PFwise.com - Blog

4 Health Care Options If You Retire Early

9/26/2021

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If you decide to retire early and cannot rely on Medicare, here are several options for health care:

Work part-time or just enough hours to get health insurance.
Buy health care insurance on the market — keep in mind that the premiums increase as you age and are usually more than what you’d pay when you’re employed.
Join a health-sharing ministry, which are religious organizations that pool health care costs across their members.
Self-insurance and costs can often be lower if you choose to retire outside of the United States.

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Smart Charitable Giving in 2021

9/25/2021

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Part of legislation that became effective in 2020 carved out a new break for taxpayers who donate to charity and claim the standard deduction, as most do, instead of itemizing their deductions. For the 2021 tax year, here are the changes:

Married couples filing jointly for 2021 can deduct as much as $600 of charitable donations if they don’t itemize, while the limit is $300 for singles. For 2020, the maximum deduction was $300 per return for joint filers and singles.

On federal income-tax returns for 2020, this deduction was an “above-the-line” deduction, meaning it was entered above the line for adjusted gross income, or AGI. That reduced AGI, a number that can affect many other tax items. Congress wrote the law slightly differently for 2021, making it below the line—not reducing AGI, but still reducing taxable income. A draft of IRS Form 1040 for 2021 shows it on line 12-b.

A few reminders on points that haven’t changed:

This provision applies to “cash” donations, such as cash, check and credit cards. Make sure you have the required documentation.
Contributions of “noncash” items, such as clothing or securities, don’t count.
Gifts must go to “qualified” charities; donor-advised funds aren’t considered qualified for this provision.

Meanwhile, a popular provision known as a qualified charitable distribution, or QCD, remains alive and well. With a QCD, investors 70½ or older typically can transfer as much $100,000 a year directly from an IRA to charity without owing taxes on that transfer. This move, which must be done directly from the IRA to a qualified charity, counts toward the taxpayer’s required minimum distribution for that year. Donations to donor-advised funds don’t count. Transfers of more than the exclusion amount are included in income, the IRS says. See IRS Publication 590-B for more details.

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What To Invest In Different Business Cycles

9/24/2021

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A typical business cycle contains 4 distinct phases.

Early cycle: Generally, a sharp recovery from recession, as economic indicators such as gross domestic product and industrial production move from negative to positive and growth accelerates. More credit and low interest rates aid profit growth. Business inventories are low, and sales grow significantly.
Mid-cycle: Typically the longest phase with moderate growth. Economic activity gathers momentum, credit growth is strong, and profitability is healthy as monetary policy turns increasingly neutral.
Late cycle: Economic activity often reaches its peak, implying that growth remains positive but slowing. Rising inflation and a tight labor market may crimp profits and lead to higher interest rates.
Recession: Economic activity contracts, profits decline, and credit is scarce for businesses and consumers. Rates and business inventories gradually fall, setting the stage for recovery.

Historically, different investments have taken turns delivering the highest returns as the economy has moved from one stage of the cycle to the next. Due to structural shifts in the economy, technological innovation, regulatory changes, and other factors, no investment has behaved uniformly during every cycle. However, some types of stocks or bonds have consistently outperformed while others have underperformed, and knowing which is which can help set realistic expectations for returns.

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4 Signs You Are Ready for Roth IRA Conversion

9/23/2021

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The sweeping tax overhaul enacted in 2017 lowered tax rates starting with the 2018 tax year. These lower rates are scheduled to end with the 2025 tax year.
The Setting Every Community Up for Retirement Enhancement (Secure) Act eliminated the ability to stretch an inherited IRA for most non-spousal beneficiaries and requires that these beneficiaries fully withdraw the money in the IRA within 10 years. This applies to inherited Roth IRAs as well, but there is no tax to the beneficiaries in most cases with an inherited Roth IRA.
There are many unknowns as to what impact President Joe Biden’s tax proposals might have on rates, making Roth IRAs a viable option for many investors.

Here are 4 signs that the time may be right for Roth IRA conversion:

1. You earned less than usual this year.
A key issue to consider is your tax bracket for the year. If you are still working and fall into a lower-than-normal tax bracket, that can present an opportunity to do the Roth IRA conversion at a lower tax rate then you would incur during a more normal earning year.

2. You have retired but want to delay Social Security.
One time period where you might be in a lower tax bracket is your first few years of retirement. Your income is likely lower due to not receiving a salary or self-employment income. If you’ve decided to delay taking Social Security to maximize its benefit, this could provide a window of several years in which you are in a low tax bracket.

It is important to know that if you have reached the age where RMDs have commenced that the RMD money cannot be diverted to a Roth IRA conversion and that RMDs must be taken before any conversions are done.

3. You want to donate to charity.
Along the lines of managing your tax bracket, if you plan to give appreciated assets to charity, the tax deduction from these donations can be used to offset the tax hit of the Roth IRA conversion. It’s important that you are able to take an itemized deduction for the contribution, however.

4. You have cash on hand.
While it probably goes without saying, it’s critical that you ensure you have the cash available outside of your IRAs to pay the taxes. Having to take money from your traditional IRA to cover the taxes due will reduce the net amount that is ultimately converted to a Roth.

Additionally, the money to pay the taxes would end up as a distribution from the traditional IRA in this case. That money would be subject to taxes and to a 10% early withdrawal penalty if you are under age 59 ½. This type of situation would greatly diminish the benefits of a Roth IRA conversion and should be avoided in virtually all cases.

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2 Great Websites With Tons of Useful Financial Planning Information

9/22/2021

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Professor Laurence Kotlikoff of Boston University: https://kotlikoff.net/
This site includes an easy-to-navigate compendium of his columns, articles, and books on the left sidebar. Super useful.

Ed Slott’s resources page: https://www.irahelp.com/iraResources.php
His specialty is IRAs, but this resources page has a ton of helpful links to retirement planning resources, including his monthly advisor newsletter.

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3 Different Interesting Crediting Methods for Life Insurance

9/21/2021

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There are three different interest crediting methods for cash value life insurance products:

Cap rate. This means your subaccount is credited with interest up to a stated rated, or cap. For example, if your cap rate is 10% and the S&P 500 experiences a 13% gain, your subaccount will be credited with 10%.
Participation rate. This means your subaccount is credited with a percentage of the total market gain, also expressed as a percentage. For example, if your participation rate is 75% and the S&P 500 experiences a 13% gain, your subaccount will be credited with 75% of 13% of your cash value total (i.e., 9.75%).
Spread. This means your subaccount is credited with the percentage of growth experienced by an index minus a stated spread. For example, if your spread is 3% and the S&P experiences a 13% gain, your subaccount will be credited with 10%.

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Free ETF Screen and Research Sites from Fidelity

9/20/2021

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Once you have identified an ETF in the asset class, sector, or region of the market that you want to invest in, you can use a tool like an ETF screener, for example, to find ETFs in this space with your desired attributes, such as a low average daily bid-ask spread and high average daily trading volume.

Other tools, like Fidelity’s ETF research page, can help you investigate additional characteristics of an ETF you are analyzing, including the underlying fundamentals of the stocks within the fund.

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Are All ETFs Tax-efficient?

9/19/2021

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Taxes are an important consideration for any investment held in a taxable account. In general, passive ETFs are considered tax-efficient on an absolute basis due to their unique structure, generally lower portfolio turnover, and how they are managed. One of the primary advantages of the ETF structure is that when an investor buys or sells shares of the ETF, the ETF administrator can match purchases and sales with other investors so that no actual security purchases inside the fund need to be made. As a result, this creation/redemption structure avoids triggering a taxable event.

However, not all ETFs are equally tax-efficient.

For example, ETF dividends are subject to taxes, and ETFs that pay nonqualified dividends may be less tax-efficient than those that pay qualified dividends. Annual distributions from an ETF to investors may be treated as qualified or nonqualified dividends.

Qualified dividends are taxed at no more than 15%. However, just because the ETF reports that its distribution was a qualified dividend, that does not automatically make it qualified for the investor. The investor must have held the ETF for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. ETF investors, like mutual fund investors, are subject to the relevant tax rates on distributions that flow through to end investors, whether they take the form of dividends on stocks or coupon payments on bonds.

It's also possible to invest tax-efficiently with ETFs by selecting those that minimize capital gains distributions and maximize exposure to qualified dividends, as well as holding tax-inefficient ETFs in tax-deferred or tax-exempt accounts.

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Do ETFs Pay Dividends?

9/18/2021

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If a stock is held in an ETF and that stock pays a dividend, then so does the ETF.

While some ETFs pay dividends as soon as they are received from each company that is held in the fund, most distribute dividends quarterly. Some ETFs hold the individual dividends in cash until the ETF’s payout date. Others reinvest the dividends back into the fund as they are received, and then distribute them as cash on the ETF’s payout date.

ETFs may provide the option of forgoing receiving cash in exchange for the purchase of new shares with the dividends received. And certain brokers, including Fidelity, might allow you to reinvest dividends commission-free. You can find out if and how an ETF pays a dividend by examining its prospectus.

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Annuity Wealth Transfer Concept

9/17/2021

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Meet Rick and Karen, both age 59, decided that they do not need the annuity for retirement and want to pass the value to their children at death. However, they want to maximize the money they can pass to their children and avoid passing a tax burden.

Enter annuity wealth transfer concept, this method helps people like Rick and Karen to minimize tax and leave more assets for their beneficiaries. See details below.

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Fixed Index Annuity — A Solution in Ultra-low Rate Environment

9/16/2021

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Fixed index annuities are long-term insurance products that can help consumers grow their assets, while protecting their principal in changing markets. By allocating a portion of their retirement assets to a fixed index annuity, consumers can reinforce their retirement savings foundation and help:

1. Generate higher growth and income than many fixed income instruments.

2. Protect against interest rate risk and bond market volatility

3. Guarantee more income for life

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How to Buy Chinese Stocks In the US

9/15/2021

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There are multiple ways for investors who are bullish on the Chinese economy and want to buy Chinese stocks.

1. Buy ADRs.
American Depositary Receipts (ADRs) entitle investors to foreign shares being held on their behalf at a bank.

2. Buy H-Shares (Chinese stocks listed in Hong Kong)
Those are called H-shares, and U.S. investors need Hong Kong dollars to purchase H-shares. You have two options: a) convert U.S. dollars to Hong Kong dollars; b) buy Hong Kong stocks on margin, borrowing Hong Kong dollars from a brokerage firm with U.S. investments as collateral.

Interactive Brokers, Fidelity, Vanguard, and Charles Schwab all support this option.

3. Buy A-Shares (China's domestic listed stocks) through two special programs
The Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs are cross-boundary channels that allow investors in each market to trade shares on the other market using local brokers and clearing houses.

Only Interactive Brokers supports this option.

4. Buy ETFs that hold Chinese stocks
For investors who don't want to directly own any Chinese stocks, here are some major ETFs that mainly hold China A-shares or H-shares:

Xtrackers Harvest CSI 300 China A-shares (ASHR): A-shares only
KraneShares Bosera MSCI China A (KBA): A-shares only
iShares MSCI China A (CNYA): A-shares only
iShares China Large-cap (FXI): Hong Kong-traded shares only
SPDR S&P China (GXC): mainly H-shares

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Financial Do's and Don'ts If You Have A 7-Figure Retirement Fund

9/14/2021

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8 Financial Do's and Don'ts for the 7-Figure Retirement is an article from Morningstar.com, it highlights a number of key decision points - and the related do's and don'ts - to consider in helping people with high retirement assets make the transition from working to retirement.

Some of the important points include:

It's important to be mindful of sequence of return risk, especially when retiring early (thanks to all of that wealth), as the longer the time horizon, the more risk there is with an untimely early retirement market decline;
Most pre-retirees have relatively stable tax planning because their income is consistently buoyed by annual wages, and consequently may underestimate the volatility of their taxable income in the early retirement years (and miss opportunities for tax planning to maximize tax-efficient retirement withdrawals);
Be mindful of the timing when starting Social Security retirement benefits, especially for those who otherwise have plenty to live on, expect a long life, and can afford to bridge the early retirement years from their portfolios in order to delay Social Security;
Beware locking in "expensive" payments and financial commitments... including not only the second/vacation/retirement home, but over-extending the "Bank of Mom and Dad" to adult children;
and finally, remember that just because you have the financial affluence to be able to afford not working anymore, doesn't mean you will find a life without work to be fulfilling, as in the end it's much better to be retiring towards something rather than just retiring away from our current life!

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How the Very Rich Uses Private Placement Life Insurance (PPLI) to Avoid the Looming Biden Tax Increases

9/13/2021

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Private Placement Life Insurance (PPLI) has long been a tax-shelter vehicle for ultra-high-net-worth clients, leveraging the tax-deferral build-up of cash value in a permanent life insurance policy but in a structure that accommodates more specific investment choices (for that particular HNW client) and without the sometimes-expensive commission structure that can overlay 'traditional' permanent life insurance.

However, a change to life insurance reserve requirements under the Consolidated Appropriations Act in late 2020 now allows insurance companies to use lower interest rate assumptions (based on a new variable rate tied to current market rates) in determining whether a life insurance policy will become a taxable Modified Endowment Contract (MEC), which has the end result of allowing substantially higher cash value contributions into permanent life insurance without triggering MEC status.

At the same time, the rise of a potentially significant increase in the taxation of both ordinary income and especially capital gains under President Biden's proposals is leading to growing interest in a wide range of 'tax shelters' for ultra-HNW clients.

The combination of the two is leading to a rapid increase in the number of HNW individuals now exploring PPLI as a tax shelter, with the new, more appealing tax-deferred cash value accumulation potential, coupled with a looming Biden tax increase. Of course, the reality is that surrendering a high-growth life insurance policy is itself still taxable, which means the value of high-growth PPLI, once implemented, can generally only be extracted partially via policy loans, or by holding the policy until death (though that option itself may still be appealing for those otherwise concerned that the Biden administration will eliminate the step-up in basis rules).

Because of the complex rules involved in establishing PPLI, it's generally recommended only for those who can contribute at least $2M (and more commonly, $5M+) to the policy.

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THE MEGA BACKDOOR ROTH IRA STRATEGY AND SOLO 401(K) PLANS

9/12/2021

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Do you know Solo 401(k)s for side jobs or businesses can possibly be rolled into mega backdoor Roth IRAs? This blogpost shows you this strategy - the required conditions and caveats to implement it, worth a read if your situation fits the bill.

Note: only after-tax contributions are allowed to be used in this strategy, and your side business must not be related to your regular job to take advantage of this rollover, and of course your side business must be successful so you can afford the cash flow contribution.

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Tax Consequence of Leaving Life Insurance Surrender Value With the Insurer under Interest-only Option?

9/11/2021

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Q. What are the tax consequences of leaving life insurance cash surrender values or endowment maturity proceeds with the insurer under the interest-only option?

A. The interest is fully taxable to the payee as it is received or credited. Under some circumstances, election of the interest option will postpone tax on the proceeds. If the option is elected before maturity or surrender without reservation of the right to withdraw the proceeds, the proceeds are not constructively received in the year of maturity or surrender.

But if the right of withdrawal is retained, the IRS apparently considers the proceeds as constructively received when they first become withdrawable. (It can be argued, however, that the proceeds are not constructively received when the policyholder has a contractual right to change to another option.) If the option is elected on or after the maturity or surrender date, the proceeds are constructively received in the year of maturity or surrender.

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Is Interest Paid on an Insurance Loan Tax Deductible?

9/10/2021

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Q. Can a taxpayer deduct interest paid on a loan to purchase or carry a life insurance, endowment, or annuity contract?

A. Interest paid or accrued on indebtedness incurred to purchase or continue in effect a single premium life insurance, endowment, or annuity contract purchased after March 1, 1954, is not deductible.

For this purpose, a single premium contract is defined as one on which substantially all the premiums are paid within four years from the date of purchase, or on which an amount is deposited with the insurer for payment of a substantial number of future premiums.

When a single premium annuity is used as collateral to either obtain or continue a mortgage, the IRS has found that IRC Section 264(a)(2) disallows the allocable amount of mortgage interest to the extent that the mortgage is collateralized by the annuity.

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Tax Impact When Life Insurance Dividends Used to Buy Paid-up Additions?

9/9/2021

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Q. What are the tax results when life insurance or endowment dividends are used to purchase paid-up insurance additions?

A. Normally, no tax liability will arise at any time when life insurance or endowment dividends are used to purchase paid-up insurance additions.

Dividends not in excess of investment in the contract are not taxable income, the annual increase in the cash values of the paid-up additions is not taxed to the policyholder, and death proceeds are tax-free.

In effect, dividends reduce the cost basis of the original amount of insurance and constitute the cost of the paid-up additions. Consequently, upon maturity, sale, or surrender during an insured’s lifetime, gross premiums, including the cost of paid-up additions, are used as the cost of the insurance in computing gain upon the entire amount of proceeds, including proceeds from the additions.

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Are Dividends From a Life Insurance Policy Taxable?

9/8/2021

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Q. Are dividends payable on a participating life insurance policy taxable income?

A. As a general rule, all dividends paid or credited before the maturity or surrender of a contract are tax-exempt as return of investment until an amount equal to the policyholder’s basis has been recovered. More specifically, when aggregate dividends plus all other amounts that have been received tax-free under the contract exceed aggregate gross premiums, the excess is taxable income.

It is immaterial whether dividends are taken in cash, applied against current premiums, used to purchase paid-up additions, or left with the insurance company to accumulate interest.

Thus, accumulated dividends are not taxable either currently or when withdrawn (but the interest on accumulated dividends is taxable) until aggregate dividends plus all other amounts that have been received tax-free under the contract exceed aggregate gross premiums. At that point, the excess is taxable income.

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Tax Consequence of Giving Spouse a Life Insurance Policy

9/7/2021

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Q. If a taxpayer gives a spouse a life insurance policy, is the taxpayer entitled to a gift tax marital deduction?

A. Yes. An outright gift of a life insurance policy to the donor’s spouse qualifies for the gift tax marital deduction on the same basis as the gift of a bond or any other similar property. The same should hold for subsequent premiums paid on the policy by the donor.

An annual exclusion may be allowed instead of the marital deduction if the recipient spouse is not a U.S. citizen.

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Use Permanent Life Insurance as a Tool to Pay for Tuitions

9/6/2021

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The primary purpose of life insurance is to provide a death benefit to beneficiaries. It can be designed to meet your changing needs with features such as a flexible death benefit and flexible premiums. The death benefit protection can make life insurance an attractive choice for establishing a self-completing plan to help fund a college education.

Earning a college degree today can now cost a significant amount—and that amount continues to rise faster than the rate of inflation. With the spiraling costs of earning a diploma, you should review your options. An option to consider is permanent life insurance. Permanent life insurance provides death benefit protection and a way to potentially accumulate tax-deferred cash value growth.

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Use Permanent Life Insurance as a Tool for College Planning

9/5/2021

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Below is an article from fa-mag.com that discusses using permanent life insurance as a tool for college planning:

September is Life Insurance Awareness Month and a wealth advisor with a specialty in college planning wants more nancial ̀ advisors and parents to understand how permanent life insurance policies (including whole life and indexed universal life) can help fund college expenses.

Beth Walker, a wealth advisor with Omaha-headquartered Carson Wealth Management and founder of the Center for College Solutions, a consulting rm in Colorado Springs, isn’t suggesting parents abandon ̀ 529 college savings plans for permanent life insurance contracts (also referred to as cash value contracts) but thinks the strategy deserves a closer look.

According to Walker, almost every permanent life insurance contract includes loan provisions that enable the policyholder to borrow on the cash value that has accumulated. A parent is typically the owner and the insured on policies used to fund college, she said. The cash value of permanent life insurance contracts is unlikely to sabotage nancial aid awards because ̀ it’s excluded from the Free Application for Federal Student Aid formula and only a handful of colleges that require the CSS Prole application inquire about the cash value of policies, said Walker.

In addition, policyholders can generally borrow up to 90% of the cash value of their life insurance contracts “with just the stroke of a pen,” she said, without having to qualify or have an appraisal. Both of those steps are required when collateralizing a home equity line of credit to pay for college, she added. “The exibility of an insurance line of credit is a phenomenal tool during the college years,” said Walker. She also pointed out that the collateral in cash value contracts continues to compound uninterrupted when loans are taken and policyholders are permitted to repay the loans whenever they wish.

Some parents wait until they receive a bonus or until their children graduate college, she said, and others may opt not to repay the loan. Outstanding loan balances are deducted from the payout beneficiaries receive ̀ following the death of the insured. That being said, “I would never advocate that you don’t pay it back, ” said Walker, noting there can be surrender charges and parents might need the payout to fund their retirement.

Walker has used cash value life insurance as a college funding strategy with more than 30 client families. She has also funded a life insurance policy to pay for her son’s college education.

Starting to fund a permanent life insurance policy when the kids are in middle school or younger is “a complete no-brainer,” she said, “provided the permanent policy is properly designed.”

At that stage, parents have many years to build cash value before they’ll need to borrow the funds to fund college. Permanent life policies can still be an attractive way to help parents whose kids are in high school manage cash flow challenges, she said, but at that point the policy will likely be earmarked for retirement.

One of her client families bought a house at the height of the real estate market but has no equity in it because property values subsequently crashed, she said. The parents—highly compensated with good jobs and maxed out on their 401(k) contributions—haven’t been able to save much for college for their two children who are now in middle school. According to Walker, the couple is starting to set aside $1,500 a month for college costs through a permanent life insurance policy. The couple will be able to borrow $30,000 a year from the policy and she has factored in a 4% annual inflation increase during the years the clients’ children will be in college. “The rest they’ll have to get through student loans and merit-based scholarships,” she said. The clients plan to repay the loan to their policy by the time they retire.

When Walker comes across clients who inherit money upon the death of their parents, she often encourages them to put the inheritance into a permanent life insurance policy instead of taking a distribution that could disqualify the grandchildren from receiving financial aid.

Cash value life insurance isn’t the college funding answer for everyone with cash-flow challenges, said Walker, noting, “A confident practitioner would need to run scenarios.” She cautioned that permanent life insurance is a long-term commitment that shouldn’t be taken lightly. “You really have to spend time educating parents,” she said.

Consumers often don’t know enough to ask the right questions, she said, and even people with a license to sell insurance also may not be educated on how it can be used to fund college. “Because it’s a complex tool, with a lot of moving parts, “ said Walker, including yearly fees and onetime fees, “you have to really understand what you’re doing.”

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Epilepsy and Life Insurance Application - Part B

9/4/2021

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In last blogpost, we discussed what is Epilepsy. We will continue the discussion below.

Evaluation & Treatment of Epilepsy
Evaluation and treatment for epilepsy is typically done via electroencephalography (EEG). An EEG measures the electrical activity of the brain and can help confirm that epilepsy is present. This may also help classify the type of epilepsy. Imaging of the brain can also be a useful tool for evaluating seizures and is usually done with an MRI or CT scan. The goal of epilepsy treatment is to eliminate or reduce the seizure activity with minimal side effects of the treatment. While most epileptics will achieve adequate seizure control with medicines, up to one-third will not.

Life Insurance Underwriting for Epilepsy & Seizures
Here are the primary questions to a proposed insured who presents with a history of epilepsy or seizures will be asked:

Age of onset or diagnosis? How long/time since diagnosis?
Type of seizures? Is there any known cause, or are they idiopathic?
Number of seizures, on average, per year?
If they’ve ceased, when was the last?
Has there been adequate work up including EEG, MRI, or CT scan?
How is it being treated? Have there been any surgeries?
Any complications? Status epilepticus? Alcohol misuse?

The underwriting of an applicant with epilepsy or seizures looks to several factors including the type of epilepsy or seizures, any known cause, frequency of the seizures, level of control, and any complications. Standard to low/moderate table ratings are typical, depending on the details. We even have a few carriers that indicate Preferred offers may be possible in the ideal circumstances.

If you have any questions, please contact us, we will help you gather the pertinent info that we’ll need to help evaluate your case.

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Epilepsy and Life Insurance Application - Part A

9/3/2021

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About Epilepsy & Seizures
Epilepsy, or seizure disorder, is a neurological condition that comes from abnormal electrical activity in the brain. Epilepsy is a chronic disorder that is typically diagnosed once there has been a history of two or more seizures that were not provoked by a specific preceding cause. According to the National Institutes of Health, approximately 3 million Americans have epilepsy. The incidence is highest in early childhood and has recently begun to become more prevalent in the elderly.

