All of us, I would think reading this have heard of Gerber. Gerber baby food. I can picture the blue and white label with the baby on small jars of baby food. We’ve all seen it, may have eaten it as babies, given it to our own babies. Over the years, they have also created for children what they call the Gerber Grow Up Plan. It offers the ability for families to protect themselves.
What is the Grow Up Plan?
How does it work?
Well, it’s permanent whole life insurance. Whole life insurance is permanent insurance – you own it. Just like you own a home. Now you may have a mortgage initially but typically the goal is to get to the finish line where you own the home versus renting. Term Insurance which most people tend to add through their work or employer – you don’t own it. And then if you have a separation of service or if you end up leaving your employer, for whatever reason, trying to convert it to turn it into permanent insurance can usually be quite expensive.
Now what’s unique about this strategy is you can put it in place for children newborns 14 days to teenagers 14 years old without a medical exam. And why is that relevant? My office manager Katelyn is a mother to three young girls, one of which is a newborn. Katelyn has received mailed solicitations for Gerber’s insurance and has it in place on her two oldest children and decided to write a policy for her youngest child as well. While there are better savings vehicles out there if you want to invest for your child’s future, this is a great option for protection and building a nest egg for the child. No one ever wants to think about tragedy, but what if something happened to your child? Would you want to be able to have protection in place to bury them? She also mentioned that if her children were ever diagnosed with a chronic condition and later in life couldn’t get permanent insurance coverage, this insurance will be in effect and can carry them through their entire lives.
The coverage doubles in value at age 18 and at age 21, ownership transfers to the child. It does build cash value. At that point they can decide to either keep paying the policy premiums and keep that insurance, or they can cash out the policy.
When I got out of the Navy, I was full of energy, and I was going to slay the world. I wanted to buy my first car and had my eye on a red Trans Am. Now, my dad was willing to cosign for me, but I had to come up with some of the money. But I didn’t have any money. So what he said was, “You know, I bought this policy when you first born and if you want to cash that out and put the money towards your car, you can do so.” So, I did and that allowed me to step into that hot Trans Am. I got a few tickets along the way, but it was a great start for me.
So, the Gerber Life Grow Up Plan gives the parent or grandparent a way to provide the gift of guaranteed life insurance protection to children from 14 days to 14 years old by helping them build that financial foundation… So, coverage amounts vary from 10,000 to 50,000.
How does the doubling of coverage work? Well, the coverage automatically doubles at age 18. So, let’s just say you were able to pick up the maximum of 50,000 right now, your child would have $100k in coverage at age 18. The adult purchasing the policy is the owner until the child reaches age 21, at which time the child becomes owner.
As I mention, there are no medical exams required just one to two questions depending on child’s age.
If you wanted to put a policy in place on each one of your grandchildren or children, and say you have 3, you only need to apply on one application for the three policies. The policies will be separate, but you only need one application to submit.
Will the premiums ever increase?
Premiums are guaranteed never to increase.
NO. That’s why whole life is offered, and it’s the guarantees that are offered by an A rated company. The policy premiums are guaranteed not to increase, and the cash value and death benefits are guaranteed not to increase if the premiums are paid on time or within the grace period specified in the policy.
Keep in mind that the cash value and death benefit will be reduced by any policy loans. Policy loan interest rate id 8%. So, if you do borrow the money, you’re not borrowing the money from the insurance contract, you’re borrowing the money from the insurer, Gerber. They charge 8% for that money. That’s an expensive loan in today’s environment, so that would probably be the last place I’d go looking for money. In my case, for the Trans Am down payment, I surrendered the policy for the cash value.
Let’s say that interest rates go to 15-16% in the future, well then you might want to borrow that money out and go put it in a CD down at the bank.
How do you take advantage of the policy cash value?
A lot of parents and grandparents refer to this as a nest egg that accumulates over time. Basically, you’re able to help the child get a leg up.
I just had a client email me earlier saying hey we’re looking to help save money for our granddaughter’s college education, would this be a vehicle? Well, it depends. There’s pros and cons to every place you could save money, especially for college. The rules are changing. We’d have to assess the whole situation to determine what is best for you personally.
What’s more, you’re the policy owner until the child reaches 21 so you can borrow against the cash value if you ever felt you needed to, but again, that’s expensive money in today’s environment. But you could do whatever you want you with that contract as you see fit.
Guaranteed Purchase Option
There’s something called a guaranteed purchase option, I thought this was interesting. Basically, the child can buy additional insurance at certain ages or life events without proof of insurability. That could be key. So here you’re helping them to get a leg up, you insured them for $50k, and at 18 it doubled to $100. And then at 35 or 40, they could buy up to as much as $400,000 in death benefit.
Now when we’re younger we hope we’ll never have an issue but, in my career, I’ve seen people come into my office that were young (25-30 years old) and had bouts with cancer or serious ailments that make them uninsurable. It’s depressing to talk about, but this is a way to have peace of mind.
Sample Rates
Above this is a chart to give you an idea of what it might cost for your specific circumstances. Let’s say that your grandchild is 4. The premium would be somewhere around $40 for $50,000 in coverage according to this sample chart. $40 x 12 months = $480/year. You pay that policy for 17 years until the child is 21, at which point they become the owner. You’ve paid $8160 for a $50,000 policy. Whether they choose to keep it intact or choose to utilize the cash for their own needs, that’s something that you can have a discussion with them at age 21.
I’ve done the research, and right now, to bury somebody in New Jersey is about 15,000. So, if a tragedy were to strike, and now you know had to come up with cash, this is a prudent thing to have in place.
Why Gerber Life?
Gerber Life has been in business for more that 50 years, and they’ve got an A (Excellent) rating with AM Best. That’s significant because it means they have the financial wherewithal to weather pretty much any storm.
Now remember, insurance products are regulated by the state in which they are issued, so New Jersey, New York, California – the toughest states in the union. So, if they got an A rating, that means that they have proven their financial stability and you can be comfortable that it will be there should you need it.
Investment Advisory Services offered through Retirement Wealth Advisors, LLC (RWA), a Registered Investment Advisor. Professional Planning Services and RWA are not affiliated. Insurance products and services are not offered through RWA but are offered and sold through individually licensed and appointed agents.
Annuity guarantees rely on the strength and claims-paying ability of the issuing insurer. Any references to protection benefits or lifetime income generally refer to fixed insurance products. They do not refer in any way to securities or investment advisory products or services. Fixed insurance and annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by RWA.
Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.
A few weeks ago, I came across a strategy that I was unaware of. Because this is happened to me personally, I felt it paramount to do a deep dive on this.
I don’t like to promote products but rather educational topics. However, being in the financial arena, we do need to explore specific products from time to time to understand how they work in order to make informed decisions.
The first thing I want to mention is a very great loss in my family: my dad’s older brother, my uncle Ron passed away on Wednesday. It’s sad. He was one of the men in my life that helped shape me into who I am. My dad, most of you did not know. My father was born with retinal glaucoma. Cancer of the eyes. He was blind in one eye and their mother, Tub, my grandmother, was challenged as a registered nurse to raise three boys as a single mom. Not only did she raise three boys, but her middle son was also handicapped.
