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Van's Blog ~ AskAFinancialAdviser.com

What to do when you fail to plan for retirement.

Retirement on an individual basis has completely flipped within the last century.  Moreover, that may be why so many people have failed to plan adequately for retirement.  For a long time, the concept of retirement was work until the government or a big corporation felt obligated to care for you.  It was not until the last century that the obligation for retirement reversed.  The idea of retirement is traceable back to the armies of Caesar Augustus who ruled the Roman Empire from 31 BC to 14 AD.  At that time, after 26 years of service, high ranking Roman soldiers received a gratuity of land or cash of 5,000 denarii.[1]  You can probably imagine that there were not too many cash or property awards made by Caesar because not too many Roman soldiers lived through 26 years of service.  The idea of retirement continued through the centuries more as a reward for military service until 1875 when American Express created the first private pension in the United States.[2]

Then came along the idea of the 401(k) which killed the concept of companies providing retirement for employees.  401k’s started as a sharing of the responsibility of retirement savings and offered the employer a lot of leeway in the manor retirement plans were designed.  Since the responsibility for retirement shifted to the employee, many employees have not done well at retirement planning.  That does not mean that there is no hope.  Even though a lot of people have headed the wrong way, it is not too late to figure out how to live comfortably and content later in life.

When individuals became responsible for their own retirement that brought up a big question that many people face now, where do you start?  Even though investment strategy and investment selection are essential, that is not the only aspect of retirement planning that needs consideration.    You should start by exploring how you can retire and live a life of contentment rather than worry.  A sure way to be successful at retirement planning begins with the way you think about retirement.  Notice that I said retirement planning and not retirement savings.  What you name your process of preparing for a time later in life should start by changing the way that you think about what is involved in living life as a senior citizen.  Money is only a part of the puzzle. What have been your thoughts about retirement planning in the past? Do you have everything figured out or have one of these ideas crossed your mind about retirement planning?

  • I am too young.
  • I am too busy.
  • I invest in my business.
  • My company does not have a plan.
  • I do not make enough money.
  • I am too old.
  • I do not know where to start.
  • I will not live that long.
  • I am going to rely on Social Security.
  • My company has a retirement plan.
  • I am going to inherit money.
  • My spouse has a retirement plan.

To some of you, these reasons may sound silly.  Opinions and feelings about the future are never foolish.  If you feel anxious, worried or discontent about a retired life, exploring the reasons for your trepidation is essential. This next statement may sound like stating the obvious.  However, if you think that any of the listed reasons apply to you, it is probably because of money.  This is where your mindset needs to change to grasp that retirement planning is not just about money.  That is so important I will state it again.  Retirement planning is not just about money.  Retirement planning cannot be just about money, or many people are going to have no way to survive as a senior citizen in the future. Here is why.

From 2013 to 2016 the number of people that have retirement accounts rose slightly from 49.2% to 52. 1%.[3]  That means there are many people with no retirement savings.  With more and more Millennials moving back in with their parents to save money, this could be leading to a future where more adult children will be caring for their senior parents. Already, “65% of older adults with long-term care needs rely exclusively on family and friends to provide assistance”.[4]

If you know that you have not saved much money for retirement, why not come to grips with that fact and see what you can do about it.  The reasons why so many people are not saving for retirement is not as important as how to prepare to handle the problem in the future.  You will find the answer to the question by keeping an open mind and look at every resource that you have available.  Ask yourself how can you best use your resources.

Here is how to start.  Let’s look at this like a lost-at-sea game,[5] except let us call our game Survive Retirement.  If you have never played lost-at-sea before, this is the way the game works.  You are with a group, and each person has a list of possible equipment that could help you survive being lost-at-sea.  Each person in the group will rank each item in their order of importance.  For example, some people will list the significance of a shaving mirror over top of a bottle of 160 proof rum.

To begin the Survive Retirement game, list the things that are on your personal balance sheet, your assets.  For example, your home, car, bank account, property, retirement account and collectibles.  For now, do not worry about the value.  This list is not only going to have tangible items; it will have intangible items too.  Create a list of relationships.   Write down relationships with family, friends, your religious and fraternal organizations. Be specific as possible.

