Blog Archives - PFwise.com

Rethink SPIAs in Retirement

1/31/2021

Based on this article from Advisorperspectives.com, the role of Single Premium Immediate Annuities (SPIAs) should be relooked at.

The Traditional View of SPIAs
The traditional view of Single Premium Immediate Annuities (SPIAs) is that, as a vehicle that turns a lump sum into a fixed and guaranteed (but otherwise illiquid) stream of monthly payments for life, they are best used for retirees that are focused entirely and solely on generating steady guaranteed income in retirement (to the point that they’re willing to give up the liquidity and any portfolio upside potential).

And in practice, that trade-off isn’t actually very popular for most, with LIMRA statistics showing meager adoption of SPIAs (compared to other annuity alternatives), with sales that actually fell dramatically in 2020 (despite the market volatility and what is otherwise usually a flight to safety during times of market fear).

The New View of SPIAs
Yet as the author notes that the value of SPIAs isn’t just their lifetime guarantee, but the fact that SPIAs are a “fixed income” vehicle that pays not only principal plus interest like a bond but also a “mortality credit” (the benefit of pooled longevity reduced by the insurance company’s own expenses, otherwise known as the portion of annuity payments that are shifted from those who pass away early to support the continued payments to those who live longer), which may be trivial early on but after 25 years (for a 65-year-old annuity purchaser) can amount to 17% of their ongoing payments (and by age 100 rises to almost 39% of their cumulative payments). Which means another way to view an SPIA is not as a guaranteed income vehicle for retirement lifestyle spending, but essentially as a bond alternative that, once annuitized, is then reinvested into equities as the payments are received and the annuity effectively self-liquidates.

The appeal of such a strategy is that it both helps to mitigate sequence of return risk (by buffering the early years of volatility with the guarantees of the annuity payment), helps to ameliorate what is otherwise a significant inflation risk of SPIAs (as the payments aren’t there to maintain purchasing power, but to reinvest back into equities that grow to maintain purchasing power over time), and provides more flexibility (as it doesn’t entail fully liquidating the portfolio but simply carving off a portion of it) while providing a better outcome for those who live the longest (and get the most mortality credits to out-compound the return of just buying bonds alone).

Where to Find Guaranteed Returns in a Low Yield Environment

1/30/2021

With Treasury Bills providing a mere single-digit-basis-point yield, money market funds paying so little that most have had to waive some or all of their internal fees to avoid having a negative yield (or have outright closed to new investors), and CDs yielding little more, where to find satisfactory yields?

Try MYGAs
Based on this article from Advisorperspectives.com, one key option is the use of the ‘traditional’ fixed annuity… specifically, the kind that pays multi-year guaranteed rates, often called MYGAs (Multi-Year Guaranteed Annuity) for short. As in practice, many MYGAs are still paying yields as high as nearly 3%, while even longer-term 5-year CDs are yielding barely over 0.3%.

Of course, the reality is that annuity yields aren’t fully guaranteed, in that there’s a credit risk of the annuity company itself – and a not-surprising risk-based tendency that higher-quality insurers pay lower yields, while the lower-credit-quality (i.e., higher-risk) annuity carriers are the ones offering the highest near-3% yields. In practice, insurance companies have additional backstops (e.g., state guaranty associations), can actually benefit from their illiquidity (i.e., annuities with surrender charges or similar exit fees may be unappealing for some, but actually help ‘lock-in’ the money for the insurance company to be able to offer higher yields, akin to the higher yield for longer- versus shorter-term CDs). And MYGA yields still exceed yields from corporate bonds with similar credit ratings and maturities.

Why Invest in Bond?

1/29/2021

With interest rates scraping ever-lower record lows, edging closer and closer to the zero bound, the question is legit - why invest in bond? Since, at best, bond returns are meager and barely better than cash. Yet, in practice the case for bonds (or not) really starts with the intended purpose of bonds.

Feature/Asset Class Stocks Bonds
Income Generation Sometimes Usually
Appreciation Usually Sometimes
Tax Efficiency Yes No
Safety of Principal No Usually

From the above table, it's clear that it’s the stability of bonds and their buffer against the volatility of stocks that is their true value in a (Modern Portfolio Theory) portfolio, and that as a result, it’s just as relevant to hold bonds at today’s yields than it ever was, because it’s not about the low yield on bonds, but their continued ability to buffer against the volatility of stocks, which is just as prevalent a risk as it ever was.

