Young and Foolish?

Not so much, according to a survey from Guardian Life. The survey showed that consumers under 40 are opting for whole life insurance over other types of policies due to their desire to be financially secure.

The survey showed that 35 percent of the respondents under 40 also preferred to pay their premiums as fast as possible versus the traditional lifetime payment schedule. The No. 1 motivating factor (72 percent for those under 40) for the purchase of whole life was the desire to protect their families. The No. 2 reason for all age groups was whole life’s guaranteed cash value.

Those under 40 also said they had considered mutual funds, CDs, stocks and other life products before opting for the whole life, with 54 percent seeing whole life as a reliable retirement income supplement.

Perhaps now is the right time for you to review your insurance and financial portfolio to include whole life insurance as one of your choices for safety, security and guarantees.

Women, Money and Power

Women, Money and Power. This is the title of an article recently published by Aimee Johnson, who is the women’s program manager for Allianz Life. According to Johnson, the women’s market is still viewed by some as a niche market, but she goes on to set the record straight.

Nearly a third of women serve as the sole or main breadwinner of their household, according to a 2009 report on women in the labor force by the U.S. Bureau of Labor Statistics. A more recent study from Women and Company also notes that 66 percent of affluent women designate themselves as the chief financial officer (CFO) of their family. Women also control 60 percent of the wealth in the United States and are involved in 90 percent of the family’s financial decisions.

Simply put, the women’s market is significant. What is just as significant is that women are still not getting the attention they deserve from the financial services industry, so gentlemen, pay attention. The LIFE Foundation hopes to change this lack of attention.

The 2007 Allianz Women, Money and Power study indicated that only 29 percent of women are working with a financial professional. The study revealed that this was mainly because of a lack of comfort and confidence with financial planning, despite the fact that these same women are well educated, have successful careers and are managing their daily household finances.

So, she asks, where is the disconnect?

A main issue is that the financial services industry approaches the women’s market as one group with consistent needs, but just like the male market, they have many different life stages and financial needs.

The Allianz study found that divorce or widowhood plunges nearly half of all women into financial crisis or drives a major change in how they seek out financial guidance. The average age of widowhood is only 58 and more than 44 percent of women over the age of 65 are widowed, as are nearly 10 percent of women ages 55-64 (U.S. Census Bureau, 2005-2007 American Community Survey).

Some of the common challenges facing widows include settling the estate and re-titling assets; changing beneficiary designations on insurance and retirement accounts; establishing a new power of attorney, reviewing income needs, and changing tax status.

Although the initial conversation may need to focus on more immediate subjects, such as credit card debt and developing a new budget, an in-depth discussion should happen about three major areas – insurance, Social Security and retirement, including ongoing contributions and qualified plan distributions.

Johnson then points out specific concerns for insurance needs, Social Security and retirement. These points are too numerous to discuss in this short blog, but suffice it to say that women need professional guidance to work through these areas.

This year, the LIFE Foundation will focus our resources on the women’s market and their needs. We are changing our awareness campaigns to insure we reach out to women in the 25 to 50 age group as well as the traditional markets. Check our website during the year for updates.

Here’s What a Trust Is and Why You Might Need One

The word trust is applied to all types of relationships, both personal and business, to indicate that one person has confidence in another person.

For our purposes, a trust is a legal device for the management of property. Through a trust, one person (the grantor or trustor) transfers the legal title to property to another person (the trustee), who then manages the property in a specified manner for the benefit of a third person (the trust beneficiary). A separation of the legal and beneficial interests in the property is a common denominator of all trusts.

In other words, the legal rights of property ownership and control rest with the trustee, who then has the responsibility of managing the property as directed by the grantor in the trust document for the ultimate benefit of the trust beneficiary.

A trust can be a living trust, which takes effect during the lifetime of the grantor, or it can be a testamentary trust, which is created by the will and does not become operative until death.

