Retirement Compatibility

Recently, I came across two competing headlines: “Dow Dropped Because the Wheels are Coming Off” and “The Dow is Up Because there are Flashes of Optimism.” On any given day, financial markets swing—one-day values are up and the next they are down. Trying to figure out how to build your wealth by focusing on market ups and downs can be overwhelming. I choose to champion an altogether different approach—behavioral finance. I believe the key to long-lasting financial independence lies in individual behavior inasmuch as it does the markets or various investment tools. Knowing that success lies within you – your choices, your responses to the market, and your long-term habits over time – rather than in the whims of the market, keeps you on the road to financial freedom.

Dangers to your wealth aren’t so much the downturns in the market as they are your own biases and emotions. Behavioral finance requires discipline and rational thought processes which can present challenges for many investors. We may feel obligated to put our kids through colleges we really can’t afford. Keeping up with the Joneses can deplete our savings or prompt us to invest in things that aren’t aligned with our long-term financial plan. And, in times of stress or change, we may be tempted to react by pulling our money out of the market or by doubling down on an investment. Such actions might play out well in our heads but disastrously so in real life. Ultimately, behavioral finance shows us that individuals carry much of the responsibility for their own financial success.

When you assume this responsibility, it becomes clear that you also gain control of your financial future. You have the ability to build wealth and establish a sense of security without worrying about the market. After all, it is the plan and the decisions you make (or don’t make) that have the greatest impact on your journey to financial independence. So, you may wonder, how do I embrace this concept of behavioral finance? First, you have to do some analysis – predominantly on yourself. What kind of spender/saver are you? Is your money going towards your goals and values? Are there steps you should take to limit habits that lead to unhelpful emotional responses? Besides self-reflection, you will need to create a financial plan. Whenever you are tempted to pursue a course of action, pause, and make sure it is in line with your plan’s goals. If it’s not, you must weigh the risks against the rewards. For those situations that require deeper insight, another great tool is a trusted financial advisor. Their expertise and guidance will be an invaluable resource as you strive to build wealth and turn your dreams into reality.

You have a multitude of tools at your disposal once you realize that financial independence is yours to create. It will take work, discipline, and time, but with that comes agency and autonomy. Start planning now so you can start making the decisions and exhibiting the behaviors that will set you up for a prosperous future.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Like many in my generation, I prefer to subconsciously minimize the odds that I’ll become ill and ignore the reality that I’ll eventually pass. Unfortunately, the harsh reality is that illness and death are inevitable. Enter another subject we tend to ignore: Life Insurance. For many Americans – particularly young and/or single adults, life insurance is nothing more than a plot point in a Hollywood movie or true crime drama: the money collected by remaining relatives after someone has passed. However, life insurance, like health insurance, is just something you need to have. It can provide financial security for your loved ones, cover end of life expenses, and can even provide tax free income.

There are two different types of life insurance: temporary and permanent. The most common form of temporary insurance is Term insurance. Term typically lasts for a specified “term” of years, hence its name. Permanent – on the other hand – stays with you for your entire life, provided you continue to pay the premium, or have developed an account value large enough you no longer have to pay in. There are a wide variety of insurance policies available under the permanent life insurance umbrella, such as: whole life, universal life, variable universal life, and indexed universal life.

To put in another way, Term insurance can be thought of as renting insurance. You pay a monthly premium for the coverage but once the specified term of time is up that coverage goes away. The term can vary from 5 years up to 30 years. With some companies you can continue the policy, but you will have to pay premiums that are a multiple of what you had been paying during the “term” of the contract. It is used to provide protection for liabilities that will disappear after a certain time period ex: raising children, your mortgage, or income replacement. In your 20s-50s you have more people depending on you; therefore, if something were to happen to you (e.g. illness, death) you need an insurance policy that will take care of the people you support. If you pass away, you need enough coverage to pay off any existing debt, provide income replacement, and cover any other miscellaneous expenses associated with supporting your family. This coverage makes a difficult time a little bit easier by reducing the financial burden and allowing loved ones time to grieve without worrying about impending bills. Term insurance is perfect for this type of coverage as it has the lowest premiums and can be structured to disappear once certain liabilities disappear (e.g. mortgage is paid off, kids are out of the house, and your income is no longer critical to the security of your family).

Permanent Insurance, on the other hand, can be framed as owning the insurance coverage. As with term insurance, you pay a monthly premium; however, the coverage stays with you for the rest of your life, not just a specified term of time. Once your family is out of the house and your liabilities are decreased you still want to maintain some level of insurance coverage to cover end of life expenses and provide for loved ones. Permanent insurance is a great choice to cover these remaining liabilities. The premiums for permanent insurance are higher than those for term insurance because, unlike term – where the insurance company may not ever have to pay out the policy- permanent insurance means a guaranteed payout – assuming you’ve paid the premium. At some point the insurance company will have to pay. Additionally, part of these monthly premiums are placed into a cash value account which, depending on the type of policy, earns a fixed or variable rate of return and can provide tax free income. This income can be used to fund an early retirement as it can be accessed prior to age 59 ½ – the age required to legally withdraw from retirement plans without incurring penalties.

But what if you want to access the death benefit in an insurance policy without having to die – sound too good to be true? In fact, some insurance policies allow you to access death benefits before actual death! These policies feature Accelerated Benefit Riders (ABRs) which allow you to accelerate (or, in other words, use) the death benefit while still alive to cover certain terminal, chronic, or critical illnesses. Unlike health insurance, which only reimburses medical expenses, ABRs provide tax free money for you to use as you wish, assuming you have an ABR event. You can use this money for experimental treatments that health insurance will not cover or use it to travel the world. There are no restrictions on how the money is spent.

Now you know about life insurance and the many different options and benefits available to you – consider working with a financial planner to discuss the right life insurance policy for your needs.

If you have questions about insurance or any other aspect of your financial life please do not hesitate to reach out to me at zach.swaffer@trilogyfs.com

This article 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. For information about specific insurance needs or situations, contact your insurance agent. 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.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.