The reason for listing relationships is that most people do not survive retirement by only purchasing the services of someone to take care of them when they get old.  Their friends, family, church and fraternal organizations play an important part of older people’s lives.  If you are approaching retirement planning as an individual with little to no savings, then your survival hinges on you being able to reach out to your family and community.  Getting help in the future from family and community is not a one-way relationship.  People in your family and community need to be able to reach out to you when their need arises.  Remember that “No man is an island, entire of itself; every man is a piece of the continent.”[6]

When you think of people that will play an important part in your future life, you must talk to them about your thoughts.   Moreover, it may be a challenging conversation.  If you have a child that you think will be an important part of your future life when you are retired, they may not want the same thing you want.  Build relationships and be open to change.  Remember that life changes and sometimes not the way we intend or want.  If your religion is a part of your life, prayer does help in stressful situations.  If religion is not a part of your life, ask yourself if it should be.

If your lack retirement savings, you may need to reach out to family and community for help from time to time.  You will find it a lot easier to find help when you are old if you do not wait until you are old to be an active part of your family and community. The exercise is not to list family and organizations of which you can take advantage.  It is a way to encourage you to build relationships.  To be blunt, you should not wait until your seventieth birthday and then contact your family and community to say I retired today.  I am broke, can you help care for me.

Here is how you can use the Survive Retirement game to better prepare for retirement.  To follow is a sample list of twenty things and people that could be important to you.  After you read the sample list, write your list.  It could be more or less than twenty things and people.  This is an exercise not only for people that are married or have many friends.  This is an exercise to help you build relationships no matter how many you have now.  Take a few moments and write your list out now.

You are going to use this list in a few different ways.  The first time through it, only write down the person or item.  Do not worry about their importance yet.  Just brainstorm to write down people and things that will be important to you when you retire.  The second time through the list you are going to indicate, in the rank of importance during retirement, the person or thing will play. Putting people on your list has nothing to do with how special a person or group may be to you. You may have a relative that lives in Timbuktu, and you live in Kalamazoo. They are over 5,000 miles and an ocean apart.  That relation may have a special place in your heart. However, they are probably not going to be a significant part of your life when you are retired.   The question of importance is what role the person or group is going to play in your retirement. This is an exercise to help you build relationships no matter how many you have now.  Take a few moments and finish writing your list out now.

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Picture3

Now on a separate piece of paper or your computer, write how that person or item is going to be important to you during retirement.  Now comes a crucial step.  Write how you are going to help that person or thing.  Be sincere at this stage and try to tie the relationship that you have had in the past to the future.  For example, if you are going to rely on your spouse when you are retired, what are you going to do now to help your spouse.  If you are going to rely on an adult child in retirement, how are you going to help that adult child now? The same goes for your Church, VFW or another group.  What are you doing now to help that group with its goals?  Relationships are like savings accounts, you get out what you put into it, and we are not talking about money.

However, you cannot ignore the importance that money does have during retirement.  Continue your Survive Retirement Game by telling how you are going to improve the monetary items on your list to help you during retirement.  If you listed your house, can you put time and if available, money into keeping it up.  If you listed a retirement account, what are you doing now to increase that account?  Realize that some of the items on your list are not going to change.  If you are doing all you can now, that is OK.

It does not matter how much money you have or what capacity you have to save money. Save as much as you can and create a realistic strategy for improving and using what you have. Everything that you have in your future is the result of what you put into it in the past, that includes people and organizations.

[1] Rogers, Nigel. “Inside the Army – Pay and Conditions.” In Ancient Rome, 154. London: Hermes House, 2010.

[2] Costa, Dora L. “The Evolution of Retirement: An American Economic History, 1880-1990.” National Bureau of Economic Research, January 1998, 6-31. http://www.nber.org/chapters/c6108.

[3] Federal Reserve. Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances. Washington, D.C.: Board of Governors of the Federal Reserve, 2017. https://www.federalreserve.gov/publications/files/scf17.pdf.

[4] Institute on Aging. “Information on Senior Citizens Living in America.” Accessed November 1, 2017. https://www.ioaging.org/aging-in-america.