In addition, a trust can be a revocable trust, meaning that the grantor retains the right to terminate the trust during lifetime and recover the trust assets, or it can be an irrevocable trust, meaning that the grantor cannot change or terminate the trust or recover assets transferred to the trust.

Trusts can be used:

  • To provide management of assets for the benefit of minor children
  • To assure the grantor that children will benefit from trust assets, but will not have control of those assets until the child is older
  • To manage assets for the benefit of a special-needs or disabled child, without disqualifying the child from receiving government benefits
  • To provide for the grantor’s children from a previous marriage
  • As an alternative to a will (a revocable living trust)
  • To reduce estate taxes and, possibly, income taxes
  • To provide for a surviving spouse during his/her lifetime, with the remaining trust assets passing to the grantor’s other named beneficiaries at the surviving spouse’s death

As you can tell from the description, trusts are complex legal documents and are not appropriate in all situations. Therefore, you should seek qualified legal advice if you think a trust would help your overall financial situation.

Don’t Leave the Future of Your Small Business at Risk

Adam and Bob were best friends since junior high school. They shared an apartment in college, majored in the same field, and even went to work for the same company. When they were in their mid-30s they came up with a great idea for a product that would become very popular and the two decided to venture out with their own business. They decided to form a partnership with each owning 50%. The business soon began to flourish.
Two weeks after his 47th birthday, the seemingly healthy Adam suffered a massive heart attack and died. Upon his death, Adam’s ownership in the company was transferred to his wife, Cathy. Having known Bob for many years, Cathy left control of the company to him and the business continued to prosper.

Two years later, Cathy met Donald and after a whirlwind romance the two were married. Donald became very interested in the stock in Cathy’s late husband’s business. Eventually he would begin having ideas about how the company could be better run. Although he had no experience to back his ideas, being a good wife, Cathy would make these suggestions to Bob. The relationship between the partners began to suffer from this tension.
Not long after Cathy and Donald’s third anniversary, Cathy was diagnosed with cancer and soon she also passed away. Like many people, Cathy had failed to plan properly for her future and under community property laws her ownership transferred to Donald at her death. Donald was now a 50% owner of the company with an equal authority in how the business was run.

Bob and Donald rarely agreed on the operation of the company and although he had years of experience and knowledge far superior to Donald’s, Bob was unable to override Donald’s ideas. Time spent on these disagreements, dissatisfied customers and mounting costs would all prove too much for the company and on the 20th anniversary of Adam and Bob opening the doors of the company, they would be closed for good as the owners filed for bankruptcy.

A Simple Solution

A very simple yet often overlooked strategy could have helped avoid this unfortunate end to the previously happy story. A buy-sell agreement is a legally binding clause in a partnership agreement that controls what happens if one of the partners dies or otherwise needs to leave the partnership.

Typically the agreement sets a price and gives the surviving partner the option to buy the deceased partner’s share from their estate. In the story above, this would have let Bob simply buy Adam’s ownership interest, allowing him to maintain full control of the business and avoid the other problems.

This strategy runs into difficulty at the time of the partner’s death if the surviving partner does not have sufficient capital to make the purchase. Keyperson life insurance helps to solve this problem. With this product, the business buys a life insurance policy, equal to the agreed upon purchase price, on the life of each of the partners with the other partner listed as beneficiary. Death benefit of the insurance is then used to pay the deceased partner’s estate and transfer ownership.

With the business listed as the owner of the policies, they are considered business assets and premiums are allowable business expenses. This allows the partners to successfully plan for the future of the business while receiving some valuable tax benefits as well.

Keeping Your Small Business in Business Through a Disability

If you own a business, you know how it feels to live for that business. You also rely on it to support you and your family. So, what would happen if you suddenly became ill or injured and could no longer work? You need to think about the what-ifs.

The fact is, your loved ones may not have the skills or desire to run the business, and your co-owners may not welcome the idea of an unintended partner. Also, imagine the scenario where it is one of your co-owners who becomes permanently disabled and you’re faced with those choices.

