Can Software Really Tell You How to Make Life Insurance Decisions?

By
Rebecca DeSoto, CDFA®
May 23, 2018
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Technology provides ample flexibility when it comes to making purchasing decisions these days. You are no longer required to go somewhere, talk to anyone, or spend a great deal of time comparing options. The internet is a convenient place that is accessible wherever you are, doesn’t require you to talk through your purchase with a sales representative, and allows you to spend as much or as little time researching your decision as you’d like. This can make life more efficient and simpler, but when it comes to important decisions like purchasing life insurance, you run the risk of simplifying the decision too much, not fully understanding what you’re purchasing, and purchasing a policy that may not provide the most flexibility and options later in life when you need it most.

There is no shortage of information available about life insurance on the internet. A lot of it has negative connotations. From policies that historically haven’t provided what was promised, to salespeople coaxing consumers into products, and one size fits all advice. Most people come in with the base knowledge that they need term insurance if they have a spouse and children they want to protect financially if they pass away. Combine these two factors and people generally use the internet to find an inexpensive policy. However, when making a decision about life insurance there are a few important factors to consider besides simply the cost and the amount of insurance, namely living benefits or accelerated benefit riders, and whether the policy has a cash-value component.

While all policies are required to have a terminal illness rider, meaning the insured has the option of utilizing the death benefit prior to passing away if diagnosed with a terminal illness, not all policies come with a chronic or critical rider. A chronic illness rider can accelerate your death benefit if the insured is diagnosed with an illness and unable to perform two of the six daily activities of living (bathing, continence, dressing, eating, toileting, and transferring). Considering how expensive long-term care insurance can be these days, having a chronic illness rider on a life insurance policy can provide some level of affordable protection (depending on your age when you get the policy). The critical rider can apply to injuries or illness and can include things like heart attack, stroke, paralysis, severe brain trauma, and diagnosis of invasive cancer. Having these riders in addition to one that protects against terminal illness adds a much more encompassing level of protection to the insured that can provide flexibility and options in an unplanned emergency.

Life insurance can also have a cash-value component or investment vehicle in addition to providing protection. Cash-value in a permanent life insurance vehicle is one of the only ways to build non-taxable income in retirement besides a Roth IRA. Other than the tax benefits, it can also enhance your plan with diversification and stability. It generally has some level of protection, called a “floor” that assets invested in the stock market wouldn’t have, meaning there is protection against the downside while allowing the investor to take advantage of positive markets.

Whether or not you choose a policy that has all of these components, it is important to consider which benefits are meaningful to you and are worth paying for. It can be hard to determine the pros and cons without talking to a licensed professional that has your best interest in mind and it can be difficult to really understand what you’re purchasing just by browsing the internet for the least expensive policy. Just like any insurance, the ideal situation is not needing it. But if you do, you’ll be happy you did your research and understand the vehicle you chose.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. This article is intended to assist in educating you about insurance generally and not to provide personal service. Guarantees are based on the claims-paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges, and restrictions, and the policyholder should review their contract carefully before purchasing.

If you decide to downsize after retirement and have lived in your home for at least two years out of the last five from the date of sale, you can exclude up to $250,000 in capital gains from the proceeds and almost double that if you are married.

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By Trilogy Financial
June 26, 2018

Created during the Great Depression as a retirement safety net, Social Security now covers an estimated 96% of Americans. These days, a record high of around 167 million people are working and paying into the system that provides benefits for over 63 million people. In fact, the majority of retirees get more than half of their income from Social Security. Security can be complicated to navigate at times, but since it’s so vital to your retirement income plan, it’s important to make wise decisions and create strategies first.

Delay Benefits

Social Security benefits are calculated using complex actuarial equations based on life expectancy and estimated rates of return. Deciding the best time for you to claim your benefits depends upon how you compare to the averages. As of today, a man turning 65 is expected to live until age 84.3 and a woman of 65 until age 86.6.

If based on your health and your family history of longevity, you believe you will live much longer than that, your overall lifetime benefit will be greater if you delay claiming your benefits to increase your benefit amount. If the opposite is true and you see little chance of making it into your mid 80’s, you would receive a greater lifetime benefit by taking it sooner, even though it is a smaller monthly payment.

Several helpful calculators are available on the Social Security Administration website. With the Retirement Estimator at www.socialsecurity.gov/estimator, most people can receive an estimate of their benefit based on their actual earnings record and manipulate the numbers to reflect different strategies. They also have Social Security Benefits Calculators that can be used to calculate future retirement benefits.

Research Investment Opportunities?

While it will differ for everyone, research from Fidelity shows that most people need to replace between 55% and 80% of their pre-retirement, pre-tax income after they stop If you are in a position where you will not be reliant on Social Security to cover your basic needs in retirement, you may be better off claiming early and investing your benefit amount in an effort to earn better rates of return. In this way, although you’d start with a smaller monthly payment, you may end up with more money than if you had waited to receive the Social Security Administration’s increased payment due to the growth from your investments.