[5] Gillings School of Global Public Health. “University of North Carolina.” UNC Gillings School of Global Public Health. Accessed November 1, 2017. https://sph.unc.edu/files/2015/08/nciph-epiteams-LostatSea-answers.pdf.

[6] Donne, John. “Devotions Upon Emergent Occasions.” In The Works of John Donne Volume 3. London: John W. Parker, 1624. https://www.biblestudytools.com/classics/the-works-of-john-donne-vol-3/devotions-upon-emergent-occasions.html.

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Five Keys to Small Business Survival

If you are a small business owner with one to four employees or thinking of starting a small business, five priorities can make or break your business.  Understanding how these five keys affect your business will determine your ability to make it through your first year.  It might not seem like a good number however small business survival rates are at a “three-decade high of 48.7 percent.” [1].  Here is what you need to know, so you are not one of the 51.3% of first-year business failures.

The primary key to your success is do whatever makes you the most money first.  It might sound so simple, yet it is like that first cup of coffee in the morning.  Some people might say write a business plan first.  If you need a business plan to get you going, write a business plan.  For some people, organization is not their strength.  You can spend hours planning and organizing, but that is not going to make you money.  Whatever you have chosen to do as an income-producing activity, do that first.  Do not put it off.  Do it first.  If you are a painter, paint. If you are a programmer, code.  If it is making sales calls, do sales calls first.

Whatever your money-making activity is, do that first. 

Even when you become successful, do not forget what got you to success.  In years past, I had two clients that had built up a successful retail manufacturing business together.  They sold their business for ten million dollars up front and ten million dollars paid over the next ten years.  The new business owner bankrupted the company within a year.  Why?  At that time the one activity that made that business the most money first was collecting its debts.  They did not need new sales.  Their company had so many orders; they could not keep up.  The new owner did not have an organized system of keeping track of who owed them money and collecting their debts.  Managing accounts receivables was the most significant money-making activity that business could do, even though other activities made the company money.  Collect from their current customers; that is all they needed to do.  They did not make that a priority.  The new business owner let creditors slide and continued to spend to produce new orders.  It did not take long before they were illiquid.  Within a year a multi-million-dollar business with hundreds of employees was out of business because they did not follow this first rule.  Whatever makes you the most money, do it first.

Start a business bank account

As you start to make money in your new business, you must have somewhere to put the money so opening a business banking account is a priority.  If you have it at the same bank or credit union that you have a personal account, that may offer you some convenience.  You need an account to deposit the income from your business.  Depending on the size of your new business, you may be tempted to use your personal banking account for business too.  Having a separate account will help you to keep track of your income and expenses.  Many banks have enhanced technology that will help you keep track of how you spend your money.  Keep as many details of your expenses as possible.  When you file your income taxes, having details of your income and costs will make it much easier to complete.

Learn how to pay your taxes.

That brings me to number three, taxes.  Many small businesses are paid as an independent contractor.  That means that if you are an individual, you will not get a W-2 but will receive a 1099.  And for some businesses, you will not get 1099’s because of the nature of your business, but you may need to issue 1099’s or W-2’s to your employees.  For example, if you are a consultant or a vendor, your clients typically will not give you a 1099.  So, it is up to you to keep track of your income and estimate your taxes owed at least on a quarterly basis.

One of the most significant challenges that any business owner will have is keeping track of and paying taxes.  If you have never paid income taxes directly to the IRS for your business activity, this can be an intimidating job.  If you need some help, the IRS has a series of video recordings that can help understand paying taxes from your business.[2]    For solo self-employed business owners, the tax system is set up for you to pay your income taxes quarterly. The quarterly tax schedule is a minimum standard for you to operate within.  If it is easier for you to pay as you go, which might entail you paying more frequently than quarterly, you can do that too.  If you want to pay monthly or even weekly, the IRS will not decline to accept your payments.  If you have employees and deduct payroll taxes this may not be an alternative; it may be a requirement.[3]  Your goal should be to estimate as close as possible what your overall tax obligation will be.  If you are over, you get a refund.  If you are under, you get a penalty.  If you have an accountant or CPA, you are working with; they will help you.  If you want to do it on your own, I highly recommend using a software program like TurboTax for business.  This type of software will help you figure you out what your estimated payments should be.  The bottom line is to be proactive about doing your taxes.  It will not go away, and it will not get more comfortable if you put it off.

