7 Things You May Not Know About Life Insurance and Annuities

7 Things You May Not Know About Life Insurance & Annuities

1. The death benefit in a life insurance policy pays out free of income taxes in most cases. (consult your tax advisor to make sure this is true for you)

2. The cash value in a whole life or universal life policy builds tax-deferred.

3. If set up and managed properly, an indexed universal life insurance policy (an IUL) can provide a retirement income free of income taxes using tax-free withdrawals and zero-cost, or low-cost, policy loans.

4. The cash value in a whole life or an indexed universal life policy (IUL) never goes down because of a bad stock market.

5. The hottest thing in the life insurance business in 2014 is “Living Benefits“; ways to use the death benefit in a life insurance policy WHILE YOU ARE STILL ALIVE!

6. Annuities offer a guaranteed income that you can never outlive.

7. The hottest thing in the annuity business in 2014 is still the Lifetime Income Benefit Riders, which offer higher incomes, protection from loss, and an income for life.

Enter your comments or questions below.

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Workers Not Ready To Retire

(this article was originally published on latimes.com)

Most U.S. workers unprepared to meet retirement expenses, survey says

By Stuart Pfeifer, December 4, 2013

More than half of U.S. workers aren’t saving enough money to be able to cover essential living expenses in retirement, according to a survey by Fidelity Investments.

The savings survey found that 55% of people will have trouble covering housing, healthcare and food expenses, Fidelity said.

The online survey of 2,200 households, performed from June through October, measured whether workers were on track to cover their estimated post-retirement expenses.

Of those who responded to the survey, 33% were on pace to cover 95% or more of their estimated expenses, including discretionary expenditures such as travel and entertainment; 12% would be able to cover living but not discretionary expenses; 14% were not on pace to cover living expenses and would have to make modest adjustments to their retirement plans; and 41% were so underfunded for retirement they’d have to make significant lifestyle changes when they quit working.

“When you factor in the expectations many have of an early retirement, along with increasing longevity and sometimes overly conservative asset mixes for investments, you can see why many people are not as prepared as they need to be to cover their expected expenses in retirement,” said John Sweeney, Fidelity’s executive vice president of retirement and investment strategies.

Fidelity said workers can take several steps to improve their preparation for retirement, including: increasing the amount they’re saving, better allocating how their money is invested and deferring retirement.

“Although it requires discipline and some trade-offs, there are important steps people can take to accelerate their retirement savings and get closer to where they need to be in the long run, no matter what their age or income level,” Sweeney said.

The survey found that baby boomers (born between 1946 and 1964) were best prepared for retirement, on pace to save 81% of what they’ll need in retirement and those from Generation Y (born between 1978 and 1988) were least prepared. On average, the younger workers were on pace to have just 61% of the money they’ll need to cover retirement expenses.

“This number is a concern, since the survey indicated many anticipate retiring early, despite the fact they probably won’t have the benefit of a pension, as their parents did,” Fidelity said in a news release. “The good news for this generation: time is on their side, which means they can improve their situation by increasing their savings rate and investing for growth.”

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How Much Life Insurance Do You Need?

(originally published on Equifax.com)

How Much Life Insurance Do I Need? Tips on Estimating Coverage

 Written by Jeff Rose on July 22, 2013

 You may have heard a lot about the importance of buying life insurance, but you may not be sure if it applies to you.

Well I have a newsflash for you: It does.

Before buying life insurance, it’s important to consider how much coverage you and your family will need. One of the biggest excuses I hear that life insurance is too expensive. That couldn’t be further from the truth. Buying an affordable policy is easier now than ever. These tips will help you estimate an amount that works well for you.

Consider end-of-life expenses

Funerals aren’t cheap, even when you take the least expensive option. Do you know what is cheap, comparatively? Life insurance.

When my father passed away, the funeral expenses totaled just over $10,000. Thankfully, he had taken out a life insurance policy (“final expenses policy” or “funeral expenses policy”) big enough to cover those expenses. Plan for your family to spend at least $15,000 on your funeral.

Remember your debts

When a person dies, he or she often leaves behind a lot of unpaid bills. That could include a mortgage, a car loan, or other debts that need to be paid.

The mortgage should take top priority. Without enough money to pay off the mortgage, your family could lose their home.

Make sure you purchase enough coverage to pay down the mortgage. That amount will differ significantly from person to person. If you have owned a house for 20 years, then you might not have a mortgage at all, or you might have only a small amount left to repay on the loan. But if you’ve recently purchased a home, you might need $200,000 or more to cover that expense.

Paying for college and other expenses

If you have kids, you may want life insurance that will help them afford major expenses, such as buying a car or going to college.

It’s difficult to determine how much money your children will need to pay for school. The younger they are, the harder it is to make an accurate estimate.

For example, if you have a 16-year-old who has already shown interest in attending a public university with in-state tuition, then you can estimate how much that will cost (although the cost will vary depending on both state and school).

However, if you have a newborn, then you have no idea what he or she will want to do. Your child may excel in school and get into an Ivy League college that costs $50,000 a semester.

The best thing you can do is look at the current tuition of a college you think your child will attend. Considering that tuition rates have risen by about 5 percent a year in recent history, go ahead and use that number to decide how much money your kids may need.

Replacing your income

Because you have accounted for your mortgage, future major expenses, and burial, you don’t need to replace your full income. It does make sense to replace a portion of it, though. Once you’re gone, you can’t pick up extra shifts to help your family make ends meet during rough months. It’s better to be prepared so that your family doesn’t have to suffer.

Many life insurance experts say that you should divide your annual income in half and then divide that number by .05 . This means if you make $50,000, you should have $500,000 of coverage to replace your income.

If you earn considerably more than your spouse, then you might need to replace more of your income. You might also need more income replacement if you have a family member with persistent medical issues that cost a lot to treat.

