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

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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
Rebecca DeSoto, CDFA®
March 12, 2018

Each of our lives is comprised of elements that create a story. Our financial lives are no different – the elements include our bank accounts, retirement accounts, mortgages, car loans, student loans, investment accounts, stock options at work, life insurance policies, credit cards, etc. When most people think of their financial life, they think of these elements but have trouble contextualizing them in their overall financial story. All of these elements are simply tools that either help or deter us from our goals. Before analyzing the tools, it’s important to understand why you’re using them and the goals and priorities that create the story which requires them.

One way people analyze these tools is by researching investment returns. Before delving into the world of returns, think about why you are investing in the first place. Your investments should reflect your overall financial priorities. If the risk tolerance in your investment appropriately reflects the time-frame you plan on needing the money, then worrying about investment returns day-to-day can be more of a headache than it’s worth. For example, if you are 35 years old saving for retirement at 60 – you should be aggressively invested if you’re comfortable with that. Because you have 25 years before you plan on using the money, short-term fluctuations in the market shouldn’t really concern you. In fact, if the market does go down and you are still contributing to your retirement, you are technically “buying on sale” – getting more shares for the same dollar value. Contributing to your retirement in up-and-down markets is called “dollar-cost-averaging” – meaning you average out the cost/share of an investment by contributing consistently rather than trying to time the market and invest when you are “buying low”.

There are many benchmarks in the financial industry to compare your investments to and track performance. Some examples include the S&P500 and the Dow Jones Industrial Average for large-cap stocks, the Barclays US Aggregate Bond Index for bonds, and the MSCI Index for international investments. It’s important to understand how your investments are doing in relation to the overall market – it keeps you abreast of what you are investing in and prompts questions you may not ask otherwise – such as what fees you are paying, who’s helping you decide what to invest in, and how much risk you’re taking on compared to the benchmarks you’re using as a comparison. However, the benchmark you should habitually pay more attention to than any other is your particular goal with each investment and your overall goals in terms of building wealth.

Focusing on investment returns only paints half of the picture when tracking progress because it is completely out of your control. If you can confidently say your investments are well diversified and invested according to a risk-tolerance you are comfortable with, there is a much more important benchmark to track than returns. Instead of relying on your investment vehicles to do all the heavy-lifting, you should use your investment behavior as the ultimate indicator to determine if you’re making progress or need more work. What are the financial goals you have in mind? To retire by 55? To save for a second down payment on a house? To pay off your mortgage? Help your children pay for their college tuition? Protect your investments and family in case of a long-term illness? Reduce credit cards and student loans? Build emergency savings?

When you are focused on goal-based financial planning, there are a lot of benchmarks to concern yourself with other than the hype involved in investment performance. Are you saving more this year than you were last year? Did you increase your savings rate when you received a raise? Does the money you are spending appropriately reflect the values and priorities that are most important to you? Are you using extra income to increase investments and decrease liabilities? By focusing on why you’re investing in the first place and the priorities that matter to you, it’s easier to ask the right questions and monitor progress. Once you know what you’re shooting for, a Decision Coach can help you understand the appropriate tools to get there.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

Each index is an unmanaged index which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.

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