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2 Financial Burdens for Self-employed People

7/7/2015

Q. I plan to quit my job and start my own business. What are the major financial issues I need to prepare for?

A. Working for yourself is many people's dream, but few people realize how expensive it could be. We will discuss 2 financial issues every newly self-employed person should be prepared for:

1. Taxes
Assume you are single, claim the standard deduction, and you made $100,000 in your first year, that's great! But for that $100,000 income, you have to send $30,582 to IRS for Federal income taxes, social security and medicare payroll taxes!

If you made $100,000 while working for someone else, you only have to pay $25,869 in those taxes, that's because your employer pays part of the payroll tax so your portion would be just $7,650 rather than $14,130 in the $30,582.

2. Insurance
This goes without saying, if you buy health insurance on your own, it could be very expensive - $3,400 a year for an individual policy or $8,500 for a family coverage policy.

For disability insurance, it could be more expensive, if you could get one at all - it's better to get one before you quit your job.

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6 Reasons People Like Whole Life Insurance - Part B

7/6/2015

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In our last blog post, we have shared 3 reasons why people choose whole life products, now another set of reasons:

4. Business planning needs
In business planning situations, business owners traditionally used term insurance to fund buy-sell agreements. Increasingly, however, business owners have discovered that the likelihood of dying while in the business is remote.

It is more likely that the business owner will become sick, injured or leave the business due to retirement or some other life event. As a result, the cash value buildup in a whole life policy is an attractive vehicle to create a sinking fund that will act as a down payment on an installment sale or to supplement a lifetime buyout, while the death benefit ensures funding in the unlikely event of death.

If death does not occur, then the policy can be re-purposed for personal planning use of the departing owner. A well-drafted business continuation plan can address this situation.

5. A favorable cost structure
Overall, costs of a whole life policy are too often misunderstood. Whole life's premium may look high, however, over a lifetime, whole life insurance generally provides both the highest IRR of premium to death benefit (measured at life expectancy) and also the best cost structure as measured by net present value of premiums relative to cash values.

6. A "forced" savings vehicle for many purposes
As increases in college tuition continue to outpace inflation, and as more individuals and families are realizing they won’t be saving enough in traditional retirement accounts to meet retirement expenses, whole life insurance and its cash value buildup are excellent supplemental sources to accumulate wealth while also protecting the family. The premium payments are often seen as a “forced” savings vehicle.

In summary, whole life provides many reasons to justify its popularity.

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6 Reasons People Like Whole Life Insurance - Part A

7/5/2015

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Q. There are many life insurance products, why should I consider whole life?

A. Whole life insurance has seen a resurgence in popularity because unlike term insurance, it is a permanent life insurance product. And unlike variations of universal life products, it is not subject to interest rate and market fluctuations. Below are 6 specific reasons people like whole life products:

1. Higher return with lower risk
Given current low interests, whole life insurance’s cash value growth is viewed as a higher-yielding financial product with similar risk profiles. Yes, it is still life insurance, but the cash value element is often thought of as a bond or CD alternative.

Insurance carriers guarantee an interest rate in cash values. Mutual companies also often provide an annual dividend (not guaranteed, though). The dividend further increases cash values, all of which grows tax-deferred and can potentially be accessed income tax-free through withdrawals to basis and loans thereafter.

2. Build a healthy investment portfolio
Whole life insurance is a non-correlated asset class in a healthy, diversified investment portfolio. For entrepreneurs and more aggressive investors, whole life insurance serves as a counter-balancing force against concentrated positions and aggressive investments.

3. Permanent protection
The average mortality rate has increased dramatically in recent times due to advances in medical technology, greater access to healthcare, and greater awareness of wellness. As a result, families often realize that there is no standard or finite period to maintain life insurance.

Other products and designs may not be able to guarantee death benefit coverage through advanced ages without:

increasing premiums on existing coverage;
adding to underwriting to get new coverage; and
reducing coverage on existing policies to maintain the policy and/or premium.

The above shortcomings have led to a renewed awareness of whole life insurance. By design, the death benefit is guaranteed if the premium is paid, thus ensuring the policy will be there when protection is needed. Premiums have been amortized over the expected life of the product so as not to place sticker shock on those who are no longer actively employed but still want and need coverage.

We will discuss the next 3 reasons why people like whole life insurance in next blog post.

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Where Is Oil Price Heading? This Chart Gives a Cold Clue

7/4/2015

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Q. As the number of oil drilling rigs decline, could oil price head back to $100?

A. No one can tell it for sure, but if you look at the chart below, it could give us a clue -

Do you see the similar trends happening between oil and gas drilling rigs?

It looks like the natural gas industry experienced something similar (actually worse) to what oil industry is experiencing today, except that happened a few years earlier - price falling, rigs shut, yet production kept going up because drillers became smarter and efficiency caught up.

If the pattern repeats itself in oil industry, the drilling rigs could continue to fall, but productivity could continue to rise, which drives oil production keep going up, and pressures oil price. All these make $100 a barrel harder to come by. History will tell how the above chart will trend ...

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Where to Appraise My Collection of Antioques?

7/3/2015

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Q. I inherited some antiques, where can I get them appraised?

A. You can find professional appraisers from one of three main trade associations -

Be expected to pay $150 per hour or a flat fee for the work, in return you will have a detailed report with full descriptions of your items, the evaluation procedure, and the values.

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What Is Supplemental Executive Retirement Plan?

7/2/2015

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Q. What is Supplemental Executive Retirement Plan (SERP)?

A. A SERP is an arrangement where an employer adopts a plan to provide retirement benefits to an executive, or a select group of executives, and opts to purchases cash value life insurance on the executive's life to assist the employer in meeting future plan obligations.

Why SERP?
A SERP is a non-qualified plan, the executive receives custom tailored benefits while the owner of the business can recover the cost of its participation in the program (tax deductible).

The company controls the cash value during the lifetime of the executive. The cash value can help pay premium in down years, can be used in the event of an emergency, and can be used to pay benefits to executives.

The most popular cash value life used is whole life, especially with 10-pay schedule which means the policy is paid up in 10 years and there is no more obligations, and the policy could achieve maximum cash value quickly.

If you own a small or medium business and want to know how SERP could work for you, please contact us for more details.

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Are Gold Coins Good Investments?

7/1/2015

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Q. Are gold coins good investments to have?

A. If you are thinking about long term investment, gold coins, or even gold ETFs are probably not the best investments.

Why gold coins are not good investments? For several reasons:

Not cheap - a gold coin' value is not just tied to the metal itself, there is historical value attached to it too, consequently dealers tend to charge a premium to it.
Poor liquidity - if you have many gold coins, you need a safe place for them, which means storage fees. Also liquidating gold coins could take time.
No interest or dividend - gold coins won't pay you dividends or interests.

Compared with gold coins, gold ETFs such as SPDR Gold Shares GLD are probably a better investment vehicle if you really like gold, as gold ETFs offer liquidity and enable you participate gold's ups and downs.

If you want to avoid the volatility associated with a single commodity, you can invest in a diversified natural resources ETF such as iShares North American Natureal Resources - IGE which outperformed GLD in the past 5 years.

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Forward>>

2 Financial Burdens for Self-employed People

6 Reasons People Like Whole Life Insurance - Part B

6 Reasons People Like Whole Life Insurance - Part A

Where Is Oil Price Heading? This Chart Gives a Cold Clue

Where to Appraise My Collection of Antioques?

What Is Supplemental Executive Retirement Plan?

Are Gold Coins Good Investments?

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