By adding these four items together, you can get a rough idea of how much life insurance coverage you will need.


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Why Mutual Funds Can’t Protect Against a Stock Market Crash

 (originally published October 21, 2013 on ProducersWeb.com)

(This article was written for Financial Advisors, but I thought everyone would benefit from this advice.)

Why mutual funds can’t protect against a stock market crash

 By Roccy Defrancesco, The Wealth Preservation Institute

I recently saw that the stock market was crashing due in part to the government shutdown and the looming debt-ceiling extension, and I thought it was the perfect excuse to talk about how it’s nearly impossible to protect money from a crash if it’s invested in most mutual funds.

The fact of the matter is that most Americans use mutual funds for some part of their investment portfolio. This, of course, is because we have a broker-dealer-driven industry.

If you’ve been reading my recent articles, you know I’ve been trying very hard to change the discussion in our industry from using historical rate of return to investments to asking the following much more important question: What risks are you taking to achieve your expected rate of return?

Mutual funds stay invested in stocks, even when the market is crashing

Most investors don’t know that most mutual funds stay invested in stocks even when the stock market is crashing (and most advisors who sell mutual funds don’t seem to think about the ramifications).

Don’t believe me? Go to www.finance.yahoo.com and look up the symbols of two of the more popular mutual funds. On the profile page, you can find the percentage (%) of how much each fund is invested in the market. I’ve listed it for these two funds.

-FBGRX (Fidelity Blue Chip Growth)          80 percent invested

-AEPGX (American Funds EuroPacific Gr A)     80 percent invested

The by-product of being invested in the market with 80 percent of the fund’s assets is that when the stock market crashes, so does the mutual fund. In other words, the fund managers will not go to 50 percent, 75 percent, or 100 percent cash, even if they know the stock market is crashing. It’s proven true by the numbers. Look how each of the above funds did during the crash years of 2008, 2002, 2001, and 2000:

-FBGRX: 2008 = -38.60%; 2002 = -25.32%; 2001 = -16.55%; 2000 = -10.54% Total losses = -91.01%

-AEPGX: 2008 = -40.53%; 2002 = -13.61%; 2001 = -12.17%; 2000 = -17.84%  Total losses = -84.15%

It’s crazy to think that these and many other mutual funds would stay invested in the market when it’s crashing, but that’s the reality — a reality that most clients are unaware of.

Because the mutual funds themselves do not protect clients when the market is crashing, who does that leave to protect the client? The local financial planner. Is it realistic for a local advisor to recommend that clients go to all cash? That would be nice, but most think they already did their job by picking the “best” mutual funds.

Using tactically managed strategies

How would your clients have liked the following returns during the crash years?

2008 = +8.03%; 2002 = +7.04%; 2001 = +7.55%; 2000 = +2.07%

Total returns in crash years = +24.69%

These returns look a lot better than the negative returns of the above-listed mutual funds. Would it help you to know that the tactically managed strategy with the above listed returns has not had a down year in the last 21 years and has had an average net rate of return in excess of 9 percent?

If this article doesn’t make you wonder if mutual funds are the best place for your client’s money and consider learning about truly tactically managed strategies, then I have failed.

Alternatives to mutual funds

What are the logical alternatives to growing wealth with mutual funds?

1. Tactically managed investment strategies — These are strategies that are managed to limit downside risk and capture gains in up markets. One of my favorite managers has a 21-year audited track record of no down years and net returns in excess of 9 percent. So, for the money a client should have “in the market,” being in a tactically managed strategy is the way to go.

2. Equity indexed universal life insurance (EIUL) — As many of you know, this is one of my favorite wealth-building tools for clients under the age of 55. Gains are locked in, no downside risk due to negative markets, tax-free loans, etc.

3. Fixed indexed annuities (FIAs) — I don’t like to say FIAs are a replacement for a market driven portfolio; it’s comparing apples to oranges. However, especially for clients 55 and old, using an FIA (especially those with guaranteed income riders) can be a much more prudent decision than using what most financial planners would recommend — an asset allocated portfolio.

Bottom line

Mutual funds will not protect your clients’ money during stock market crashes. They need to know this so they can make informed decisions about whether to use them or whether they should seek out other tools to grow their wealth in a truly protected manner.


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Not Saving Enough For Retirement?

This article was originally printed at latimes.com/business/money/la-fi-mo-wealthy-in-la-plan-to-save-a-lot-for-retirement-but-havent-yet-20131028,0,7495879.story

Wealthy in L.A. plan to save a lot for retirement, but haven’t yet

By Walter Hamilton, 11:24 AM PDT, October 28, 2013

Wealthy people in Los Angeles plan to save more money for retirement than the national average, while women are stowing away more than men, according to a new survey.

L.A. residents with $50,000 to $250,000 in household investable assets plan to save an average of $909,400 for retirement, more than the $736,200 national average, according to Merrill Edge, a consumer banking unit of Bank of America Corp.

Women are outpacing men, according to the report. They plan to squirrel away a bit more than $1 million versus $814,000 for men.

However, as with Americans of all income levels, they’ve put away only a fraction of that amount. The average L.A. resident has saved only $150,300, according to the report.

And they don’t have much time left to meet those lofty financial goals: The average L.A. poll respondent is 54 years old.

Perhaps not surprising, nearly two-thirds of L.A. residents — 64% — intend to retire later than anticipated. That’s an 18 percentage-point jump from Merrill’s last report six months ago.

In an apparent sign of growing retirement awareness, L.A. residents anticipate saving $377,400 more than they did six months ago.

As for college savings, the average wealthy Angeleno has saved, or plans to save, $62,000. However, one in three Los Angeles parents has saved nothing for their child’s education, according to the report.

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