That’s where a disability buy-sell plan comes in to play. This is an agreement among owners to buy out a co-owner’s share of the business in the event of a permanent disability. Here are four options for funding that agreement:

1. Cash method. The business or its owners could accumulate sufficient cash to buy the business interest at an owner’s disability. Unfortunately, it could take many years to save the necessary funds, while the full amount may be needed in just a few months or years.

2. Installments from current earnings method. The purchase price could be paid in installments after an owner’s disability. For the remaining active owners, this could mean a drain on business income for years. In addition, payments to the disabled owner would be dependent on future business performance after the owner’s disability.

Only disability buy-out insurance can guarantee that the cash will be available exactly when needed

3. Loan method. Assuming that the business could obtain a business loan after an owner’s disability, borrowing the purchase price requires that future business income be used to repay the loan plus interest.

4. Insured method. Only disability buy-out insurance can guarantee that the cash needed to complete the sale, through either a single sum or installment purchase, will be available exactly when needed, assuming that the business has been accurately valued.

For many businesses, the best solution to the problems arising from the permanent disability of an owner is to use the proceeds from disability buy-out insurance to purchase the disabled owner’s share of the business for its fair market value.

Retirement: A Ticking Time Bomb for Independent Workers

Reuters published the article, “As More U.S. Workers Go Independent, a Retirement Time Bomb Is Ticking,” discussing this retirement time bomb. It reviewed the lack of retirement planning and the underfunding of retirement plans for self-employed workers. As it stated, “If you ask self-employed workers about retirement savings, a shocking number will give exactly the same answer, ‘What retirement savings?’”

This is a major problem, not only for the self-employed, but for the United States as a whole. With more and more people without regular jobs and the benefits that come with them, the article says that our nation faces a ticking retirement time bomb.

Here’s why:

  • 28% of the self-employed were not saving at all, and another 40% were only saving occasionally, according to TD Ameritrade Holding Corp.’s Self-Employment and Retirement Survey.
  • 40 percent of the workforce will be freelancers, contractors and temp workers by 2020, according to a study by Intuit.

While the traditional way of saving for retirement wasn’t designed for the freelance culture, those working on their own need to take responsibility for their retirement. The article highlights some of the methods available, including:

  • For those who have a large profit margin each month, a simplified employee pension individual retirement account (SEP-IRA) may be appropriate. Contribution limits are much higher than for traditional IRAs: 20% of income, or $52,000 (whichever is less) in 2014. (Consult IRS
  • For those with less to save, a traditional IRA or a Roth IRA will probably be a good fit. Those have annual contribution limits of $5,500 (plus an extra $1,000 for people over 50).
  • For those whose cash flow is erratic, as often is the case with freelancers, then a percentage system may be more appropriate, allocating a specific percentage of earnings each month to retirement.

Time is of the essence to get the self-employed to start saving. According to the article, only a third of all Americans are contributing to 401(k)s right now, and if these workers are not motivated to plan for retirement, the retirement-savings system will become even more broken than it already is, and government funded programs are not the solution.

Also keep in mind that life insurance, disability insurance and long-term care insurance need to be part of the overall plan. If you die before completing your retirement savings goal, or become sick and are unable to work, you must still have resources for you and your family to fall back on. Insurance can provide this safety net.

Gen Xers DIY Finances Are Turning Into a DIY Don’t

If you are a Gen Xer, born between 1965 and 1980,  you research everything you buy, and I mean everything. So it makes sense that you should be able to manage your own retirement savings.

But that’s not the case, according to a recent article by Cam Marston, president of Generational Insights and author of “Motivating the ‘What’s In It for Me?’ Workforce” and “Generational Insights,” the only thing Gen Xers have proved adept at is doing little to prepare for the future.