My dad passed away about 20 years ago, but during my life what I always knew was that my dad’s brothers were always there, and they were cut from a cloth that I don’t see much of any more.
Uncle Ron was a husband, a father to my cousin Jimmy who was adopted first, and then he was able to bear two other children, Holly and Brock, who he was very proud of. He had a Virginia license plate “DOCnJOCK.” My uncle was the jock, his wife the doctor. He was all state in Florida before he became a Navy seal. Played football, loved football. He got out of the military and went to work for the high school, he then committed and supported his wife, my aunt, while she got through medical school and become an MD. I truly believe that had my Aunt Barb not been a part of his life my Uncle Ron would’ve passed much sooner. It was her or medical awareness that kept him as healthy as he could be. He was also a brother to my dad and my uncle Dave, the youngest. He was a high school football coach. He just showed me and gave me a lot of character.
I will truly miss him. Until we meet again. I do not believe it’s final, I do believe that we move on to other things unknown.
But the reality is while we are here, we must plan. Do you know who paid for Princes’ funeral? The man was worth 156 million dollars, and his family had to borrow money to bury him. George Lopez the comedian gifted Princes’ family $20,000 to cover those costs. Now why does the family of a man who was worth so much not have the money to pay for his celebration of life?
When I was down in Kentucky recently, I met this gentleman that was sharing this information with me, I started to think back. Some of you know I lost an advisor and friend who I mentored in South Carolina last year. He was 57 years old and had a tree fall on him when he was working on his farm. Freak accident. Since it was during Covid and because he was his own advisor who wrote his own policies, one of the things that stood out to me was when his spouse called me who I had never met, never spoken to before, asking for my help to decipher this information.
She started to send me documents from different insurance companies, brokerage accounts, all this stuff. On the surface, you say, “he had life insurance, he had death benefits, he had money in the bank…” but a lot of this stuff was tied up in his name. What I realized at that point in time is that the immediate moment, like my uncle Ron who just passed away on Wednesday, the family’s going to need cash. Now if you’re married and you have cash and you have a joint checking account, money is available.
Typically there’s some money and funds set aside. But it’s at the loss of the other spouse that things can get squirrely. It took seven months for the medical examiner to issue a death certificate with the cause of death to the spouse of my friend Jeff. You would think, natural causes, tree fell on you, how difficult could it be? But because it was such a freak accident, because of Covid, it took a long time.
You may say, that’s a rare circumstance. So this gentleman started to share some statistics on how long it takes to get a death certificate across the nation, and we went and pulled New Jersey’s processing time and saw that New Jersey is 4-6 weeks if you file online to get a death certificate. That’s what you need in order to get access any funds – a death certificate. You can go downtown to East State Street in Trenton for same day processing, but good luck with that. Governments are short-staffed and overwhelmed.
When I was in Kentucky the statistic he shared with me, in Texas it’s taking 25 to 30 days.
Most people think they can access dollars upon the death of their family member through their life insurance policies or annuities. But what became evident to me, if these companies don’t have a death certificate, if there is an issue where there it was not a definitive cause of death, they will not be able to pay the claim until they have that information. If the death certificate you get says “cause of death unknown,” you’re in trouble.
Another thing people think offers them security is a living trust. Say you have bank accounts with TODs (transfer on death) or PODs (payable on death).
Power of attorney. Power of attorney is while they’re alive. After they die, you need to the will, the trust, the executor.
Maybe you’ve thought of final expense insurance.
ALL OF THESE THINGS require a death certificate. And that is a cog, or a fly in the ointment. That’s the challenge.
So that what was appealing to me about Beneficiary Liquidity Plan. Funds that typically people are going to give to the beneficiaries anyway, they can utilize for a single premium guaranteed fixed whole life insurance policy paired with an irrevocable living trust that is payable to the beneficiary on death WITHOUT a death certificate within 24-48 hours of death.
The funds grow tax deferred, that’s not why we’re doing it. The key is that it pays within 24 to 48 hours with just a signature from the funeral home director. We don’t have to borrow funds from the funeral home at probably at above going rates. There are no health questions on the application. Doesn’t matter. As long as you’re not in triple digits.
You wouldn’t set up this plan to get rich or for leverage like traditional life insurance. It is only to make sure that the people that are in her life, that they are not burdened upon your death.
And this is another scenario… you have three children. One child who is the closest who’s taking care of mom or dad says, you know what, you guys are over there, I’ll pony up the money and take care of this for right now and you can reimburse me later. Then it doesn’t happen and now there’s a rift in your family. I’ve always said money makes people funny.
You can setup a plan like this for as little as $2,500. You could do $5,000 one-year, $5,000 the next and stack them together. The max allowable is $100,000.
If you put in $20,000, that’s what your beneficiaries are going to get back. Technically there’s a small death benefit, but it will be something very minimal like $500 or some small amount but that’s not what this is for. Its purpose is creating liquidity for the family at a point in time when they need it. It just takes a lot of the stress that can typically happen off the table.
So how do you fund it? I am setting a client up right now, and he’s divorced, 73. He’s taking RMDs now. And I asked him, are you using those, and he said no, that money goes right in the bank. He has to pay taxes on it next year so we’re setting up a 10% free withdrawal to fund this so that his son who is executor doesn’t have to deal with this nonsense when he passes.
If you got some old contracts, you want to make them liquid. You have an old brokerage account, mattress money. I just had a couple who had money sitting in the bank without interest. We repurposed it to make it liquid for their beneficiaries.
$15,000 is the national average for a funeral, and it’s the same in New Jersey. You don’t have to go nuts here, but it’s just a smart and prudent idea in my opinion to set this up for your beneficiaries.
Investment Advisory Services offered through Retirement Wealth Advisors, LLC (RWA), a Registered Investment Advisor. Professional Planning Services and RWA are not affiliated. Insurance products and services are not offered through RWA but are offered and sold through individually licensed and appointed agents.
Annuity guarantees rely on the strength and claims-paying ability of the issuing insurer. Any references to protection benefits or lifetime income generally refer to fixed insurance products. They do not refer in any way to securities or investment advisory products or services. Fixed insurance and annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by RWA.
Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.
This blog post is a conversation between Chris Lester and Mark Diorio from 5/12/22.
CL: Today I wanted to have a conversation about Cryptocurrency – What is it exactly and is it something that you can add to your portfolio of investments?
To answer these questions, I’ve brought on Mark Diorio – he is the Chief Investment Officer of Brookstone, and a chartered financial analyst (CFA). For those of you that don’t know what that means, in my experience, when I go to meetings or conferences (and I’m sure he’ll sidestep this comment, but I am telling you based on my experience) is that they are usually the smartest people in the room. In Mark’s case, he’s down to earth, salt of the earth. What I really like and appreciate about him is that he doesn’t speak over your head. With that being said, you should understand what he is saying in this conversation.
Source: easycrypto.com
MD: We have a pretty interesting topic that Chris put together, the ABC’s of Cryptocurrency, and I put this easy to read slide together just to give you an idea of a little bit of history of cryptocurrency. That’s a little tongue-in-cheek, but really what our role is, is to kind of decipher. There’s a lot of news headlines, and a lot of it is eye-catching in terms of what is happening and what has happened over the years in cryptocurrency. There’s a lot going on, but our role is not to sell cryptocurrency in that sense, our role is really to advise and cut through a lot of this noise to define what it is, what we see it’s roll as going forward, and does it impact you and would it impact you in any given way.