Which Coordinate with Your Spouse

If you are married, you have the choice to receive your own benefit or a spousal benefit of50% of your spouse’s benefit. By coordinating properly, married couples can increase their total monthly benefits.

The Society of Actuaries recommends that the lower-earning spouse begins collecting benefits early while the higher-earning spouse waits as long as possible. That way, you can make use of the lower benefit while maximizing the higher benefit. In most situations, it is the husband with the greater benefit and the wife with the lower one. Women also tend to live longer than men. By following this strategy, you not only maximize the husband’s retirement benefit for use while he is alive, but it also maximizes the wife’s survivor benefit when he passes away.

Consider the Effect of Additional Income on YourBenefitsSubmit

Once you reach full retirement age (FRA), having earned income will have no effect on yourSocial Security benefit payments. However, if you begin receiving benefit payments before FRA, your earnings will decrease your payments.

Income Earned the Year You Reach FRA

The income restrictions change in the year in which you reach FRA. That year there is a higher limit; $45,360 for 2018. Once your income exceeds that limit, your Social Security benefit will be reduced by $1 for every $3 you earn. For example, if between January 1 and your birthday you earn $48,360, you have earned $3,000 more than the limit. That $3,000 excess will reduce your Social Security payments by $1,000. As soon as you have your birthday and reach FRA, though, there are no more limits. You can earn as much as you want and it has no effect on your Social Security retirement benefits.

Continuing to work into retirement may be beneficial even if your current benefits are reduced. If your income is within the top 35 years of your earnings, you will increase your aim, which is the average used to calculate your benefit. By continuing to pay into SocialSecurity as a worker, you can increase your retirement benefit even after you have begun collecting it.

Work with an Experienced Professional

A 2015 Voya Retire Ready Study found that those who consult a financial professional are more than twice as likely to have calculated how much income they need to live a rich life in retirement. Working with an experienced professional can help you navigate your SocialSecurity options and optimize your total lifetime benefit. If you have any questions or would like to see how Social Security will impact your retirement plan, I am here to help. Take the first step by reaching out to me for a complimentary consultation by calling (949) 221-8105 x 2128 or emailing michael.loo@trilogyfs.com.

By
Jeff Motske, CFP®
March 22, 2018

Due to the nature of my profession, I am solicited for financial advice in all aspects of my life from all types of people. Similar to a doctor who gets asked about symptoms at birthday parties, people often ask for my opinion or input on financial matters, particularly investing. As most doctors will tell you, it’s hard to give advice when you don’t know the particulars.

However, if someone is really eager or serious for guidance on investing, I will suggest that they do their homework. The information they’re looking for isn’t found on the stock exchange or the Finance section of a newspaper.  Most times, the information you need to start with is found a lot closer than you would expect.

The first thing to take into account are your financial goals. As I’ve mentioned before, being aware of your financial “why” can highlight good habits, change inefficient patterns, refocus priorities and ultimately develop a plan to help you achieve your financial freedom. Therefore, you need to be specific. Do you want to retire in 30 years? Perhaps you want to buy a house in five years or start a business in two. In these scenarios, your goals act as targets, and with the help of a good financial planner, you can develop an action plan with measurable steps to incrementally achieve them.

Another thing to be aware of is your risk tolerance. This isn’t a measure of whether you like to bungee cord jump or skydive. Rather, this is an indication of how much volatility in your investments you are comfortable with. This is something that needs to be determined for the individual as well as the household. Risk tolerance is a very personal indicator, and there are times that couples don’t see eye to eye. When new clients come in, we have them complete a risk tolerance questionnaire to not only to see how individuals may or may not be working together but to also figure out the most effective plan to achieve their goals. The last thing we want you to do is tackle investments that won’t achieve your goals in a timely.

As you can tell, these items are all very personal. What you’re saving for, how long and hard you’re willing to work towards your goals, and what your income and lifestyle needs are, both current and future, will all be factors in planning how to invest. I bring this up because so many clients come in referring to the advice their friends, neighbors or coworker gave them. As I’ve mentioned before, I’m all for educating one’s self. Let’s discuss your options. But please don’t think that investing in what your child’s Little League coach is investing in is automatically the best option for you.

Let me put it another way. I’ve been athletic all of my life, playing high school and college baseball and an avid golfer. Knowing that, I’m not going to start a new exercise regime with a leisurely walk around the block or bench pressing 400 pounds. It’s not that I don’t believe these fitness goals are valid – they’re just not valid for me. The same idea can be applied to your finances. If any of the factors I’ve mentioned are not aligned, you may discover that the grass isn’t always greener on the other side, and that you need to be wary of the barb wire in between.

I know it sounds odd, that investing should be more complicated. But the truth is knowing your financial self is much important than knowing the stock market when you first start investing.

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