While some Gen Xers have become successful DIY investors, most have not. As the article points out: “They bring an attitude of ‘I’ll figure this out someday when I have time, and then I’ll make some smart decisions that will catch me up.'” But that just isn’t true. It’s time for this generation to start looking to financial experts for help.

Gen Xers bring an attitude of “I’ll figure this out someday when I have time, and then I’ll make some smart decisions that will catch me up.” But that just isn’t true.

Gen Xers face a dilemma: They should be building assets for retirement at the very same time they are spending them. That’s a mistake Gen Xers will pay for a down the road, says Marston.

The 2014 study “The Retirement Readiness of Generation X“ by the Insured Retirement Institute shows in numbers the gap between what this generation thinks it can accomplish and reality. According to the report:

  • Gen Xers who work with a financial planner have saved a median of $90,400, which is twice that saved by Gen Xers who don’t.
  • More than four in 10 aren’t confident that they will have enough money to live comfortably in retirement.
  • Just one in nine say that they have high levels of knowledge about investing.
  • 77% of Gen Xers say they are not consulting a financial planner to help them plan for their retirement.

Additionally, a recent Cogent Research report finds that just over half of Gen Xers feel their financial advisor is not necessarily on their side, something their elders don’t agree with. There are much higher trust levels among older investors. But these “self-directed” investment decisions don’t seem to be panning out for most Gen Xers. The proof is in the above numbers. That means it may be time to put the DIY aside and reach out to an advisor or planner.

The New Retirement: 3 Things to Think About Now

If you think your retirement is going to look like your parents’ or grandparents’ retirement, think again. Here are three things you should be considering:

1. The Bank of Mom and Dad won’t always be open. There are two sides to this. If you’re currently supporting your adult children, you’re not alone. According to a BMO Wealth Institute study, 81% of parents say they have provided their adult children with some financial support. However, you’ll want to evaluate if that’s possible to sustain in the long-term. Ask yourself: Will helping my adult child (buy a house, afford a vacation, transition to a new job …) put my own financial future in jeopardy?

If you answer, “No, it won’t harm my financial well-being” then it’s OK to continue your support, as long as you have the assets to back it up and your financial position doesn’t deteriorate in the future. But if you realize that continuing to support your children means financial sacrifices on your part and lowering your own standard of living, then you need to have a frank conversation with them. I’d also like to suggest that financially supporting your adult children long term sends the message that you really don’t have confidence in them.

Now, the other side of this. If you are on the receiving end of money from your parents, just know that the escalating costs of health care in retirement, market volatility and other factors, may shut down your parents’ largesse, or potentially wipe out any inheritance they might have liked to pass along, whether you or they like it or not. Fewer than half of the BMO study respondents said they would sacrifice their own financial well-being to financially support their children. Bottom line: Relying on your parents is not a solid financial plan.

2. Health care costs are going to be a major factor in retirement. This year the premiums for Medicare went up significantly, while Social Security benefits went down for anyone who is making more than a specific, although limited, amount of money. I’ve found that most people have not planned for the rapidly escalating cost of medical care in retirement. A person’s future medical expenses are going to be the great unknown. But here is a figure that can help you put things into perspective. Fidelity’s Retirement Health Care Cost Estimate shows that a couple, both aged 65 and retiring this year, can now expect to spend an estimated $245,000 on health care throughout retirement. Are you prepared for this?

3. You may—or may not—need life insurance. If you have enough assets, and are not looking to replace them if you or your spouse or partner were to die, you may not need as much life insurance as you once had. But when looking at the direction of the economy, you’ll need to ask yourself, “If something happens to me, will my spouse or partner have to change their lifestyle due to insufficient assets?” If so, keeping your life insurance may make sense. Think of it this way: by having the life insurance it puts you in the position of “being the bank” instead of “having to go to the bank” when the need for money arises.

The bottom line is that as you approach retirement, you need to look at the future with clear eyes, considering all the “what ifs.” Then be sure to sit down with an advisor or agent who can help you mitigate those what ifs with the proper type and amount of insurance and planning.