6 Apps to Help You Manage Your Recurring Services Better

1/28/2021

There is a growing number of services and apps available as a tool to help us manage (and where appropriate, unsubscribe) from the array of subscription services, here are some major ones:

TrueBill, which parses through connected bank accounts to identify recurring payments, and then assist with the unsubscribe process for any you wish to cancel;
Trim, which is available not only on a smartphone but also a desktop (via a browser), also aggregates spending information and provides a simplified summary of where all your money is going (along with highlighting which are recurring payments in particular);
Clarity Money, which is part of Goldman Sachs’ Marcus bank offering, and thus not only provides spending tips but also nudges to move your money to a higher-yielding bank account (with Marcus!);
Bobby, which is built ‘just’ to keep tabs on ongoing subscriptions (without the ‘distraction’ of more comprehensive money management features);
TrackMySubs, which lets you simply manually add and track your own subscriptions, and provides reminders of them all in one place (and the ability to program reminders when they’re about to renew); and
DoNotPay, which bills itself as a “robo-lawyer” to help everything from canceling digital subscriptions to contesting parking tickets.

Roth IRA Conversion Strategies - Part E Roth IRA Conversion Strategy

1/27/2021

In last blogpost, we discussed Roth IRA conversion disadvantages.

Roth IRA Conversion Strategies
A Roth IRA conversion can be a versatile financial planning tool. Here are a few Roth IRA conversion strategies to consider, depending upon your specific situation.

Convert When Asset Values Are Low
Doing a Roth IRA conversion when asset values in your traditional IRA are low can provide you with “more bang for your conversion buck”.

During the steep stock market declines we saw in March 2020, many financial experts were touting the idea of doing a Roth conversion to take advantage of these lower valuations. A conversion under these circumstances allows you to potentially convert a higher percentage of your traditional IRA, offering the potential for this depressed amount to appreciate tax-free in the Roth account over time.

Backdoor Roth IRA
The backdoor Roth is a popular strategy for those who earn too much to contribute to a Roth IRA. Here’s how it works: You make an after-tax contribution to a traditional IRA and then immediately converts this to a Roth IRA. This method is simple and straightforward if you don’t have any other money in a traditional IRA.

The backdoor Roth gets a bit trickier if you do have other money in a traditional IRA that includes pretax contributions and earnings. In this case, the amount converted will be taxed as a percentage of the after-tax contributions to the pre-tax contributions and earnings. An example might look like this:

You are at age 52
After-tax traditional IRA contribution $7,000
Additional assets in traditional IRAs from pre-tax contributions and earnings $100,000

Under this scenario, if you converted the $7,000 to a Roth IRA, roughly 93.5% of the amount converted would be subject to taxes ($100,000 divided by $107,000).

Mega Backdoor Roth IRA Conversion
A variation of the backdoor Roth conversion is the mega backdoor Roth conversion. This is a strategy that can allow you to contribute up to $38,500 on an after-tax basis to your employer’s 401(k) and then convert this money to a Roth IRA at some point in the future. This amount is reduced by any matching contributions made by your employer.

Your 401(k) plan must allow after-tax contributions over and above the $19,500 or $26,000 (for those who are 50 or over) contribution limits. The maximum total contributions allowed to a 401(k) for 2021 are $58,000 and $64,500 for those who are 50 or over.

If your employer allows in-service withdrawals, you can roll the after-tax money to a Roth IRA doing the Roth conversion with little or no taxable income. An alternative, if your employer allows this, is to transfer the extra after-tax money to a designated Roth account within the 401(k) plan. The money is still in a Roth account where it can grow tax-free. When you leaves your employer, you can then roll the funds in the Roth 401(k) over to a Roth IRA.

If your employer doesn’t allow in-service withdrawals then you will have to wait until you leave the employer. In some cases your plan might allow participants to move this money once you reach age 59 ½. In either case this can still be an advantageous strategy, but you will have to pay taxes on the portion of the Roth conversion that pertains to earnings on these after-tax contributions over time.

Roth IRA Conversion Strategies - Part D Disadvantages of Roth IRA Conversion

1/26/2021

In last blogpost, we discussed two issues to pay attention to related to Roth IRA conversion.

Roth Conversion Disadvantages
As with any financial strategy, a Roth IRA conversion is not the right answer for everyone. Here are some situations where a Roth conversion may not make sense, or at least where a careful analysis is required. Most of these types of decisions involve the merits of paying taxes now in exchange for the benefits of a Roth IRA at some point in the future.

