‘Universal Life Insurance, a 1980s Sensation, Has Backfired’
“A long decline in interest rates caused premiums to soar when they were supposed to stay level.” – Wall Street Journal
As soon as I read this headline in the Wall Street Journal I was surprised by how misleading it was, and decided to write a response. A little bit about me, I started my career in financial services with MetLife in 2004 at the age of 24. I spent 13 years with them until they sold their whole financial division in July of 2017. MetLife was a giant in the life insurance industry and a main player in providing the Universal life insurance product, specifically the type mentioned in the attached article. Many evenings I would make phone calls, receive calls from policy holders, or meet with policy owners to give them the bad news: Your policy is “blowing up”. This was a term we used when someone had a policy where there was no more cash and the premium was skyrocketing. Many, as you can imagine, were not thrilled to see or hear from me in this instance. We will discuss later how I was able to help most people continue their coverage, but first I’d like to discuss some basics of the policy itself.
Long-term illnesses are very challenging emotionally, physically, and especially financially. I should know, as I have lived through 3 grandparents, 2 in-laws, and one mother who all needed or still need care. It is difficult to watch those you love lose the ability to do for themselves, and to experience the toll it takes on family and friends who are thrust into the role of caregiver.
Some of these situations seem to come out of nowhere after a stroke, a fall, or a surgery gone awry, while others are slow and progressive, like Parkinson’s, Alzheimer’s, or cancer. Regardless, if you are thrust into the situation over night or if it happens gradually, it will affect your spouses and children in many different ways: Families will differ on the course of care that should be given: whether or not to keep a person at home or move them to a facility, who is available to provide the care or should they hire a professional to provide the needed assistance? If a spouse is still able and willing to provide care, what toll might that take on them both physically and emotionally? Is there someone at home who can help administer needed medications? So many questions and details to manage!
Many people feel that the most cost effective way to fund college for their kids is by contributing to a 529 plan. The benefits are:
All earnings grow tax free and are distributed tax free if used for qualified education expenses
30 states offer full or partial deduction – Not MA
Owner can change beneficiaries and maintain control past college
Funding can vary as needs dictate
No age or income limits or annual contribution limits (up to $500,000 per beneficiary)
However, there are some definite drawbacks to college funding via 529 savings plans:
Lack of liquidity while you save – cashing it in results in a 10% penalty + income taxes
Single purpose vehicle for life
Market risk – Expected duration of 22-26 years (18 years of accumulation and 4-8 years utilization). Could see many down years with likelihood of 4 of those down years being greater than 10% – where you could lose money
In addition to the drawbacks mentioned above, there are other factors to keep in mind. Off Campus room and board may not be fully covered by a 529 plan. Not all tuition is considered qualified tuition and things like insurance, sporting events, parking, transportation and some administrative expenses are not covered. Payments must occur in the same calendar year as withdrawals. You must track expenses covered by 529 plans as you will get a 1099-Q and a 1098-T for each 529 that you will need to reconcile annually and file with your taxes. Finally, during the withdrawal phase, you can’t move your money into cash so you expose the account to market corrections during the 4+ years in which you are paying tuition.
Most people make a concerted effort to plan and save for retirement, but many fail to account for the projected toll that health care costs will take on their mandatory expenses throughout their retirement. There is a common misconception that savings will be enough to cover living expenses while Medicare can cover health care related costs, but reality doesn’t always match the numbers, and Medicare only covers approximately 60%.
Earlier this year, the Fidelity Retirement Health Care Cost Estimate found that an average retired couple, age 65 in 2018, would need around $280,000 saved (after taxes) just to cover health care expenses. That is a big ask for most couples, and both health care inflation and expected lifespan are continuing to increase at expedited rates to compound the problem.
Whether you’re the owner of a small business or involved in risk management for a national organization, the right Property and Casualty coverage can have a huge impact on protecting your business against unforeseen events. P&C Insurance exists to safeguard the buildings, vehicles, and people that make up your business structure, but P&C coverage can be as varied as the types of businesses out there.