Types & Causes of Epilepsy
Epilepsy is categorized as being either symptomatic or idiopathic. Causes of symptomatic or acquired epilepsy may include genetic birth factors, infections, toxins, alcohol withdrawal, trauma, circulatory and metabolic disorders, tumors, and degenerative diseases. It is termed idiopathic if there is no evidence of an organic brain lesion and no known underlying cause. The majority of cases of epilepsy are idiopathic.

Seizures can be subdivided into partial and generalized seizures. Partial seizures are localized to one area of the brain and are either simple or complex. Simple partial seizures have no alteration of consciousness, while complex partial seizures have altered consciousness.

Generalized seizures involve both sides of the brain or the entire brain. Types of generalized seizures include tonic-clonic or myoclonic (grand mal) seizures, absence (petit mal) seizures, as well as atonic, tonic, and clonic seizures. Status epilepticus is a medical emergency in which there is a prolonged continuous seizure or multiple seizures without full recovery of consciousness in between and is associated with a high mortality rate that can be up to 20% or higher per episode.

In next blogpost, we will discuss life insurance underwriting for Epilepsy.

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Why Inflation is a Stealth Tax?

9/2/2021

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Inflation is a "tax" that has nothing to do with revenue - instead, it diminishes your clients' purchasing power. Today, a 50/50 portfolio of U.S. Treasury bonds and the S&P produces 75% less income than it did 10 years ago, in July 2011. Van Mueller explains how this works, why that last bag of Doritos felt a little lighter than usual, and why now is the best time ever to get cash value life insurance.

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What is inflation? Isn’t it a very complex concept? Doesn’t the government intend for it to be complex, so that the American people don’t understand that they are being taxed, again, without it being called a tax? Isn’t it a way for the government to tax the poor, middle class and the upper middle class without those groups even realizing what is happening to them? Isn’t it a way for our government to add additional tax revenue from the wealthy? Did you notice I didn’t say super-rich? Most of the super-rich do not pay income taxes. They have planners who put strategies in place to offset the damage caused by inflation and yes, even take advantage of inflation. Shouldn’t our customers be made aware that the same strategies are available to them?

So, in its simplest terms, what is inflation? The simplest answer is that it is the lost purchasing power of our money! We will discover later in this month’s newsletter that it is much more complex than that. However, our customers do not desire complexity from us. They desire simplicity. They want to understand exactly what is happening to their money.

Our customers do not desire complexity from us. They desire simplicity. They want to understand exactly what is happening to their money.

Here is an example of the lost purchasing power of our money that is relevant to many of the customers we talk with.

Healthview Services is an organization that reviews Social Security and Medicare and reports on the effectiveness of those programs. They recently reported that if you were receiving $2,000 per month in Social Security benefits in the year 2000, that in 2020 you would now require $2,800 per month to buy the same amount of goods and services. There are two important points to share. First, that increase was during a low inflation period. It even included a deflationary period in 2007 and 2008. Second, the information did not include the massive inflation increase that we are seeing in 2021. How does the dictionary define inflation? In economics, inflation (or less frequently, price inflation) is a general rise in the price level of an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the PURCHASING POWER per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and service. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, CPI, over time.

There are other indices that are used widely as measurements.
1. Producer Price Indices – This is an increase in costs at the producer level rather than the consumer level.
2. Commodity Price Indices – This measures a basket of commodities.
3. Core Price Indices – Food and oil prices can change quickly. Therefore, most statistical agencies also report a measure of “core inflation.” That removes volatile expenditures like food and oil from a broader index like the consumer price index. Many times, the inflation rate we are reported excludes spending on food, oil and even home purchases. It is dramatically understated. Why? Because the government doesn’t want most of America to realize that their standard of living is being reduced. That’s why people in the know call inflation a “stealth tax.”

The government doesn’t want most of America to realize that their standard of living is being reduced. That’s why people in the know call inflation a “stealth tax.”
4. GDP Deflator – This measures all the prices for goods and services against our Gross Domestic Product (GDP). This is a measurement of all the goods and services produced by Americans.
5. Regional Inflation – Prices are very different in different regions of our country. Costs of things could vary dramatically if measured by the north versus the south or the east versus the west or the coasts versus inland United States.
6. Asset Price Inflation – This is a dramatic increase in the price of financial assets such as stocks, bonds and real estate.

There are three major sources of inflation.
1. Demand-Pull – When demand for goods or services exceeds production capacity. When people want to buy Giannis Antetokounmpo sneakers and they can’t be produced fast enough, the price increases.
2. Cost-Push – When production costs increase prices. If the price of helium increases for special occasion balloons, that will increase the price for the balloons.
3. Built-In – When prices rise, wages rise also in order to maintain living costs. If wages rise, prices will increase. This has been under control for a while. This reason for inflation is heating up again.