IN GENERAL
Source: pwc.com
So, let’s just define cryptocurrency really quickly: cryptocurrency in general is considered a medium of exchange. So that sounds like the typical US dollar, which is a currency. The dollar is designed to be a medium of exchange, a unit of account, and a store of value. This is a little bit different, so I don’t want you to think because it has the “currency” name in there, it’s like the currency of a country like the US (or the euro or the Japanese yen…etc.) it’s not like that. It is the currency of the network, and I’ll explain a little bit what that means, but it’s pegged to be used as a currency in the sense of everyday transactions. That’s one of the myths I think that’s out there, and I’ll touch on that a bit too.
But overall, I’d point out that it’s only in digital form. It has no physical form. So, if you see a picture of a gold coin with a “B” in there and it looks like an actual coin, the point is, it doesn’t exist. It’s only in digital format.
One of the benefits and one of the arguments that proponents of cryptocurrency make (Bitcoin, being the original one) is that the supply of Bitcoin, unlike the supply of US dollars or any other traditional currencies is not dictated by the central bank. The federal reserve is the central bank of the US. So, cryptocurrency is really dictated by the terms of the network. In this case, the example we’re going to use is the largest and most well-known cryptocurrency: Bitcoin. The terms of the Bitcoin network tell you how many Bitcoin will be minted over what time period, and that adds to the value that some investors see in it.
TECHNOLOGY
Source: pwc.com
You have to think of cryptocurrency just like any other new technology: there’s some benefits, and some drawbacks. The benefits include increased transparency, you can track things, there’s some cost reductions, just like what you would think with any other technologies. On the other side, there are several unknowns as well. It’s complex technology, regulators don’t know what to do with it because you’re transacting in currency format and making trades, and there’s big moves up and down in valuations. It’s really kind of confusing to wrap your arms around it in a full-scale regulatory environment. I do see that coming, and that’s only going to be to the benefit of both the technology but also the users that may find use cases here.
BLOCKCHAIN
Source: pwc.com
I won’t spend a lot of time on the above graphic because it’s easy to get lost, but if you follow from the top left all the way around, the technology that supports cryptocurrency is called blockchain technology. How it works is, if you send a message or a computer system sends a message that they want to take one cryptocurrency and give it to somebody else, it sends a message to another computer system or network of computers that maintain the ledger. The ledger basically just says who has what.
For example, Chris has 100 Bitcoin, let’s say, and I have 200. Well, if he says he sends me 200, a system will automatically reject that and says, “well you only have 100, you can’t sell 200.”
Usually who would keep that record is a bank. That intermediate third-party who keeps the ledger. Now, what the technology has done is said, “we’re going to keep the ledger amongst a variety of computer systems.” Anyone (it’s open source) can go and see this transaction ledger.
So, the ledger validates all the transactions that occur within a stated time period – let’s say within 10 minutes for Bitcoin. For example, all those transactions get put together in a block, validated, and then put into the Bitcoin blockchain, and you just keep doing that every 10 minutes. That creates a history, and that’s why it’s called a block because you block all those transactions together and bolt them onto the last block.
POTENTIAL
Source: pwc.com
There are many potential applications for blockchain technology. It doesn’t necessarily have to be a cryptocurrency that you’re transacting in; it can be used for automotive systems, for example you could track different changes to your vehicle or updates or maintenance records.
For financial services, the technology allows for cheaper transmissions. So, sometimes you’ll hear that you can send money overseas for much cheaper from your phone to someone else’s phone using a cryptocurrency, for example. You don’t have to use Western Union or deal with some of the local authorities that are charging a lot in transaction fees.
Voting, you can track that.
Healthcare you can track records and so everyone who is given access can view these.
So, there is a lot of potential for block chain technology.
I would say, though, that it is very important to realize that the original reason for blockchain technology was very specific: it was to create a cryptocurrency or a digital unit of account that had some monetary value to it that people could trade amongst themselves and provide those benefits and really adopt to the digital age.
So previously, up to this point, you may say we’ve been in the information age and that’s where you have Google and other sources that basically provide you all the information you need very quickly are they’ve done that very efficiently.
CRYPTOECONOMICS
Now we’re looking at maybe the digitization age, and the question is, “how do you make everything digital, and to speed up access to records?”
And it’s creating something called crypto economics. I don’t hear this talked about all that much, and I think it’s because it’s a little complex. But what it means is, “how are you incentivizing the users?” So, if you use Facebook and you spent an hour on Facebook and post pictures, for example, what is Facebook doing? Well, they sell your information to an advertiser and that advertiser pays Facebook. You don’t benefit at all from that.
Here, in contrast, the idea is, “well, maybe we have a way to incentivize the users of the networks.” So, the owners of Facebook are shareholders, here the owners of the Bitcoin network are the Bitcoin owners or those that own the cryptocurrency. What Bitcoin did as the original cryptocurrency was basically launch a cambrian explosion of a variety of these projects thinking that this was the next wave and there’s a lot of different use cases that could come about.
You can see all of these pictured below, but there’s been thousands issued.
Source: Rare Altcoin
So these are maybe the top 100 cryptocurrencies made. Ethereum is the second largest cryptocurrency, for example. And some on his list aren’t even available today, but the point is, there’s several different ones, and they’re unique. Think of them as different stocks, or companies. But instead of companies, they are networks. They’re just different individuals from different computer systems coming together for a reason to participate in that network for whatever it happens to be, whatever they’re working on.
BITCOIN SUMMARY
So, to getting back to understanding Bitcoin as the first one, and to understand the entire cryptocurrency landscape you must understand Bitcoin by far. It’s unique.
Bitcoin was created in 2008 by an anonymous cryptographer named Satoshi Nakamoto. Now, that’s an alias, nobody knows who he is to this day. He wrote a whitepaper, and it was titled “Bitcoin Peer-to-Peer Electronic Cash.”
What he was saying in it was this: you take away any of the authorities, you take away the banking system, and now you have a unit, and you can transact digitally from one to another. What he was solving, in computer science, is called the Byzantine Generals Problem, which is, “how do you know that one digital item hasn’t been spent multiple times.” In other words, how do you validate that one out of one? And that’s what he worked on.
How do you validate those transactions that I just mentioned in terms of how much does Chris have, how much does Mark have? Can they send what they’re suggesting they can send? Do they actually own that amount? Well, blockchain technology is called, “proof of work.” That’s where a group of computers compete to try to validate that transaction that you just sent. So, you send the transaction to the network, a group of computers actually competes to solve really what’s a mathematical problem, but in some essence a lottery, where every ten minutes (and it’s designed this way from Bitcoin software) they allow a miner to solve that problem and then validate that transaction. They’re spending computer power to do that, and they’re competing with other computer networks to do that. So with that, they’re spending a lot of money on the energy that it takes to complete the task. You may ask, “why, what’s the incentive?” And it is because they get mining rewards.