Once a year, we like to remind our current and prospective clients to work with their insurance broker to review the specifics of their P&C coverage. Property liability and bodily injury in the workplace can deal a devastating financial blow to a business of any size. Staying on top of the unique components that make up your coverage will not only provide peace-of-mind for you and your employees, but also mitigate chances of reputational damage or other catastrophic setbacks to your business goals caused by injury, mishap, property damage, or negligence.
For smaller businesses, a Business Owner’s Policy (BOP) combines property coverage and general liability insurance into one blanket policy. BOPs have limited eligibility requirements based on number of employees, amount of revenue, low risk industry status, and smaller office/workspace.
Have you ever come home from a trip with a renewed perspective? Sometimes the very activities designed to help us relax can also work to free the mind so we can more easily prioritize what needs to get done. Here are five goals that can be great to achieve during the rest of the summer. Click on each to learn more.
#3Summer is a time to take stock of whether you are fully engaged with your financial picture – or whether you have been letting your spouse or partner take the lead too often, for too long. Over the years, many women fall farther and farther behind in knowledge and familiarity with all things financial.
#4 Summer is a good time to make sure your high school graduate has the right estate planning documents before heading off to college. To ensure students and their families are as prepared as possible for college life, it is necessary to set up an incapacity plan that includes a health care proxy, durable power of attorney and a HIPAA release.
Unclaimed Retirement Benefits: Do you have money lost in old 401(k)s and pensions?
There has been a wave of reporting over the last few years around the vast sums of money in unclaimed accounts in the US. Millions of Americans have forgotten or are completely unaware of money in their name from government payouts, bank accounts, and stock sales. But, by far, the largest numbers are held in unclaimed 401(k) and pension plans from previous employers.
The nonprofit National Association of Unclaimed Property Administrators estimates that state and government treasuries are sitting on an excess of $33 billion in unclaimed assets. It seems like a good time for a reminder on how and where you might track down long-lost funded pensions or 401(k)s in your name.
Termination Death Benefit for Large Corporations: How Not to Lose Benefits to Taxes, While Insuring Recovery of Accrued Liabilities
It is a hard, somewhat morbid, topic to face, but the death of business executives at large companies is a financially fraught time for both the company and family of the executive alike. The financial payout of termination benefits at the death of an executive is taxed heavily, usually leaving between 30-35% of benefits after estate and income taxes to their heirs.
Having spent a lifetime analyzing such situations and dealing with them first hand, I can definitively say that I’ve found a better way for all parties to plan for such difficult moments. To first test my theory, I spent a number of months searching through the proxy statements of large corporations who have had executives die while employed. I calculated how much the company paid out in “death benefits” (salary, incentive bonuses, stock options, etc.) that were promised to the employee and now passed on to their estate. In most every case, the company paid large amounts, which were then taxed through the roof leaving only a small portion of what was promised.
I am not normally a fan of Jim Cramer, the loud, stock-picking host of CNBC’s “Mad Money.” That said, this week on the TODAY show he had a sensible reflection about the recent days’ market decline: “No one ever made a dime panicking.”
Most advisors, including me, preach staying the course, having a long-term goal, and an asset allocation model. We caution against selling out, especially now. We talk about risk/reward tradeoff, and pride ourselves on educating investors that the stock markets reward us in the long run for taking on additional risk.
All of this is easier said than done, of course. Especially in volatile markets like we’re experiencing now, especially with the 2008-2009 stock market crash still looming large in our memories.
What pre-retirees owe could compromise their future quality of life.
The key points of retirement planning are easily stated. Start saving and investing early in life. Save and invest consistently. Avoid drawing down your savings along the way. Another possible point for that list: pay off as much debt as you can before your “second act” begins.
Some baby boomers risk paying themselves last. Thanks to lingering mortgage, credit card, and student loan debt, they are challenged to make financial progress in the years before and after retiring.
More than 40% of households headed by people 65-74 shoulder home loan debt. That figure comes from the Federal Reserve’s Survey of Consumer Finances; the 2013 edition is the latest available. In 1992, less than 20% of Americans in this age group owed money on a mortgage. Some seniors see no real disadvantage in assuming and retiring with a mortgage; tax breaks are available, interest rates are low, and rather than pay cash for a home, they can arrange a loan and use their savings on other things. Money owed is still money owed, though, and owning a home free and clear in retirement is a great feeling.1