When considering a Roth conversion, it’s important to look at the potential payback — specifically, the amount of taxes that will be due on the conversion upfront compared to your life expectancy. This is especially crucial for someone who is 60 or older. An analysis needs to be run to analyze a potential break-even point where the benefits of doing the conversion, such as tax-free withdrawals and not taking RMDs, outweigh the current taxes due on the conversion.

You may want to do a Roth IRA conversion as part of your estate planning strategy. This is a prime example of where all of the pros and cons of the Roth conversion need to be weighed. The estate planning benefits of the Roth conversion need to be weighed against the current-year taxes on the conversion.

Even for people who are 59 ½ or older, the five-year requirement for qualified distributions remains in effect. In the case of Roth IRA conversions, there is a separate 5-year rule for each conversion that starts on Jan. 1 the year the conversion occurs. If you will need to take a distribution from the converted funds prior to the completion of the 5-year window, any earnings will be subject to taxes, and if you are younger than 59 ½ penalties as well.

The extra income generated from the Roth conversion could bump you who are on Medicare into a higher cost bracket for your Medicare Part B benefits. For those receiving Social Security, the extra income may cause a higher percentage of their benefit to be subject to taxes in the year of the conversion.

In next blogpost, we will discuss Roth IRA conversion strategy.

Roth IRA Conversion Strategies - Part C Areas to Pay Attention To

1/25/2021

In last blogpost, we discussed the benefits of Roth IRA conversion.

Generally, all assets converted from a traditional IRA account to a Roth IRA will be subject to taxes at ordinary income tax rates. The exception to this are any contributions made on an after-tax basis. Any gains on the investments in the account, regardless of whether the contributions were made on a pretax or after-tax basis, are also subject to taxes in a Roth conversion.

Where you have traditional IRA money from after-tax contributions, pretax contributions and investment gains, calculating the amount of the conversion that is subject to taxes can become complex. This situation sometimes arises in the case of a backdoor Roth conversion to be discussed later.

It’s important to be sure that you have sufficient cash outside of the traditional IRA to cover the taxes on the Roth conversion. If you need to tap your traditional IRA to cover the tax bill, these withdrawals will be subject to taxes and potentially to a 10% penalty if you are younger than 59 ½. This could make the conversion quite expensive for you.

In next blogpost, we will discuss the disadvantages of Roth IRA conversion.

Roth IRA Conversion Strategies - Part B Its Benefits

1/24/2021

In last blogpost, we discussed what is Roth IRA conversion.

How Can You Benefit From Roth IRA Conversion?
A Roth IRA conversion can have several potential benefits.

a. Roth IRAs are not subject to RMDs.
For people who don’t need the RMD income in retirement, this can result in tax savings each year. Additionally, this allows the value of the account to remain intact and potentially continue to grow over time. A Roth IRA can be a powerful estate planning vehicle for leaving money to a spouse or heirs.

b. A Roth IRA can provide you with tax diversification in retirement.
This can be beneficial as we don’t know what direction tax rates will take in the future. At the time of this writing, we are on the cusp of a new presidential administration. Many speculate that President Joe Biden will look to raise taxes over the next few years. A Roth IRA conversion can act as a hedge against future tax rate hikes. Having retirement savings in both Roth and traditional retirement accounts can provide flexibility for you to formulate a retirement withdrawal strategy.

In general, the decision regarding a Roth IRA conversion is often about your current tax situation versus your anticipated future tax situation. With multiple income sources like pensions, withdrawals from retirement accounts and Social Security, it’s not uncommon for you to end up in a higher tax bracket in retirement than you were while you were working.

In next blogpost, we will discuss a few issues to note in Roth IRA conversion.

Roth IRA Conversion Strategies - Part A What It Is?

1/23/2021

Roth IRA Conversion is a retirement savings strategy that might be beneficial for the right people. Here’s a detailed look at Roth IRA conversions to help you decide if this strategy is a good fit for you.

What Is a Roth IRA Conversion?
In a Roth IRA conversion, the account holder takes some or all of the balance in their traditional individual retirement account and converts that money to a Roth IRA. The money converted to a Roth IRA is taxable as ordinary income in the year the conversion is made. The exception is the value of any after-tax contributions made to the traditional IRA that are part of the amount converted.

Another possible type of a Roth IRA conversion might occur if you are leaving your employer. A traditional 401(k) account can be rolled over and converted to a Roth IRA. The tax rules described above will still apply. Depending upon the rules of both your 401(k) plan and those of the IRA custodian, an interim transfer to a traditional IRA may be required.

