BACK TO SCHOOL
It’s back to school time. Summer is over, school zone driving begins, and the smell of fall is in the air. There is a certain excitement for the first day of school. It’s a time to adjust schedules, set goals and resolutions, and purchase school supplies and clothing.
Education doesn’t end just because you or your children are no longer in school. Education is a lifelong journey. John Dewey once said “Education is not preparation for life; education is life itself.”
EVERYDAY THERE IS SOMETHING NEW TO LEARN
1. What progress are you making toward socking away money for retirement? According to James Kalamarides, CEO of Prudential Bank and Trust, there are five behaviors that prevent us from saving and investing.
- Procrastination—Starting too late to save money
- Optimism—Markets bobble. Many savers only look at the market going upwards.
- Conformity—Buy high and sell low
- Short-term gratification
- Underestimating longevity—People are simply living longer.
2. Be careful about taking advice from someone who claims they have all the answers. A well known consultant who mentors other consultants on how to run their practices recently wrote, “An insurance professional will always tout the benefits of investing in large insurance policies, although it’s almost always the worst investment you can make, short of swamp land.” Nothing could be further from the truth. The best permanent life policies are the ones with the highest premiums because they provide the most benefits. A well-designed plan gives you permission to spend all of your other assets in retirement, including both principal and interest, without the fear of running out of cash. The death benefit replenishes the fund, or the cash value can be used for living expenses.
3. Is protecting your assets an important consideration for you? If so, you may want to consider obtaining an umbrella policy. Umbrella insurance refers to liability insurance that is in excess of specified other policies. It is also potentially primary insurance for losses not covered by other policies such as: False arrest, libel, slander, and invasion of property. Umbrella policies are relatively inexpensive considering the protection they provide. A good rule of thumb is to have an umbrella that is equivalent to the assets you want to protect. As an example, if you want to protect $2 million dollars you should consider purchasing a $2 million umbrella policy.
4. Social Security is 80 years old. The trust fund as of December 31, 2014 is $2.783 trillion. The fund is still solvent and is expect to be through 2033. Special note – Be cautious on the decision to take Social Security early because you believe Social Security will not have the ability to pay claims. If the government decided to stop make Social Security payments to its recipients it could create anarchy in our country.
5. Don’t overlook some of the unique benefits of life insurance and fixed annuities:
- The guaranteed future value of the asset is known in advance.
- The internal rate of return can easily be calculated.
- The ultimate value is usually not negatively impacted by falling interest rates and negative returns in the stock market.
- Cash is usually accessible within a couple of business days with a phone call or one-page request to the insurance company.
- Growth of the asset’s value is income tax advantaged.
- In many states the asset value is protected from creditors.
- The assets may be passed on tax free, without probate delays and expenses.
6. Are you thinking about making a large capital purchase? You have three choices when making the purchase.
- You can pay cash
- You can finance the purchase; or
- Do a combination of both.
If you finance, you will pay interest. If you pay cash, you will lose the ability to earn interest, give up control of the money, and possibly lose the ability to seize an opportunity. The issue is what is most efficient? Whatever the decision, the initial cost of the purchase is the same.
7. Is there any possibility taxes will decrease in the next several years? According to the Congressional Budget Office, all tax revenues will go toward health care, social security and net interest by 2031. This may be a good time to start looking at placing your money in tax favored accounts.
8. Are you familiar with the assets that are protected from creditors in your state? States differ as to the assets and the maximum amount that is protected. Whatever you own that is not adequately protected is potentially not yours. It is important to look at avoiding threats to your money. To get a better idea of the financial instruments that are protected from creditors in your state go to Asset Protection Book and look for “state exemptions.”
9. I wonder if Uncle Sam has been to the grocery store lately. It was recently announced that there will not be any cost of living increases for Social Security recipients for next year. I suggest the gray bearded fellow should take a stroll to the meat counter and ask the butcher what rib eye steaks cost last year vs. today. My personal inflation rate is much higher than zero percent!
10. Money is both a scarcity and a resource. How we handle it determines how much we control it. In many ways, the quality of our lives is determined by our access to money. It is important we understand how it works so we can create income from it, and retain liquidity, use, and control of it.
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