Looking for a Guaranteed Income Stream?

If you are concerned about outliving your savings, perhaps an income annuity will fit your needs. An annuity can offer a guaranteed lifetime income that you can’t outlive.

Fixed income annuities are offered with a number of payment options, allowing you to structure payouts according to your financial goals and objectives. Consider these four income streams:

Joint life: This option provides income for two people, as long as either client is alive. When one client passes away, payments continue to the survivor.

Period certain only: This allows the client to target how long they need an income stream. If the client passes away before the end of the certain period, remaining payments continue to the designated beneficiary.

Life with a period certain: In this scenario, the annuity sponsor will pay out income for a client’s lifetime. If the client were to pass away prior to the end of the certain period elected, the beneficiary receives the remaining payments.

Life only: This is the least-commonly selected payout. When you die, payments cease—no matter what. This can be risky, but the upside is this option provides the highest payouts.

My mother-in-law, now deceased, used the joint life immediate annuity to generate a lifetime income from the proceeds of the sale of her home. Now my wife is receiving an income stream for the balance of her life from this same annuity policy.

A guaranteed lifetime income, one you cannot outlive, provides peace of mind. Should this be part of your financial plan? Ask your agent or advisor to see if it fits your needs.

Investors Should Be Worried

President-elect Trump believes the US trade deficit has been responsible for the loss of manufacturing jobs in the United States and the downward pressure on US wages that has occurred over the last several decades. I share those views.

I have written about the harm the US trade deficit has done to the United States and about the destabilizing impact it has had on the global economy in all three of my books. Here are the opening lines from my first book, The Dollar Crisis:

"The principle flaw in the post-Bretton Woods international monetary system is its inability to prevent large-scale trade imbalances. The theme of The Dollar Crisis is that those imbalances have destabilized the global economy by creating a world-wide credit bubble."

Eliminating the US trade deficit is at the very core of the Trump Administration's economic plan. Unfortunately, unwinding this deficit without causing a global economic calamity may be impossible.

Over the past 35 years, the US Current Account deficit has become THE driver of global economic growth. It has flooded the world with more that US$10 trillion of US Dollar liquidity. The entire global economy has been constructed around that deficit. Eliminating it now could cause the economic superstructure of the world to collapse.

Here are my main concerns:

  1. If the US reduces its imports, the global economy will shrink. Whenever the United States imports less from the rest of the world, the rest of the world always imports less from the United States.
  2. If the US eliminates its $1 billion a day trade deficit with China, China's economy could collapse into a depression that would severely impact all of China's trading partners, and potentially lead to social instability within China and to military conflict between China, its neighbors and the United States.
  3. If the US Current Account deficit returns to balance, the global economy will suffer from insufficient Dollar liquidity, which could cause economic stagnation or worse.
  4. A reduction of imports from low wage countries would cause US inflation to rise, which would push up US interest rates.
  5. The elimination of the Current Account deficit would cause a sharp reduction in capital inflows into the US, which would also cause interest rates to rise.
  6. Higher interest rates would cause credit to contract and the US economy to go into recession.
  7. Higher interest rates would also cause a sharp fall in US asset prices. That, too, would cause the economy to go into recession.
  8. Higher interest rates could cause a wave of credit defaults in the US and around the world, potentially leading to a new systemic financial sector crisis.

Investors should be worried. Flaws in the post-Bretton Woods international monetary system have allowed a worldwide economic bubble to take shape and to reconfigure the structure of the global economy. Asset prices are stretched in the United States and all around the world. If the Trump Administration does implement policies that begin to eliminate the US trade deficit, interest rates are very likely to jump. In all probability, a brutal selloff in stocks, bonds and commodity prices would follow.

These risks are explained in greater detail in the first Macro Watch video of 2017, Trump's Trade Policies: Good Intentions, Devastating Consequences.

To watch this video, subscribe to Macro Watch: