where they had been 10 years earlier. Then they sold.
And they traded in their portfolio for a nice, steady, fixed income investments which , after taxes, barely kept up with inflation.
So, let's review their retirement planning strategy:
They bought into the hot market when stocks were high; sold when they were low; and then placed their future retirement nest egg where it would “safely” lose value. And you wonder why people don’t trust financial advisors?
Let's jump to 2005. My next door neighbors sold their home for about three times what they had purchased it for three years earlier.
At the time they sold, I was working with a couple in their early forties who were in a perfect position to take a very healthy retirement nest egg and place it so that it would continue a healthy growth in the market and still avoid meltdown due to stock market downturns. When the time came to implement this strategy, they backed out because a friend showed them how lucrative the real estate market was.
But they are young enough to recover, hopefully.
As a result of the real ester “correction”, the stock markets are bouncing up and down – not sure how to handle tumbling real estate values and a tightening credit market. The Real Estate Boom That Would Never End has turned into another Nest Egg Meltdown.
So, what is the next hot, sexy, investment product to energize a market that is simply trying to build up its retirement nest egg?
When you find it, run. Run like crazy in the opposite direction.
The Moral:
There is no perfect investment or investment vehicle for you. And there is no magic pill either. All there is is careful planning, knowing your goals, getting a grip on your resources, and selecting the best choice of strategies/solutions.
And stick with it, with annual reviews.
“Gee, Tom that sounds nice, but can’t you be more specific?”
OK, follow these three tips…
(1) Let the professionals work for you. Major investment company fund managers get paid big bucks to select what’s best for every different client scenario. They are not perfect, but, whereas the market has averaged over 10% growth each year since 1929, the individual investors earned just over 3% a year
(2) Do not be afraid of investment programs that offer guarantees that the dollars you invest will always be there no matter what the market does, and further guarantees a set level of income if you choose to tap into those funds for retirement. These are not the perfect solution for everyone, but when they fit, they can fit very nicely. And finally…
(3) Call me to explain the first two.
Forget the Space Mountain roller coaster ride. I think I’ll go ride the Trolley down Main Street.
Decades ago, when the real estate market, dragging hundreds of savings and loan associations with it, came crashing down thanks to the ’86 Tax Act, a financial salesman I knew said to me, "Well, we'll just have to wait for a whole new group of suckers".
That was crass and nasty, but contained a measure of truth. He understood that financial advisers have a hard time convincing their clients to seek financial goals in logical, ways. And too often they will gravitate to the “hot product” as a better solution. Sadly, by the time a “good investment” becomes a “hot product”, the latecomers are the ones who “buy high/sell low”. And the client becomes angry, frustrated and disenchanted.
By the late ‘90s, the stock market was roaring. Outrageous gains were being made by those who were in the market. On TV the talking heads stared right into the cameras and confidently told us all that there was no reason to think that the market would stall out any time soon.
Back then a number of friends who were planning to retire soon are still working eight years later, thanks to that Nest Egg Meltdown. That should have never happened and could have been avoided.
The market reached its peak and could not sustain itself. Far too many watched the market – and their nest eggs - tumble, bravely hanging on until their portfolios settled back where they had been 10 years earlier. Then they sold.
And they traded in their portfolio for a nice, steady, fixed income investments which , after taxes, barely kept up with inflation.
So, let's review their retirement planning strategy:
They bought into the hot market when stocks were high; sold when they were low; and then placed their future retirement nest egg where it would “safely” lose value. And you wonder why people don’t trust financial advisors?
Let's jump to 2005. My next door neighbors sold their home for about three times what they had purchased it for three years earlier.
At the time they sold, I was working with a couple in their early forties who were in a perfect position to take a very healthy retirement nest egg and place it so that it would continue a healthy growth in the market and still avoid meltdown due to stock market downturns. When the time came to implement this strategy, they backed out because a friend showed them how lucrative the real estate market was.
But they are young enough to recover, hopefully.
As a result of the real ester “correction”, the stock markets are bouncing up and down – not sure how to handle tumbling real estate values and a tightening credit market. The Real Estate Boom That Would Never End has turned into another Nest Egg Meltdown.
So, what is the next hot, sexy, investment product to energize a market that is simply trying to build up its retirement nest egg?
When you find it, run. Run like crazy in the opposite direction.
The Moral:
There is no perfect investment or investment vehicle for you. And there is no magic pill either. All there is is careful planning, knowing your goals, getting a grip on your resources, and selecting the best choice of strategies/solutions.
And stick with it, with annual reviews.
“Gee, Tom that sounds nice, but can’t you be more specific?”
OK, follow these three tips…
(1) Let the professionals work for you. Major investment company fund managers get paid big bucks to select what’s best for every different client scenario. They are not perfect, but, whereas the market has averaged over 10% growth each year since 1929, the individual investors earned just over 3% a year
(2) Do not be afraid of investment programs that offer guarantees that the dollars you invest will always be there no matter what the market does, and further guarantees a set level of income if you choose to tap into those funds for retirement. These are not the perfect solution for everyone, but when they fit, they can fit very nicely. And finally…
(3) Call me to explain the first two.
Forget the Space Mountain roller coaster ride. I think I’ll go ride the Trolley down Main Street.
Nine Questions to Ask Your Parents
Estate planning, retirement planning, and long-term care planning (a.k.a. “ my life") are very, very touchy discussion subjects. Getting the information needed to properly plan is not easy - even (especially?) for families. Talk about trying to get someones attention! But the sooner we "bite the bullet" and have a serious family sit-down, the better off you will be. Eventually parents and kids must talk about the inevitable.
A way to "break the ice" and make it easier is to start with a Checklists. Children, you don't want to ask and your parents don't want you to ask. But it's time you put get some answers. Here are nine questions you need to ask your parents:
1. "What types of insurance do you have?" You need to find out what medical coverage, long- term care coverage, and life insurance that your parents have with the name of each provider. Contract numbers would be a huge help.
2, "How much money (cash and investments) do you have?" (I’d love to be around to see the look in their eyes when you ask THAT one).
3. "Do you think you will need financial support in the future?" Let's face it, the answer will probably be "no, we'll be OK", so, you may have to delve deeper into that.
4. "Do you have a complete list of all your accounts, passwords, financial institutions, and phone numbers for all advisers?" And, of course...Where is that list?
5. "Where are your documents (will, trust, advance directives, insurance policies, account statements) kept?" Hopefully with the above list.
6. “Are your wills and advance directives up to date?" As for the wills, you are looking for such issues as deceased persons nominated to be Personal Representative, provisions for young children who are now grown up adults, a change in desired beneficiaries or method of distributionto them.
Advance Directives (Living Will, Health Care Surrogate Designation, Durable Power of Attorney) should be updated every several years just so they are "fresh". It's not really a legal requirement, but it makes doctors and bankers happy.
8. "Are the beneficiaries on your insurance policies, qualified plans and annuities the way you want them?" This is a critical question to help reduce or eliminate the need for Probate.
9. "Do your other investments (bank accounts, savings accounts, CDs, mutual funds) have the proper Joint Tenancy or Payable on Death provision with the remainderman that you want?" This is the other critical question to help reduce or eliminate the need for Probate to let things pass as seamlessly as possible.
This is vital information that can help smooth the path in the future, in the case of serious health issues or the death of a loved one. Again this week, I had a call from a client who could not find "anything" since a parent died a short time ago. This can result in more than frustration and confusion. It can mean additional time and legal costs to settle the estate.
These are not the easiest questions to ask or to answer. However, sometimes you just have to do what you have to do. But I still want to see the look in their eyes when you ask much money they have.
- Tom Willoughby
News Item: Chicago Tribune 8/4/07. Children Outsourcing Parents to India
We’ve all seen the bumper sticker that says, “Be Nice to Your Children, They Get to Choose Your Nursing Home”. Believe it.
A recent story in the Tribune cites an 89 years old woman with advanced Parkinson’s disease who receives daily massages, physical therapy and 24 hour help in transference and bathroom assistance, for just over $15 a day. In the USA, that would be more like $18 to $20 an hour.
Add to that the expense of drugs – about 20% of those in this country – and the numbers look pretty good. Plus the cost of “staff” (wouldn’t you love to have “staff”?) is so low that retirees – even those needing long term care - can actually bank some of their Social Security checks!
With nursing home costs averaging over $6,000 a month (and climbing rapidly) in the USA and home health care expenses that exceed that amount if 10 or more hours of care a day is required, people are seeking other solutions.
Too many families are still looking desperately to Medicaid to help them. It is probably not a good idea to count on this in the future. A recent study shows that only 7% of the all the Medicaid recipients are receiving benefits for Long Term Care. The vast majority are receiving assistance for poverty programs – not for Long Term Care.
But those 7% LTC recipients actually cost the state and federal governments over 54% of the Medicaid budget! Clearly, Medicaid, as we know it, can not continue without bankrupting our nation.
Moving to a foreign countries is a solution, I guess. One friend is really planning to retire to Thailand, but he already has children there who are missionaries. Another plans to use St Kitts as his “Long Term Care Solution”. But he, too, has family there.
Thanks, but no thanks.
More and more families are looking to Long Term Care Insurance, or asset based LTC solutions. Personally, I would prefer this solution to being shipped off to India, or Thailand, or St Kitts.
Not that I have anything against these place, but do they have pizza? Or UCF and U of Toledo football games on TV? Probably not.
A recent story in the Tribune cites an 89 years old woman with advanced Parkinson’s disease who receives daily massages, physical therapy and 24 hour help in transference and bathroom assistance, for just over $15 a day. In the USA, that would be more like $18 to $20 an hour.
Add to that the expense of drugs – about 20% of those in this country – and the numbers look pretty good. Plus the cost of “staff” (wouldn’t you love to have “staff”?) is so low that retirees – even those needing long term care - can actually bank some of their Social Security checks!
With nursing home costs averaging over $6,000 a month (and climbing rapidly) in the USA and home health care expenses that exceed that amount if 10 or more hours of care a day is required, people are seeking other solutions.
Too many families are still looking desperately to Medicaid to help them. It is probably not a good idea to count on this in the future. A recent study shows that only 7% of the all the Medicaid recipients are receiving benefits for Long Term Care. The vast majority are receiving assistance for poverty programs – not for Long Term Care.
But those 7% LTC recipients actually cost the state and federal governments over 54% of the Medicaid budget! Clearly, Medicaid, as we know it, can not continue without bankrupting our nation.
Moving to a foreign countries is a solution, I guess. One friend is really planning to retire to Thailand, but he already has children there who are missionaries. Another plans to use St Kitts as his “Long Term Care Solution”. But he, too, has family there.
Thanks, but no thanks.
More and more families are looking to Long Term Care Insurance, or asset based LTC solutions. Personally, I would prefer this solution to being shipped off to India, or Thailand, or St Kitts.
Not that I have anything against these place, but do they have pizza? Or UCF and U of Toledo football games on TV? Probably not.
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