Mining rewards are basically new Bitcoin or the issuance of new Bitcoin. That’s how new Bitcoin are minted, or new ones are put out into the system. That happens every 10 minutes, new Bitcoin are issued. What we’ll talk about it in a moment is how they really drive value by issuing new Bitcoin and scarcity.
Remember, it’s an open-source public permissionless immutable ledger.
CL: Hey Mark, before we go on to the next bit of information, about five years ago I had two separate clients, one had read a lot about Bitcoin and went out and bought his own computers, setup his own mining, and a couple of things he mentioned was a) the cost for the equipment was high, and the other thing was b) the cost for the electricity you need for the cooling that was necessary for the computer room he had built was expensive. The second client was a young man whose grandfather passed away and he got like $60,000 in an inheritance. He had gone out and did a very similar thing. My question is, when they’re competing, does buying state-of-the-art computer chips and optimizing speed give a miner a definitive advantage to somebody that might just setting up their laptop in thier office to run all the time, 24/7 but they’re still running DOS 3.0 from 20 years ago. Do you have any insight on that?
MD: I do. Originally, when it first launched, there wasn’t that many people mining because the mailing list for Nakamoto’s whitepaper on cryptography was very small. The reason for this was they didn’t realize what this ultimately would become. At that time, you could mine it on your computer in your home with a CPU chip. Then, as it got more competitive and it started to gain a little traction, you had to go up to the GPU, which is a graphics chip, a gaming chip. Now, these are becoming mining farms where it’s a warehouse full of computers just running and running. One of the major companies that provide the chips in video which is a major semiconductor maker is trying to produce the next generation type chips to help these miners. And miners do upgrade their equipment rather frequently to compete. And so, there’s big money in it now. It’s not something where you’re in your garage and running computers.
CL: So we’ve elevated past the bubblegum and the shoestrings. I got it.
MD: Yes, for sure.
CL: Ok, well thank you .
DIGITAL
Source: Medium.com
MD: I did want to talk about this picture above because I think it’s interesting. When you hear people talk about Bitcoin or cryptocurrency and act like it hasn’t been worked on or that there’s no background to this, it’s not the case. This was an issue, or a project has been worked on for 40 to 50 years. You had computer scientists really put time and effort into this project. Bitcoin’s creator was very familiar with almost all of these and references different features of different whitepapers or projects. So, Satoshi weaved these previous works into his whitepaper and noted that they each solved parts of the issue, and he connected the dots in a profound way. That essentially allowed a whole network to start building.
On the above timeline, all the way to the right, you see that Bitcoin was launched basically in 2009. So, the whitepaper was released in 2008, and the first transaction started in 2009 and the system started to build literally from the ground up.
Sometimes you may see those pictures of Bitcoin going from zero all the way up to its current price, and you may be excited by that. However, you can say that with a company, too, where it had zero value and then suddenly it went up a significant amount. So sometimes that value timeline of Bitcoin may be misleading. The reason for the increase was that just more and more people started to get involved and enjoy it. At first, they were really hobbyists that liked this idea and played around with it.
DECENTRALIZED
Source: Medium.com
Going back to the technology as it developed and blockchain technology from 2009, it really developed not only to use as kind of a method to transact in cryptocurrencies, but you could (since it’s a computer program) code it to include what are called smart contracts. In other words, you can code it in different manners and really make it whatever it is. And that goes to the use cases. It has some flexibility and that’s why you see so many different cryptocurrencies being launched. I would say that they are different than Bitcoin. Bitcoin is very specific; it is the first one. It’s almost like it’s the reserve of all the others that have come after it.
SCARCE
Source: Fidelity
I was mentioning above, there are mining rewards. So, how much Bitcoin do you get issued as a miner, and how much is available every 10 minutes?
Bitcoin was coded in such away where there will only be 21 million Bitcoin ever produced. At the time of the posting of this chart, there was 18.5 million (in that green line there) Bitcoin mined (available out there). There’s almost 19,000,000 today. What it started with was 50 Bitcoin. Every 10 minutes, 50 Bitcoin would be mined. It wasn’t very much money in the early days, but every four years the amount of Bitcoin and mining reward would be cut in half. So, it went from 50, to 25, to 12.5, and then 6.25.
What that’s done is really enforce this idea of scarcity. Less and less Bitcoin can be mined. So, for those proponents, they are saying “well it’s the first digital, decentralized (that means government doesn’t control it and it’s simply created and then the marketplace, the users, will determine its value based on market conditions, enthusiasm, availability, and other reasons why speculators may get involved or just users are transferring money that want to use the network for different reasons) currency.
But the scarcity component really tells you that there’s not going to be just an unlimited amount. That was one of the issues with digital assets, you just keep producing an unlimited amount, so in theory it would ultimately have minimal value. Now there are cryptocurrency’s that do have an unlimited amount, a lot of them do. Something that was popular last year was something called Dogecoin that ran up. That was a speculation kind of move in those marketplaces but I don’t think it was very well understood that Bitcoin is scarce, there’s only 21 million that will ever be available vs. Dogecoin where they’re just going to keep producing as many of those assets as they can, there is no cap. Therefore, there is no scarcity value.
CRIMINALS
Source: chainanalysis.com
Another issue that pops up is that criminals use Bitcoin. Or that it’s a criminal network. Well, it’s a public ledger. You may hear every so often that the FBI or the government has found somebody that illicitly used cryptocurrency and they arrested them. That’s because it’s a public blockchain, everything can be seen. It’s pseudonymous not anonymous, so everything can technically be tracked down if you’re doing something illegal. The illegal use is far below that of cash. That might surprise people, but it’s very minimal anymore.
Originally maybe you heard a story of something called “The Silk Road” which was way back circa 2012-ish where they basically created a website, and they sold some elicit or illegal things on there. It was kind of this trading route. It was just a website, but they did transact in Bitcoin. It really wasn’t Bitcoin in the sense of what it is today where now people know what it is, regulators know what it is. It’s a much bigger community that have been participating in Bitcoin now. So, this is one of those myths that are out that I don’t think really rings true anymore to the ecosystem.
PAYMENTS
Another thing I was alluding to at the beginning was payments. So, can you pay for your cup of coffee with Bitcoin or cryptocurrency? Well, one, if it’s Bitcoin and it’s scarce, you wouldn’t want to transact in Bitcoin. The other reason is, it’s not a payment system. Visa for example is a payment system. They can process 24,000 transactions a second. Bitcoin can do about 7. It’s not designed for those types of transactions. It’s designed to be secure, move slowly. I call it a settlement network, meaning if you’re moving larger sums or want to move those sums it’s not a payment network where you’re doing your everyday transactions. So, it would be foolish. And in the US, it’s not considered currency, so that would be a taxable transaction anyway – you have to record it and act like you sold it if you bought something with it. That’s not very well understood so you’ll hear that question probably for years to come in the media.
EMERGING ASSET CLASS
We think of this as an emerging asset class. It’s very early on. It’s different than equities or bonds. Cryptoassets are a different category and within cryptoassets there are different types of cryptocurrencies but understanding Bitcoin is crucial in order to understand the rest of the ecosystem. So, with equities you have corporate profits, economic growth, interest rates, productivity goes into those. With bonds you have economic growth, interest-rates, issuance, so they’re financial instruments. Cryptoassets are based on investor adoption – does the network grow overtime (meaning more users), how are regulators going to look at this, and will institutions start to participate in that asset class?