Once a Roth IRA conversion is completed, distributions from the account are tax-free as long as certain requirements are met.

In next blogpost, we will discuss in details how a Roth IRA conversion benefits you.

2021 Tax Rates and Tax Planning Quick Reference Guide

1/22/2021

As we lean into tax planning for tax year 2021 and tax preparation for the 2020 tax year, the quick reference summary below from Intuit may be helpful!

The Hierarchy of Financial Wellness

1/21/2021

Financial Wellness, based on this financial planning article, implies a holistic combination of health functions beyond just financial projections), it can be viewed as a series of Maslow’s-hierarchy-style needs to build upon, including:

Organizational wellness (i.e., the household’s financial organization and ‘good financial management’ foundation, from recordkeeping of the household’s financial expenses, to the implementation of key foundational documents like Wills and Powers of Attorney);
Physical wellness (what’s the point of having more money if you can’t use it to stay healthy, if only so you can be around longer to enjoy it, which helps to explain why health-related events are persistently the #1 fear in retirement);
Cognitive wellness (where money makes it possible to spend more time with family and friends, engage in creative work, and have purpose and focus, not to mention being prepared for the hazards of cognitive decline in our later years);
Behavioral wellness (being able to engage in the behaviors that maintain and support the rest, and avoid behavioral biases);
Holistic wellness (an overall roll-up of the wellness functions, including being prepared to manage threats to the other parts of the pyramid).

Possible Income Tax Policy Changes in Biden Administration - Part C

1/20/2021

In last blogpost, we discussed possible capital gain tax increases and some techniques to deal with them. Now we will discuss if you should sell assets before tax rates increase.

It may prove advantageous to sell some of those appreciated assets in 2021 if the law change increasing capital gains to ordinary income tax rates only takes effect in 2022. When evaluating the guesstimated cost/benefits of selling now versus waiting also consider possible state income tax costs and planning.

It may be advantageous to shift assets into an intentionally non-grantor (“ING”) trust in a trust friendly (i.e., no tax) jurisdiction so that state income tax can be deferred or avoided. You might for example, provide in such a non-grantor trust that distributions can only be made to a spouse with the consent of an adverse party. That mechanism may permit a spouse to benefit from trust assets, not undermine characterization as a non-grantor trust, and still permit avoiding state income tax on a large sale to avoid an increase in the capital gains tax.

Note that in Rev Proc. 2021-3 the IRS will no longer rule on ING trusts so caution is in order. A non-grantor trust can be structured as a completed gift or incomplete gift. You can transfer assets to an incomplete gift trust if you have used all exemption, and still create a structure to avoid the state income tax on the sale. If you have exemption remaining that you want to try to use you can structure the non-grantor trust as a completed gift. Lots of options, but keep in mind the uncertainty, risk of retractive change, etc.

Possible Income Tax Policy Changes in Biden Administration - Part B

1/19/2021

In last blogpost, we discussed possible retroactive income tax changes. Now we will discuss possible capital gain tax changes.

Capital gains could be raised substantially. They have discussed doubling the tax on capital gains by taxing capital gains as ordinary income. It could even be worse as those gains could be subject to the 3.8% net investment income tax. Add to that state income tax if you live in a high tax state. The effective tax on capital gains over $1 million could exceed 50%. If this is enacted prospectively expect a tremendous amount of sales of assets before the effective date of that change.

Some commentators have speculated that a capital gains tax could also be made retroactive to January 1, 2021, but many think that is unlikely. Others suggest that such a change might be made effective January 1, 2022. Or there could be an effective date based on the date of enactment of the tax legislation. This will affect planning dramatically. It might prove to be advantageous to sell appreciated assets now and lock in the current capital gains tax rate.

If you sell assets on the installment basis you would pay tax when the proceeds received. You might instead prefer to elect out of the installment sale treatment for income tax purposes so that you have a gain recognized at the current and perhaps lower capital gains rate.

A common income (and estate) tax planning technique is the use of a charitable remainder trust or “CRT.” With a CRT you can donate appreciated stock to a CRT. The CRT can sell the stock without realizing gain since CRTs are tax exempt. As you receive your periodic payments from the CRT (e.g., a unitrust payment) the payments to you will flow out income from the CRT to you. In other words, the cash flow distributed by the CRT to you as part of your periodic payments will be characterized based on the income earned by the CRT. So, if your CRT sold appreciated stock and realized a capital gain, that gain would flow out to you over many future years. If the capital gains tax rate is increased in those future years, using a CRT today might effectively defer your realization of capital gains income to later years when the tax rate is higher.