In order to understand the impact of inflation in the future we must look at inflation in the past. Let’s look at the last time we had excessive inflation. From 1975 to 1990 we had very aggressive inflation in our country and the world for that matter. Do you know that in the 46 years since 1975 you now need $5,050.11 today to buy the same amount of goods and services that $1,000.00 bought in 1975. That means your money only buys 19.80 percent of what it could buy in 1975. You lost 80 percent of your purchasing power. The average inflation rate over those 46 years is 3.58 percent. That means you need to double your income every 20 years in order to maintain the purchasing power of your money when you began. Even at only 3.58 percent average inflation retirees would need almost a double and another half of a double increase during their life expectancy to maintain their purchasing power if they retired at age 65 and lived to age 95.

You need to double your income every 20 years in order to maintain the purchasing power of your money when you began.What happens to the quality of your retirement if you retired in 1975 when the rate of inflation was 9.13 percent and lived through bad inflation like those retirees had to until 1990? What happens to your standard of living?

Here are the rates of inflation from 1975 to 1990.
1975: 9.13 Percent
1976: 5.76 Percent
1977: 6.50 Percent
1978: 7.59 Percent
1979: 11.35 Percent
1980: 13.50 Percent
1981: 10.32 Percent
1982: 6.16 Percent
1983: 3.21 Percent
1984: 4.32 Percent
1985: 3.56 Percent
1986: 1.86 Percent
1987: 3.65 Percent
1988: 4.14 Percent
1989: 4.82 Percent
1990: 5.40 Percent

Any inflation rate over 2 percent is considered unfavorable. Any inflation rate below 2 percent is also considered unfavorable for the economy. From 1991 to 2020 the inflation rate was in the 2 to 4 percent range. 2021 is the first time it has entered the 5 percent range at 5.05 percent. Simply stated, that means that in 2022 you will need $1,005 to buy the same amount of goods and services that you bought in the year 2021. A cup of coffee was $0.25 in 1970. In the year 2000 a cup of coffee had increased in price to $1.00. In 2019 it increased to $1.59. That’s not a Starbucks cup of coffee, that’s a regular cup of coffee. That is inflation.

So, what’s happening with inflation today? Are we creating 1975 to 1990 inflation right now? Let’s review a few things and see if we can figure out what our government is currently doing.

The Federal Reserve’s current Quantitative Easing programs created $120 billion per month to $1.4 trillion of newly printed money annually. Jerome Powell said they would reduce this amount in 2022 or 2023. That will probably not happen now. The Biden administration let it be known that President Biden will reappoint Jerome Powell as the Federal Reserve Chairman in 2022. The administration would not have reappointed Mr. Powell unless he agreed to continue President Biden’s strategy going strong into the November 2022 elections. That means no reduced quantitative easing or rate hikes or money tightening strategies for a while. So, if shutting down the economy causes a depression, they will print money. If the stock market crashes 30 or 40 percent, they will print money. If municipal bonds collapse because investors don’t believe our cities and states will be able to meet all their healthcare, pension and debt obligations, won’t they print more money? If our economy continues to struggle because the Delta variant of the COVID-19 virus causes state officials to partially or completely lock down their economies, what will the Federal Reserve do? Won’t they print more money? What if the economy doesn’t recover fast enough. What will the government do? Won’t they just print more money? They don’t really have ANY other alternatives. Don’t believe me yet? Please try to wrap your head around the next few sentences. Our government has printed so much money to offset the negative consequences of the COVID-19 lockdowns that if you add up all the money that our country has ever printed; over 40 percent of that money was printed in the year 2020. This won’t stop soon. There will be trillions for infrastructure, climate change and many other things. We are not allowing our economy to heal itself. We are artificially manipulating the economy to win elections or pursue short-term agendas that promote candidates or party’s rather than the longterm well-being of our country and our country’s economy.

Our government has printed so much money to offset the negative consequences of the COVID-19 lockdowns that if you add up all the money that our country has ever printed, over 40 percent of that money was printed in the year 2020.All of this additional liquidity is causing problems globally. There is no place to hide. There used to be global alternatives, however, we sold the Kool-aid to the rest of the world. Since March 2020 central banks have printed more than $27 trillion in stimulus. That is approximately 30 percent of the GDP of the planet. There are no words to explain the eventual damage that will be done to the world’s economy.

Using your own common sense, you will also understand that the government continues to mislead on inflation. The Bureau of Labor Statistics shared that healthcare spending has increased only one percent in the last year. If you sell health insurance, you know that is ridiculous. The same Bureau of Labor Statistics reported the housing portion of inflation increased 2.6 percent in the last year. Housing prices have increased over 14 percent. They are currently rising at the fastest rate since the real estate bubble of 2007 and 2008. They are not counting the costs of housing or medical care or food costs or energy costs even remotely correctly. This is even more manipulation

Inflation creates dramatically unfair and dishonest behavior in the markets. If you were to use a wine maker as an example, let’s see what choices are required to be made if the Federal Reserve doubles or triples the money supply. If the wine maker is selling his wine for $22 per bottle, he is now confronted with a very difficult decision. Here are his choices: He can continue to sell his wine for $22 per bottle and lose 50 percent or more of his profit, or he can use cheaper ingredients and destroy the quality of his wine and continue to sell it for $22, thus maintaining his profit, or he can double the price to $44 per bottle. The issue with the third idea is that the wine maker will face competition pressures from other wine makers who don’t have as much pride in their product or integrity in the way they operate. Inflation puts financial pressure on individuals to be dishonest. They must weigh their moral integrity against their financial wellbeing. Average individuals gain no long-term benefits from excessive inflation. It is taxation without representation.