GOLD ALTERNATIVE
Source: winklevosscapital.com
A good way to look at Bitcoin, I think, as opposed to looking at as a currency like the US dollar, is to compare it to gold.
From a scarcity perspective, why is gold attractive? It scarce, it’s recognizable. Bitcoin’s supply is fixed; we know there’s going to be 21 million. We know the schedule Bitcoin will be produced. Gold is scarce, but we can get more of it if gold mining picks up. If gold prices go higher, usually they’ll start to try to mine more gold. Where with Bitcoin, that doesn’t work and that’s why you have these boom-bust cycles. If the price is going up, you just don’t find more Bitcoin.
Another difference is, it is software for Bitcoin but hardware for gold. Portability wise, Bitcoin you store in your phone, digitally. Gold is hard to move around, its heavy. As far as divisibility, Bitcoin can be divisible into basically the ninth decimal place, I believe. You can go very very thin. You don’t have to buy one full Bitcoin, which trades around $28,000. You can buy fractions of that, $25 worth for example, $30 worth, $100 worth. You’ll just get fractions in Bitcoin.
When it comes to storage, for Bitcoin it’s stored in a digital wallet. Very easy for Bitcoin. With gold it’s a safe or vault.
Counterfeiting – it’s very difficult with either.
Gold’s now about an 11 trillion-dollar market, Bitcoin’s about 800 billion, so there’s a big difference. Some of the proponents of Bitcoin will say, “well, it could catch gold,” it has some of the same properties where it goes up and down. It’s a very similar type of vehicle, except one’s digital and the other obviously is gold.
VOLATILITY
Source: @JurrienTimmer, Fidelity.
This is the rub with Bitcoin from an investor’s perspective: understanding the volatility of Bitcoin. Even though Bitcoin has grown over the last 10 years, it is as volatile as ever. If you look at a drawdown of 50%, that rarely happens in the S&P 500. 4% of the time, basically since 1900, it hasn’t done that. It’s just a few occasions. And that’s a major, major decline. With Bitcoin, 50% of its existence it has had a 50% decline. In other words, if you own Bitcoin you need to expect a 50% decline, and that’s a lot different than the S&P. In fact, we’ve just gone through a more than 50% decline from just a few months ago with Bitcoin. This happens pretty frequently. Typically the volatility level in Bitcoin is dramatic. Even a 70% decline almost a quarter of the time, it experiences that. So, it’s at a pretty frequent clip that this volatility may not be appropriate for everybody. But it’s OK to take a look if you have interest in it, and how to get access to it.
Does it make sense is an investment? For me, you have to go in expecting that 50% drawdown, maybe a four-year holding period before you even evaluate it. That market just moves around a lot. I don’t think that’s changing anytime soon, even if that network grows like it has been. That volatility will remain.
CL: So, before we go, because I see Fidelity there on the last chart, I heard on the news last week that they recently announced for folks that want to invest in crypto within their 401k that it will now be available. A couple thoughts cross my mind, one being volatility. As you know, with great reward comes great risk, as this chart identifies.
So, you have a couple things going on: people are hearing about it, now their corporate plans may offer it, so if the plan sponsor allows it, they’re able to step into an index. They invest in it. What’s your take on taxation? So, let’s just say you dollar cost average into it. If you look at Peter Thiel, that gives us the perfect example. He put all that money into a Roth, and it was just all tax free and the government looks at that and frowns upon that. So, if you could speak to that briefly, that would be insightful.
MD: Sure, if you’re looking for a long-term investment like this that has the potential to grow and a level of volatility you think of it as position sizing. Which means OK, it’s a small allocation, and then if it has an upside potential, what Peter Thiel did was he put it in a tax deferred account essentially, and a Roth, even better, where you’re not being taxed on those withdrawals. But in the 401(k), that makes sense, to put it away and just think of it as long-term money.
I mentioned four years, that would be kind of the minimum hold. So, in other words, if you think you’re coming in and just doing a short-term trade, I don’t know if it’s worth it because of the volatility. You’ll get swung around there. You could be very smart for the first three weeks then very foolish the next four weeks. And the numbers will be big, they won’t be small. And that’s why I say it makes sense if you’re putting it away. If you like it. And you don’t have to. It’s not for everyone. It’s not where it’s replacing the US dollar.
What it will do is give access to people that may have a cell phone in the third world country that doesn’t have a strong currency. It may give them access to get Bitcoin and then convert to the US dollar when they’re transacting business. That’s something that I think opens up a lot of possibilities for those in the emerging markets and economy to get access to US dollars. I don’t see the US dollar competing with Bitcoin, I think they actually will complement each other in that sense.
CL: Well Mark, I want to thank you. Really from the bottom my heart, I appreciate you. If anyone has questions, reach out to us.
MD: Thanks, Chris.
Investment Advisory Services offered through Retirement Wealth Advisors, LLC (RWA), a Registered Investment Advisor. Professional Planning Services and RWA are not affiliated. Insurance products and services are not offered through RWA but are offered and sold through individually licensed and appointed agents.
Annuity guarantees rely on the strength and claims-paying ability of the issuing insurer. Any references to protection benefits or lifetime income generally refer to fixed insurance products. They do not refer in any way to securities or investment advisory products or services. Fixed insurance and annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by RWA.
Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.
Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrency is not backed nor supported by any government or central bank. Cryptocurrency price is completely derived by market forces of supply and demand, and it is more volatile than traditional currencies and financial assets. Investing in cryptocurrency comes with significant risk of loss that a client should be prepared to bear, including, but not limited to, volatile market price swings or flash crashes, market manipulation, economic, regulatory, technical, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. Volatility Risk: Cryptocurrency is a speculative and volatile investment asset. Investors should be prepared for volatile market swings and prolonged bear markets. Cryptocurrency can have higher volatility than other traditional investments such as stocks and bonds, and market movements can be difficult to predict. Economic Risk: The economic risk associated with cryptocurrency is in the lack of widespread or continuing cryptocurrency adoption. The market and investors could decide that cryptocurrency should not be valued at the current market capitalization due to a variety of factors. Regulatory Risk: Cryptocurrency could be banned or highly regulated by governments that would deter investors from buying or holding cryptocurrency. Technical Risk: Cryptocurrency is a dynamic network with a codebase that is updated to add new security and functionality features The updated code that is merged by the core developers could potentially have an error that threatens the security or functionality of the cryptocurrency network. Cybersecurity Risk: Cryptocurrency exchanges and wallets have been hacked, and cryptocurrency has been stolen in the past. This is a potential risk that clients must be comfortable with when investing and holding cryptocurrency. Theft is less likely when holding cryptocurrency at a qualified custodian in offline systems (cold storage) with institutional security and controls. Limited Operating History: Brookstone has a limited operating history in the cryptocurrency space upon which prospective clients can evaluate its performance. There can be no assurance that Brookstone’s assessment of the prospects of investments in crypto assets will prove accurate or that a client will achieve its investment objective.