In next blogpost, we will discuss should you sell assets before capital gain tax rates increase.

Possible Income Tax Policy Changes in Biden Administration - Part A

1/18/2021

With the Democrats Control the House, the Senate and the White House, the potential for harsh tax legislation increasing taxation of the wealthy, along the lines of prior Democratic proposals, might be likely to happen. What might those changes be? We will discuss a few possible changes income tax related changes.

Retroactive Income Tax Changes
Retroactive tax changes could affect income tax changes. Income taxes are paid in quarterly through estimates. A retroactive change could adversely affect the amounts taxpayers paid in through withholding taxes and estimated taxes all based on prior law. In contrast, estate taxes are due nine months following death so that a retroactive change might be a tad cleaner.

Example:
You own commercial real estate and are considering a Code Section 1031 so-called “like-kind” exchange. This is where you swap or exchange an investment property for another real estate investment property and do not trigger gain recognized currently for income tax purposes. Under current law you can exchange real estate instead of selling it and avoid any current income tax costs. A repeal of section 1031 may be on the tax agenda. It has been talked about before.

So, if you plan a 1031 like kind exchange you might be careful as Congress might enact a repeal (or restriction) and might make the change retroactive to January 1, 2021. You might wish to discuss with your real estate attorney whether it is feasible to incorporate into the contract documents that the transaction will be automatically void if the law changes before the transaction is consummated.

In next blogpost, we will discuss possible Capital Gain tax changes.

Barron's Recommend Yield Plays for 2021

1/17/2021

Below are Barron's picks in 12 income-producing areas of the stock and bond markets, ranked in order of preference.

OIL PIPELINES

AMLP
SMM
EPD

US DIVIDED STOCKS

VYM
INUTX
NOBL

OVERSEAS DIVIDEND STOCKS

IEFA
IEMG
GSK

ELECTRIC UTILITIES

XLU
D
ED

REITS

VNQ
SPG
VNO

TELECOM STOCKS

VZ
DTEGY
KT

COVERTIBLES

CWB

JUNK BONDS

HYG
ANGL

TAX-EXEMPT MUNICIPAL BONDS

VWITX
EALTX
BTT

TAXABLE MUNICIPAL BONDS

BAB
NBB
MGVAX

PREFERRED STOCKS

PFF
JPC
QRTEP

TREASUIRIES

TLT
TIP
SHV

Which State Offers the Best 529 Plans?

1/16/2021

While each state will offer both kinds of portfolio choices, not all are created equal. State 529 plans can vary greatly when it comes to past performance, fees, and the exact investment fund options offered making some clear winners and other duds to avoid.

This fall, Morningstar analyzed 61 plans, representing 97% of the more than $363 billion invested in 529s, and found that only three were worthy of it’s gold medal designation, because they offered: “a well-researched asset-allocation approach, a robust process for selecting underlying investments, an appropriate set of options to meet investor needs, strong oversight from the state and investment manager, and low fees.” (State tax benefits were not considered.)

The highest ranked plans? Illinois' Bright Start College Savings, Utah's my529, and Michigan's Education Savings Program, which charges 0.10% for its target-enrollment portfolios — the cheapest Morningstar rated.

California's ScholarShare College Savings Plan and Virginia's Invest529 were former gold winners, who this year received silver medal designations, but came in right behind the top three. Nine other states received a silver, including: Pennsylvania 529 Investment Plan, New York’s 529 Program, Oregon College Savings Plan, and Ohio’s CollegeAdvantage 529 Savings Plan. (All gold and silver plans were direct-sold options.)

Only eight plans received the failing grade of negative, but all charged high fees and should be avoided, even by in-state college savers hoping to hook a tax benefit, Morningstar concluded.

Six of the negative-rated plans were advisor-sold and include: Colorado’s Scholar’s Choice College Savings Program, Indiana’s CollegeChoice Advisor 529 Savings Plan, Maine’s NextGen College Investing Plan Select, New Jersey’s Franklin Templeton College Savings Plan, South Dakota’s CollegeAccess 529 Plan, and Wisconsin’s Tomorrow’s Scholar 529 plan. The final two were direct-sold plans: New Jersey’s NJBEST 529 College Savings Plan and Nevada’s USAA College Savings Plan.