Inflation puts financial pressure on individuals to be dishonest. They must weigh their moral integrity against their financial wellbeing.Inflation is a tax. It’s not an actual tax like a sales tax or income tax. It has nothing to do with tax revenue. There is no line for it on form 1040 that makes you pay two or three percent of your earnings because of inflation. There is no payment that must be made to account for the rising inflation rates. The inflation tax is unseen. The inflation tax is a “stealth tax.” That is why it is so complicated and difficult to plan for. The inflation tax is a forfeiture on the cash you hold as inflation increases. As inflation increases, cash becomes less valuable. In short, what you save today will be worth less tomorrow.

In a recent article in Think Tank Advisor, Dr. Michael Finke who is a professor of wealth management at the American College of Financial Services stated this:

“Unfortunately, if these retirees hope to live on income from these investments, they will feel the effects of asset inflation. Asset inflation should also affect the expected growth in portfolios of bonds and stocks. A 50/50 portfolio of 10-year U.S. Treasury bonds and the S&P 500 produces exactly 75% less income today than it did 10 years ago, in July 2011.

In other words, $1 million today will produce the same annual dividends and interest income from a balanced portfolio as $250,000 did for a retiree in 2011. Retirees who reach for yield by taking greater risk in credit markets are facing spreads between risky corporate high-yield bonds and Treasury bonds lower than they were before the pandemic, despite a likely tapering in bond buying by the Fed in the coming months.”

WOW! Americans have lost 75 percent of the dividend and interest income they were receiving in 2011. How do they make that up?

Americans have lost 75 percent of the dividend and interest income they were receiving in 2011.One more thing: Become aware of the word “shrinkflation.” Instead of raising prices, companies are hiding those rising costs by shrinking the size of everyday products. As an example, General Mills shrank its family size cereal boxes from 19.3 to 18.1 ounces.

With rising labor costs and ingredient prices combined with increased demand and a shipping crisis, you can expect shrinkflation to expand exponentially in the future. Here are some additional examples of shrinkflation.

Clorox now includes 75 wipes per pack, down from 85, for the same price.
Frito-Lay just shrank their bags of Doritos from 9.75 ounces to 9.25 ounces. Both are currently for sale at Target for the same price.
Hershey’s cut its 18-ounce pack of dark chocolate kisses by almost two ounces.
Hefty’s mega pack went from 90 bags to 80 bags, at the same price.
A two-pack of Reese’s Peanut Butter Cups used to weigh 1.6 ounces. Now it’s just 1.5 ounces.
Tubs of Pringles are different weights depending on the flavor in the U.S., but at Walmart they all cost the same.
Tillamook deceased the size of its ice cream cartons from 56 ounces to 48 ounces. It said that it didn’t make the decision lightly, but that if it didn’t make its cartons smaller it would have had to hike up prices because of rising ingredient costs.
Some of Royal Canins’ cans of cat food now weigh 5.1 ounces, down from 5.9 ounces, but they still cost the same. Royal Canin, a subsidiary of Mars, said that it reduced some product sizes because of unprecedented demand for pet food during the pandemic.
Charmin toilet paper originally had 650 sheets per roll. It now only contains around half of that. Even its Mega Rolls and Super Mega Rolls don’t have as many sheets as the original. The sheets have reportedly gotten smaller as well.
Cadbury changed the shape of its famous Dairy Milk bars in 2013 and changed the weight of them too. The individual pieces now have round edges and contain nearly 10 percent less chocolate than before.

This information is why it is the greatest time ever to be an insurance and financial professional and it is without a doubt the greatest time ever to sell cash value life insurance.

This information is why it is the greatest time ever to be an insurance and financial professional and it is without a doubt the greatest time ever to sell cash value life insurance.

It is obvious that there are no products by themselves that can overcome the challenges of aggressive inflation. It is also obvious that only STRATEGIES must be used to not be hurt by inflation and actually take advantage of inflation. I know you are all thinking to yourselves, HOW? You already know how. I have been writing this newsletter for years with ideas to beat inflation. We are the only industry that can. Here are several bullet points to remember. We will go into more detail in the months ahead.

1. Never Lose Any Money!
2. Have access to your money that you didn’t lose to take advantage of opportunities when they present themselves.
3. Reduce or eliminate income tax liability
4. Use pennies to buy dollars. Use leverage to make money more effective and more efficient.
5. Have one dollar do the work of many dollars. My dollars benefit if you die too soon, live too long, become disabled, have a catastrophic illness, have a terminal illness, require long term care or wish to supplement your retirement income. All with the same dollar.
6. Finally, learn and use mortality and longevity credits to increase retirement income.

So, what do you think? Do you know more about inflation than you ever wanted to know? I hope not. This will be an important concern for every American going forward. Let’s help our customers be in control of that journey.

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