Yesterday’s market was OK, it came roaring back, and today just we’re down 1000 points – we’ve gave back everything we gained yesterday and more.
I have been approached by a couple of clients that are getting to retirement age and are concerned.
We have talked for a while now about having strategies to defend against rising interest rates. So you have that, coupled with inflation, you’re going to create now what’s sort of a byproduct.
As much as I would like to say “hey, it’ll be fine, and there’s clear skies ahead,” I’m of the opinion that there’s choppy water ahead.
To what degree? I don’t know.
Now the other side of that is I am not a doom and gloom type of advisor. I’m pragmatic. And although I do understand turbulence, I also know that we can smooth that ride to a degree.
One way to do that is to incorporate a MYGA (Multi-Year Guaranteed Annuity) into your overall strategy. But first you have to understand what they are and how they can work.
I’d like to start with the Reader’s Digest definition of “annuity.” An annuity is really a promise that an insurance company will pay regardless of how long you live. And we’ll get deeper detail a bit later in this post but, the thing I wanted to outline here is longevity credits in annuities through a little story.
LONGEVITY CREDITS
Suppose five 90-year-old woman take a vacation together every year. The five women each place one hundred dollars in a box. Take that $100 and multiply it by five, and you have $500.
Now because they’re 90, unfortunately one of them passes away. So, the next year they leave for vacation but now there’s only four ladies left so they split the $500 they put in the year before and each woman now has $125. That’s a 25% rate of return.
The question is how much was invested in the market and what interest rate did it earn?
Nothing. Because they weren’t in the market.
Instead of using the money for vacation, the friends decide to let it ride. The next year, one more lady passes away. And now the 3 ladies return for vacation and split the $500 three ways, so they each get $167. That is a 67% return.
All of this is based on longevity credits or sometimes what is referred to as mortality credits. They weren’t in the market, the $500 didn’t increase, but they are each getting a return on their money since they’re splitting it among less friends.
In annuities, longevity credits are created when people die sooner than expected and don’t receive as many income payments as they would have if they had lived their full life expectancy. That money goes into a pool that will then pay lifetime income to those people who live longer than their life expectancy.
If you find yourself at the dinner table trying to explain this to somebody, life insurance pays if you die (so everybody pools their money together to pay a death benefit), annuities pay if you live (you’re still pooling your money together). If you end up being one of those people that make it to 100, 110, 120… the insurance company is on the hook to pay you as long as you’re alive.
GUARANTEED PAYMENTS FOR LIFE
With that being said, there are only three tools that can guarantee payments for life.
One of them, what I call a unicorn, is a pension.
The second one (a lot of people are in fear of going away) is Social Security. This is a promise from the federal government that they will pay you an income stream based on how much you contributed while working. A lot of people are fearful saying, “It’s not going to be there, it’s going to be bankrupt,” for most of us reading this, I don’t think we have any issues. For some of the younger generation, maybe the millennials, it will change, the rules will be different, but the money will be there.
Now the third option is an annuity and it’s important to note that there are several different types of annuities so it’s important to differentiate them. But we’ve all heard that commercial, “I hate annuities and you should too!” Well, there’s aspects that maybe aren’t attractive. BUT not every annuity has to be used in the same way. Not every tool is going to be utilized to do the same job.
I want to share a picture that can help you understand the different types of annuities.
IMMEDIATE ANNUITIES
The left side of the equation is what we call an immediate annuity. This is where you give up all control. You are trading an asset with the insurance company. You’re saying, “here’s my cash” and you can never get it back once you receive a payment option. This works just like a pension, so if you have ever seen pension statement where they say if you take X amount, you get 100% of Y, but if you want to make sure that you get at least a payment for 10 years (that’s the period certain) you’ll get a little bit lesser amount. Or if you want to make sure your spouse gets something (survivorship) then there’s even a lesser amount. Or you can get a combination of both.
Usually when you have a corporation that has a pension, or you have a municipality, or the federal government, or even a state government offering these types of products, they’re really just annuities with these terms. It’s based on actuarial data. This is NOT what we’re talking about today.
Here’s the main reason people don’t like immediate annuities: let’s say that you had $100,000. You go to the insurance company, and you say, “here’s $100,000, give me $80 a month for the rest of my life.” $80 being just an arbitrary number to keep the math simple.
You turn around and cash that first check for $80.
Would you agree that the insurance company still has the other $99,920? They have the balance of your money. It hasn’t gained interest. You only got paid one month.
Well, what happens when you have a bad day – you get hit by a bus?
The insurance company gets to keep your money.
This is why there’s a lot of negative press because nobody wants to exercise that risk. We don’t know how long we’re going to live.
Now some people may suggest that you can just take that money, invest it in the market, you can do better than what an annuity could do for you. The problem is, none of us know when we are going to die. That’s the trade-off.
I’m not here to sway your opinion one way or the other, I just want you understand how an immediate annuity works. When you start those payments, that’s called annuitization. That word means that you had given up control. It is an irrevocable agreement. You hand over your money and say to the insurance company, “here is my money, pay me, whether I live a day, I cash a check, or I live a month, or I live till I’m 120, you must pay me or my spouse for the rest of my life.
DEFERRED ANNUITIES
But we’re not focusing on immediate annuities today. We’re focused on deferred annuities. And there are different types of these as well.
The first is variable deferred annuities. If you know me, I don’t like an abundance of risk. This is what that commercial, “I hate annuities and you should too” is talking about.
You’re basically saying to an insurance company, “Here’s some money, I’m going to take all the investment risk (so you can lose money inside of it), and they’re expensive.
The type of annuity we utilize mostly is a fixed annuity. There are two different versions. Indexed Annuities (ie. Allianz 222 that I’ve talked about in the past that currently is offering a 35% bonus) or a Multi-Year Guaranteed Annuity. MYGAs are really the insurance company’s version of a bank’s CD. It’s for a (usually short) period of time. It’s guaranteed by the credit worthiness of the financial institution, which in my example to follow, happens to be Oceanview.
OCEANVIEW AND AM BEST RATINGS
Oceanview is rated A- (Excellent) by AM Best. Me and my advisers across the country are typically never going to use anything less than a A-. That’s just because that increases risk if an insurance company goes insolvent.
I get that question often. Just keep in mind that every insurance company is regulated by the state in which they do business. So, in New Jersey, it’s no picnic. In order for an insurance company to do business here in New Jersey, they must contribute to something called a Guaranty Fund. But not only are they putting in money just for themselves, but they also have to contribute for any other insurance company that does business in the state. They have each other’s backs. If you look at banks over the years compared to insurance companies, banks have defaulted at a much higher rate than insurance companies in the last 30 years. I’m much more comfortable with financial reserves required of insurance company to do business in the state versus what a bank is required to have.
But with that being said, the AM Best ratings are just benchmarks that we typically like to use. I don’t like to use B+ companies but depending on product options and needs of a client, once or twice I have deviated from my mainstream. But for purposes of this blog, I’m very comfortable with Oceanview’s financials.
Oceanview just had rate increases (See attached chart). And here’s their offer.