Should You Choose In-state or Out-of-state 529 Plans?

1/15/2021

There are more than five dozen 529 plans in the U.S., each offering its own blend of investment portfolios, fees, and performance history. They take two forms: prepaid tuition plans or education savings plans.

Additionally, more than 30 states across the nation offer their own state income tax breaks to 529 savers, though a majority restrict such generosity to residents who opt for their local plan over another state’s.

For most Americans, there is at least some slight tax advantage to going with the plan offered by their state.

In 34 states and Washington, D.C., residents receive either a tax deduction or credit for sticking with their state’s option, though seven among those offer tax parity, meaning residents can claim the break no matter where they park their college savings. States that offer such parity include: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania.
9 states don’t charge any state income tax and, so, do not offer tax breaks for saving. These include: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
And finally, 7 states offer no tax benefits, despite levying state income taxes. These are: California, Delaware, Hawaii, Kentucky, Maine, New Jersey and North Carolina.

If you live in one of the states offering tax parity or no income tax benefits, the choice to go out-of-state comes down to how well your home plan fares on factors like investment options and fees compared to other available plans.

But for those living in states where tax breaks are dependent on staying with the local 529 plan, the decision is trickier as a tax deduction doesn’t always mean an in-state plan wins, because many in-state plans are mediocre. The superior returns of an out-of-state plan may override any tax benefit received for a home state one.

You can use this formula to determine whether the in-state or out-of-state plan is the right move.

How to Use Life Insurance and Become Your Own Banker

1/14/2021

We all make major purchases as we go through life. Cars need replacing, appliances need updating and we may want to purchase recreational equipment or boats, second homes, etc. The question then becomes, what is the best way to pay for these items? If you are not able to pay cash, you will need to finance these types of purchases.

If your answer to these questions is, “I don’t know,” you may need some help.

Rather than using a bank or other financial institution to borrow from, consider using an established life insurance policy. If you had fully funded an IUL or whole life policy ten to twelve years ago and the cash value has performed, you would have sufficient cash value to make loans from the policy to themselves for cars, appliances, or a down payment on a home. Instead of paying non-deductible interest to a bank, you can be paying yourself interest on the loan which then increases cash value in the policy which can then be borrowed out again in the future for another purchase or supplemental retirement income.

Bankers contend that the interest is being paid to the insurance company so there is no benefit. They leave out the fact that although individuals are paying interest to the insurance company all their money, including the loan amount, is still earning interest based upon how the money in the whole life or IUL policy is invested. When you borrow money against a life insurance policy, you are borrowing from the general fund of the life insurance company while using cash value to secure the loan. If the policy earns more in interest than the insurance company is charging, then you come out ahead.

What kind of people does this apply to?

Individuals who want a portion of their portfolio allocated to modest but guaranteed growth
Those who believe income tax rates may increase in the future
People who want to save money for emergencies
Individuals who want to save for specific events such as education funding or weddings etc.
People from high probate states that want assets to bypass probate
Individuals who like the features of a Roth IRA but who cannot qualify to contribute to a Roth IRA
Individuals who seek asset protection

Benefits of Using a life insurance policy:

Principal protection
Competitive growth rate
Access to equity prior to age 59 ½
A tax-free death benefit over and above the loan and accrued interest amount
Tax sheltered growth
Creditor protection in many states
Ability to access Accelerated Benefit Riders in the event of a covered illness or accident

Another reason that this works for the insured is because it is a cheap source of liquidity and is available without completing loan documents or a credit application. If the loan is not all paid back, the insurance company pays itself back out of the death benefit. It does work better if the loan is paid back so the insured can take advantage of cheap financing again and again.

Social Security Benefits Calculator From Social Security Administration Office

1/13/2021

The Social Security Administration has a Retirement Calculator that you can download and enter your detailed personal data, you can play with it by entering different scenarios, such as when you will stop working, and when you will start taking social security benefits, etc, this Retirement Calculator will tells you the expected monthly social security benefits based on your input.

You can download it here.

Online Retirement Calculator

1/12/2021

This easy to use yet comprehensive (and free) online retirement calculator helps answer the following essential retirement planning questions that everyone must ask:

How Much You Need To Save
How Long Your Money Will Last
And How Soon You Can Retire

The Most Important 20 Personal Finance Laws to Live By

1/11/2021

Below is an article from Fortune, it's mostly common sense, but you will be surprised how many people break these laws!

1. Avoid credit card debt like the plague
The first rule of personal finance is to never carry a credit card balance. Credit card borrowing rates are egregiously high and paying those rates is an easy way to negatively compound your net worth. If you carry credit card debt for a prolonged period of time, you’re not ready to invest your money in the markets.

2. Building credit is important
Likely the biggest expense over your lifetime will be interest costs on your mortgage, car loans and student loans. Having a solid credit score can save you tens or even hundreds of thousands of dollars by lowering your borrowing costs.

3. Income is not the same as savings
There is a huge difference between making a lot of money and becoming wealthy because your net worth is more important than how much money you make. Having a high income does not automatically make you rich; having a low income does not automatically make you poor. All that matters is how much of your income you set aside, not how much you spend.

4. Saving is more important than investing
Pay yourself first is such simple advice, but so few people do this. The best investment decision you can make is setting a high savings rate because it gives you a huge margin of safety in life. You have no control over the level of interest rates, stock market performance or the timing of recessions and bear markets but you can control your savings rate.

5. Live below your means, not within your means
Living within or above your means is how you end up going from paycheck to paycheck without every truly building wealth. The only way to get ahead is by living below your means and setting aside a portion of your income for the future.

6. If you want to understand your priorities look at where you spend money each month
You have to understand your spending habits if you ever wish to gain control of your finances. The goal is to spend money on things that are important to you but cut back everywhere else. And if you pay yourself first you don’t have to worry about budgeting, you just spend whatever’s leftover on the things that truly matter to you.

7. Automate everything
The best way to save more, avoid late fees, and make your life easier is to automate as much of your financial life as possible. The goal is to make the big decisions up front so you don’t need to waste so much time and energy tending to your finances.

8. Get the big purchases right
I know I shouldn’t be so judgmental but whenever I see $50-$70k SUVs on the road or enormous McMansions the first thing that pops into my head is, “I wonder how much they have saved for retirement?” Personal finance experts love to debate the minutiae of lattes but the most important purchases in terms of keeping your finances in order will be the big ones—housing and transportation. Overextending yourself on these two purchases can be a killer because they represent fixed costs and come with more ancillary expenses than most people realize.

9. Build up your liquid savings account
Your monthly budget should take into account the fact that there are infrequent, yet predictable expenses you’ll need to take care of on occasion. Weddings, vacations, car repairs and health scares never occur on a set schedule but you can plan on paying for these events by setting aside small amounts of money each month to better prepare yourself when life inevitably gets in the way.

10. Cover your insurable needs
My friend and colleague Jonathan Novy likes to remind me that people buy insurance because there will be a financial impact on their business or family if they were to die or become disabled. The idea is to measure that impact in dollars, and if possible, insure against it.

11. Always get the match
I can’t tell you how many times I’ve talked to people who aren’t saving enough in their 401(k) plan to get the employer match. That’s like turning down a portion of your paycheck each payday. At a minimum you should always save enough to get the match so you’re not leaving free money on the table.

12. Save a little more each year
The trick to saving more money over time is to increase your savings rates every time you get a raise so you’ll never even notice you had more money to begin with. And the sooner you begin setting money aside, the less you end up realizing it never made it to your checking account to be spent in the first place.

13. Choose your friends, neighborhood and spouse wisely
Trying to keep up with spendthrift friends or neighbors is a never-ending game with no true winners. Find people to spend your life with who have similar money views as you and it will save you a lot of unnecessary stress, envy and wasteful spending.

14. Talk about money more often
It takes all of 5 minutes before I hear about politics in almost any conversation these days, but somehow money is still a taboo subject. Talk to your spouse about money. Ask others for help. Don’t allow financial problems to linger and get worse. Money is a topic that impacts almost every aspect of your life in some way. It’s too important to ignore and sweep under the rug.

15. Material purchases won’t make you happier in the long run
Buying stuff won’t make you happier or wealthier because true wealth is all of the stuff you don’t waste money on. Experiences give you a better bang for your buck and time spent with the people you love is one of the best investments you can make.

16. Read a book or 10
There are countless personal finance books out there. This stuff should be taught in every high school and college, but it isn’t. No one is going to care more about your money decisions than you. Invest some money, time, and energy into yourself. It’s the best investment you can make.

17. Know where you stand
Everyone should have a back-of-the-envelope idea of their true net worth. That means adding up all of your assets and subtracting any debts. This way you can set some general expectations about savings rates, market returns and portfolio growth to give yourself some goalposts in the future.