VOLATILE MARKETS
If you’re close to retirement and you’ve looked at the market today, you will you see that is down over thousand points and you may go, “Oh my God, I can’t take this anymore.”
Sidetracking a bit here, but when you see the market, and the markets down a thousand points, you must ask, which index is it? So maybe it’s the S&P maybe it’s the NASDAQ – tech sector’s been getting crushed. Are your holdings in that area? If you’re not matched up or mirrored identically, you’re likely not down equally in comparison to the market. Unless you’re in the S&P index. If you’re in the S&P index and the S&P lost 100 points, then yes, in fact, you should have lost pretty close to that. But if you’re looking at the DOW in the DOW is down 1000, well that’s only thirty stocks. So, you just have to put that in perspective.
Remember what I talked about before…the news networks like noise, and they need information to be able to spew, whether positive or negative, so they can generate emotional swings. That’s what gets ratings and people tuning in. Our job is to manage expectations, to help manage emotions and take a step back and to have a strategic plan.
So my thinking is, typically bonds are not an area that is going to do well on a go forward basis, in this rising interest-rate environment. I think everybody that is listening to the news will see that interest rates are going up. The fed just raised interest rates a half a point yesterday, the market liked it for a little while, and then went and slept on it and then didn’t like it today. That’s the equities market. Bond markets didn’t like it either.
So you turn around and go, “wow, my 60/40 portfolio lost money.” It’s going to be hard area of our portfolio to recover. I also don’t believe that we can time the market. You can’t sit here and go “get in, get out.” That has been proven. I don’t care who you, or how savvy you are, it cannot be done with any degree of predictability. However, you can take your winnings, or you can put in stop losses, or you can add a tactical component to your overall investment philosophy and that’s what I’m suggesting here.
UTILIZING A MYGA
If you’re feeling like you’ve had enough with the current volatility, utilizing a MYGA might be a solution for you. To use this strategy, you would have to have a 401(k) or IRA. If you own an IRA, you can do this. BUT if you own 401k, you need to check if they allow an in-service distribution or you’re over age 59 1/2 – either one of those things, you can this strategy.
Moving money from your retirement account to a MYGA means that you have a guarantee from insurance company that they are going to take your money, trustee to trustee (retirement plan to insurance company) put it in the tax environment of an IRA, and credit the funds a percentage based on the amount of money you contribute to the annuity. With this Oceanview product, you’ll see the minimum amount is $20,000 (between 20k to 80k) and they’ll give you 2.7% on a 2-year annuity. It’s not too bad. It beats a ten percent loss, 20% loss. Or on what MYGA companies refer to as a “high band” ($80,000+) it’s 2.85% for two years.
They have longer-terms, four years, five years, seven years… I didn’t get into all that because I think it’s a short-term solution to consider. A strategy to help give you peace of mind. I think a recession is still on the horizon …not tomorrow, not next month, not three months from now…but I do believe the next 12 to 24 months we will see that.
But if your money is locked up, and in 2-3 years you come out from underneath that, you can then take the money that you had in the MYGA plus the interest and put it back in the market. At that point the market should have settled down and we will probably be in a lower environment. That’s the thought process. If it’s something that you’d like to look at, send me an email or call the office and I will be in touch.
Investment Advisory Services offered through Retirement Wealth Advisors, LLC (RWA), a Registered Investment Advisor. Professional Planning Services and RWA are not affiliated. Insurance products and services are not offered through RWA but are offered and sold through individually licensed and appointed agents.
Annuity guarantees rely on the strength and claims-paying ability of the issuing insurer. Any references to protection benefits or lifetime income generally refer to fixed insurance products. They do not refer in any way to securities or investment advisory products or services. Fixed insurance and annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by RWA.
Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.
College costs are continually rising and each year more and more of my clients are looking for creative ways to afford the kind of education they want their children to have – without leaving them with tens of thousands of dollars in high interest student loans. Even though a child could likely qualify for some type of financial aid including grants and scholarships or some type of work program, a large portion of the college tuition may still fall on the student’s and parent’s shoulders. An Indexed Universal Life insurance policy (IUL) can be a great way for parents to help pay for a child’s college education.
Why is the IUL such an attractive option? To understand what makes the IUL work for college savings, you first have to understand what an IUL is. The IUL is a permanent life insurance policy—meaning that the coverage will be in place as long as the policy holder lives and continues to pay the life insurance premium. A portion of the IUL is secured as a death benefit that will not change while a remaining portion is invested in an interest bearing account that can grow in cash value.
Typically, an IUL has an interest rate guarantee. This means that even if the index the insurer invests in performs poorly, the cash value portion of the policy will receive the minimum guaranteed interest rate. There are several different types of IUL policies including variable and fixed options. The cash value account can be used to pay for living expenses or used as funding for things such as a child’s college education.
Here are three reasons you may want to consider an IUL for education expenses:
Tax Advantages: The cash value portion of the IUL is tax-deferred as long as the policy stays funded. There are also instances when policy withdrawals from an IUL policy may be considered tax-free. If a withdrawal is made only on the money that is contributed to the cash value, then the withdrawal should be considered tax free. Loan distributions taken out on a cash value policy are also usually tax-free. However, the loan must be paid back over time or the death benefit will be reduced by the balance of the loan due.
Low Risk: An IUL may be used to pay for college expenses without taking away from the death benefit. A portion of the policy premium payment is going toward the cash value and another portion pays toward the death benefit part of your policy. The cash value will continue to earn a guaranteed minimum even if the index does not earn as expected. Your clients can have some peace of mind in not having to worry about market volatility.
Financial Aid: When the financial aid advisor determines the amount of financial aid to be awarded, assets will be calculated into that figure. The good news about the IUL is that life insurance normally is not counted as an asset in this calculation and won’t count against the assets in the analysis of determining the amount of financial aid received.
The cost of a college education is not going to be decreasing. In all likelihood, the cost of secondary education could continue to rise. The IUL works best toward college savings when looked at over the long-term. The idea is to allow the cash account to grow over the long-term and avoid withdrawing cash until the funds are needed to help pay for college. There may be a minimum cash balance requirement on an IUL that must be maintained to keep the policy in force. This will vary depending on the insurer. Overall, the IUL can be a great option to consider when looking at college funding options.
I’m not here to tell you how to live your life or how to manage your relationships. But I am a retirement specialist – and I can tell you that this article from Kiplinger makes some sense.
The basic premise discussed in the linked article is that while one partner may manage the money and make the financial decisions for the couple as a whole, when it comes to retirement planning, both partners should be involved.
Though out the years I’ve met many dynamic couples. I always request to initially meet with both spouses, as it’s important for me to learn about the individual goals so that we can determine what the couple’s combined goal may be. Oftentimes when a spouse doesn’t want to be involved, I have to discontinue discussions. I need everyone to be on the same page in order to understand the family’s goals.
I understand that couples may have goals that differ from eachother – and that’s fine. That’s perfectly normal in fact. But let’s face it, as the Kiplinger article states, one spouse is going to die before the other. It’s just fact. That’s why it’s important that everyone has a say in retirement planning.