18. Taxes matter
Take advantage of as many tax breaks as you can and always understand your personal tax situation. The biggest lay-ups in this category include taking advantage of as many tax-deferred savings vehicles as humanly possible and keeping your trading to a minimum when investing in taxable accounts to avoid paying higher short term capital gains taxes.

19. Make more money
Saving and/or cutting back is a great way to get ahead, but it’s an incomplete strategy if you’re not trying to earn more by enhancing your career. Too many people are stuck in the mindset that there’s nothing they can do to get a better job, take on more responsibilities or earn higher pay. That’s nonsense. You must learn how to sell yourself, improve your skills and negotiate a higher income over time.

20. Don’t think about retirement, but financial independence
The goal shouldn’t be about making it to a certain age so you can ride off into the sunset, but rather getting to the point where you don’t have to worry about money anymore. Retirement is a concept that is still evolving and no one knows how they’ll feel once they reach that age. Becoming financially independent allows you to make decisions about how you spend your time on your own terms.

Why Buying a Car is Financially Better Than Leasing a Car

1/10/2021

First, there are caveats for leasing a car:

1) Leases have mileage limits where you’re penalized if you drive over that set amount; these penalties can range from five to 20 cents a mile. It’s important to determine ahead of time how you’ll use the car (for short- or long-distance driving) and what those mileage limits are. A cap of 40,000 miles will allow you more wiggle room than 30,000, but you’ll pay extra up front.

2) A lease allows for normal wear to the car, but if the dealership considers the vehicle to have wear and tear above normal at the end of the lease, they can charge you extra. You can get a better idea of what “normal wear” means by quizzing the car dealership and studying the lease terms.

Now, let's do a comparison between leasing a car versus buying a car, using a 2014 Honda Accord Sedan as an example:

Leasing a Car
After $1,999 down, the lease payments are just $199 a month for a 36-month, 36,000 mile lease. The total cost for three years comes to $9,163. Let’s assume you found a similar lease again for another three years. Your total cost comes to $18,326, or $3,054 a year for six years.

Buying a Car
The same vehicle had a target price of $20,840. If you put the same $1,999 down and financed the car for 48 months at 2.5%, your monthly payment would come to $412.88. At the end of the four-year loan, the total cost to purchase the car (including interest) comes to $21,817. Over six years, your annual cost would come to $3,636 a year.

So far it seems like leasing is way cheaper … by almost $600 a year!

But wait!

After the loan is paid off, you own your car. You have an asset. According to Kelly Blue Book, a 2008 Honda Accord LX in mid-grade condition fetches about $10,000 on the private market. So whether you sell the car or apply the trade-in value toward your next purchase, your actual cost of ownership is reduced to $11,817 or $1,969 a year. That’s a savings of $1,085 a year and $6,508 over six years.

The Bottom Line
Although one of the drawbacks to buying a car is the need for more regular maintenance as it gets older, the savings over leasing should provide plenty of cash leftover.

There are some exceptions for business owners or others who can deduct certain vehicle costs. For everyone else, leasing a car should be considered a luxury.

SEC Is Reining Leveraged ETFs

1/9/2021

Based on Barron's report, the SEC's new rule "18f-4" establishes clear derivatives-exposure parameters for leveraged ETFs - it allows the creation of new funds that have 2X of their underlying benchmark's exposure via derivatives, but forbids any new funds with 3X exposure. It grandfathers in existing 3X funds so they can continue to operate.

Some examples of 3X ETFs are TQQQ (triples the daily performance of the tech-stock laden Nasdaq 100 index), SOXS (triples the inverse of the daily return of the PHLX Semiconductor index).

It should be noted the SEC rule does not apply for ETNs (for example, GDXU - MicroSectors Gold Miners 3x Leveraged), but this gap is expected to be closed soon.

Online 401(k) Savings with Company Match Calculator

1/8/2021

A 401(k) can be one of your best tools for creating a secure retirement. It provides you with two important advantages. First, all contributions and earnings to your 401(k) are tax-deferred. You only pay taxes on contributions and earnings when the money is withdrawn. Second, some employers provide matching contributions to your 401(k) account which can range from 0% to 100% of your contributions. The combined result is a retirement savings plan you can not afford to pass up.

Use this online calculator to see how much your 401(k) balance will be at the beginning of your retirement time.

Estate Planning Checklist

1/7/2021