Money can often be a source of tension in relationships. Believe me, my conference room has turned into a therapist’s office at times. However, finding a way to talk about money to each other is extremely important. Otherwise, you can find yourself at retirement age without enough money, or worse yet, widowed and completely shocked by your financial state.
If you’re having trouble talking to your spouse about money, my suggestion would be to go see your financial planner. Talk it out with someone who knows money, knows retirement, and who you feel comfortable with. Sometimes having an expert there helps ease the tension and can help get you on the right track to retire.
How many of you have heard this phrase or said it yourselves: “What’s the point in learning this math equation when it has absolutely no application in real life?”
I know I’ve heard it before. I’m the parent who helps the kids with the math homework. I’ve heard this from my eldest children and I’m sure I’ll hear it from my little girls at some point, too.
I found this article to be thought provoking preceding the weekend, because I’m a big advocate for making your children’s lives better than your own. Everything my parents gave me I will always be thankful for. They worked hard and provided wonderful things for me, and I am the man I am today because of that. I intend to make sure my children have a good start in life as well.
In the article, Ted Beck writes about how our grandparents learned all about personal finance in high school, while our children’s education is focused on college prep these days. He says, “high school’s endgame changed after 1945, an unintended consequence of the GI Bill. Math detoured from preparing young Americans to enter financial adulthood to preparing them to enter college. Money basics gave way to the college prep track: algebra, geometry, trigonometry, calculus.”
Now don’t get me wrong, I’m sure the number of teachers who try to incorporate personal finance lessons into their curriculum probably exceeds those who chose not to, but why are our young adults often financially illiterate? The problem is not the teachers (who in my opinion are god sends), it’s the SYSTEM and the BUSINESS of school. We’re funneling our children into higher education without fully preparing those who chose not to go to college. We have a broken education system.
So my point here is, as parents (or aunts/uncles/cousins/friends etc) we need to do our best to fill the gap the system is creating. We need to be the teachers – and not just when it comes to solving that math problem our 10 year old is stuck on (or someone elses’ 10 year old as we recently saw on the news) — but by teaching our children life lessons on personal finance. By being educated ourselves about the options out there to create and preserve our wealth.
Starting 1/20/17 there’s a new president, and if things are anything like promised on the election trail, we’re likely to see some big changes that could easily affect your wallet in big ways.
It’s hard to predict what will happen in the next 4 years and how these things may affect your bank account, but that doesn’t stop people from trying.
The reporter, Brian New, examines the top 5 ways that Trump’s Presidency could affect your wallet and they’re listed in no specific order to be: (1) Lower Taxes (2) More Access to Credit (3) Child Care Expenses Will be Deductible (4) Student Loan Debt Will be Capped (5) Taxes on Businesses Will Go Down.
If we just read this article, we would be floored by all of the amazing things President Trump is going to do for our pocketbooks. If I met someone who was opposed to those 5 positive changes and first glance, I might keel over.
However, if we take a closer look, we can pinpoint what information we’re missing from the CBS story. Let’s look at the five ways Trump will affect your wallet in more detail and play devil’s advocate:
Lower Taxes – While Trump’s plan is to simplify the tax code, and as New states, may equate to tax cuts for some, “nearly half the benefits of the plan, and a higher portion of the savings, would go to the top 1% (Wall Street Journal 12/2/16).”
More Access to Credit – Over the years, getting a loan or mortgage has become such a complex process, you basically have to explain to the loan officers why you went to the grocery store and spent $42. While making it simpler to borrow to start a new business or buy a new house would be a good thing, there is a clear pitfall on this one. New acknowledged this when he mentioned that this could cause out of hand borrowing which we know was the cause of the last mortgage crisis.
Child Care Expenses Will be Deductible – It’s expensive to put your children in daycare, but it’s necessary for many families. In NJ, the average annual cost is was as high as $14,450 according to a 2013 report by NJSpotlight.com. Nationwide, the current cost of childcare annually tops out at as high as $22k (Washington D.C.) according to the Washington Post. Trump has promised to fix this problem by allowing parents to deduct the average cost of childcare from their taxes. Analysts predict this could be law as early as 2018 if this passes through Congress. The caveat here is that low income families, those who are really struggling with the costs of childcare, would gain nothing from a tax deduction like this since they pay little to nothing in income taxes (Washington Post 2016/11/14).
Student Loan Debt Will be Capped – The plan from Trump’s administration regarding the enormous lifetime burden of student loans seems great at the surface. Most of the recent college grads I meet with have been out of school for 5 or more years and have barely made a dent in their college loans. Trump’s plan would forgive these debts after 15 years of paying regular payments. Trump has asserted that the government shouldn’t be making money on student loans, and that the only fix to this would be to lower the interest rate for federal loans going forward (studentdebtrelief.us/forgiveness/trum-student-loan-forgiveness/). One major concern with his plan is that someone needs to pay for the forgiven loans which would most certainly equate to a higher tax burden for taxpayers.
Taxes on Businesses Will Go Down – Being a small business owner myself and hearing Trumps plan to cut taxes for businesses equates to a 20% tax cut for me and all business owners (Trump proposes a cut from 35% to 15%). Trump’s reasoning is that this will grow the economy and increase wages, all good things. New points out that it would “likely add to the national debt” which is the huge concern here.
In Fortune Magazine’s analysis of Trump’s Tax Plan, they determine that the deficit could climb by $6 Trillion due to all of the tax cuts Trump has proposed. There would need to be corresponding budget cuts to offset that deficit.
The point is, whatever happens, it’s going to affect your cash flow. Pay attention, ask questions and never read a headline and take it word for word. While some of these changes are much needed and I look upon the next 4 years with hopeful eyes, it’s important that we know the potential consequences of everything proposed.
Saving for retirement is essential – as everyone knows. And if you’ve seen the latest Liberty Mutual commercial, you know that when everyone thinks they should start saving for retirement is never when they actually start saving… there is often a decade gap!
This article from Fox Business does a good job of identifying the problems people have saving for retirement, one of which is that people are less likely to save if they don’t have it automatically coming out of their paycheck.
Take a moment this weekend to absorb this, and if you’re having trouble saving for retirement, one of the things I pride myself in is helping people without pensions retire.
You may say, “I have a pension, but it’s not enough…” and that’s often true in today’s climate. Or you may not have a pension or retirement plan.
As many of you know, I was a boy scout, and their motto is “Always be prepared.” I think about that in terms of everyday life, as well as when planning for retirement.
Put your savings on autopilot and save yourself the worry in the future.
Chris
Change comes with presidential elections, that’s for certain.
Whether it’s the unemployment rate, the stock market, mortgage rates or inflation, history shows that who we elect as president influences our economy.
Ahead of Tuesday’s election, I’ve come across a short comprehensive article on how this election may affect your wallets. It’s a closer look at Trump and Clinton’s most “market moving economic policies” and it’s worth a read this weekend.
No matter how you vote, get out there to the polls on Tuesday. It’s so important to be active citizens. Remember – this is a government by the people, for the people and of the people. Do your part.
Saving for retirement is essential – as everyone knows. And if you’ve seen the latest Liberty Mutual commercial, you know that when everyone thinks they should start saving for retirement is never when they actually start saving… there is often a decade gap!
Ticking Retirement Timebomb: A Blog 