Keep track of your expenses.

Be obsessive about keeping track of your expenses.  There needs to be an active link between your business banking account, your taxes, and your business.  If you use a business debit or credit card keep track of every cost you can.  Years ago, a doctor and his wife met with me looking for help in budgeting.  I asked how I could best help them.  The doctor’s wife explained to me that they knew they needed help because their bank contacted the doctor to tell him he was overdrawn.  The doctor explained that he could not be overdrawn, he was billing $30,000 per month!  He was following my first rule of doing what made him money first.  However, what made him the most money changed because his expenses and spending were higher than his income.  You must keep track of your expenses.  You must take the responsibility to regularly personally review your expenses and spending.

Buy health insurance

I cannot stress enough that if you are going into business for yourself, that you must have health insurance.  Small businesses do not have to provide health insurance to their employees.  You may be tempted to pay for employee health insurance too, however surviving your first year is your goal. So, do not over obligate your business.  But do not overlook the personal necessity of having health insurance.  One health claim could put you out of business.

There is another twist to the need for health insurance. Tax laws might change, however, in 2018, the IRS will decline to accept your return if you do not have a proof of health insurance.  So, you are going to need it regardless of your health.  Beyond the national debate of if the federal government should make citizens buy health insurance, it is something that you will need at some point in time.  I will not deny that some people can go through an extended period without going to the doctor.  We are all human, and at some point, in time we will all have our health fail to one degree or another.  You need it for your wellbeing, and you need it to be able to file your income tax return.

The path to obtaining health insurance is changing.  Small business owners can go directly to health insurance companies or through the federal government’s health insurance exchange system.  Research what is available and purchase a plan that fits you, your family and your budget.

If you have personal obligations, do not overlook the need for life insurance.  It does not have to be expensive, just enough to cover your necessities.  You can find a quote here.[4] At the beginning of your business, you can ignore the need for disability insurance.  Make it through a year, build your revenues and then consider protecting your income.

These five priorities are significant.  If you master what makes you money and you repeat it every day, you significantly increase your likelihood of sustaining a profitable business.  Staying healthy and having health insurance will keep you in business. Keeping current with your income tax obligations will keep you healthy and wealthier in the long run. Beginning a banking relationship and relentlessly keeping track of your expenses will ensure that the money you make, works as hard for you as you work for it.

[1]Kauffman Foundation. (2016). Kauffman index of main street entrepreneurship. Retrieved from http://www.kauffman.org/kauffman-index/reporting/~/media/a5505aae29bd4f8ba0d30f29f47fa576.ashx

[2] Internal Revenue Service. (2017). Small Business Taxes: The Virtual Workshop. Retrieved from https://www.irsvideos.gov/virtualworkshop/

[3] Murry, J. (2017, February 28). Employer’s guide to payroll tax deposits. Retrieved from https://www.thebalance.com/how-and-when-do-i-make-payroll-tax-deposits-398821

[4] Richards, V. (2017). Advice 4 Life Insurance – term life insurance. Retrieved from http://www.advice4lifeinsurance.com/

 

Bouncing Back after a Hurricane

If you sustained financial and personal losses from a hurricane, one of the most difficult challenges you face is to get your life back to normal. Storms destroy thousands and thousands of homes. Businesses are upended. Sometimes it even takes lives. Even thinking about the losses can make the strongest person melt down and cry. If you are facing this situation, you deserve a time to come to grips with the magnitude of the situation.

But after a while, you have to face the reality of the situation and make plans to continue your life, your job, your family, and if you own a business, you must get on with that too. Before discussing financial and business plans, it is important to talk about people that have a family with young children living at home. It is so important to be their guiding light. Help your kids to feel safe and understand that the future is bright.  If you do not believe this, dig deep within yourself and put on a brave face. Find someone to talk to about turning your life around. You might need to find a family member, a minister, a social worker or a mental health professional. Do not feel bad about asking for help or needing to talk to someone. Recovering from a natural disaster can be as difficult mentally as a loved one’s death. If you did lose a loved one in a natural disaster, my heart goes out to you. You too should work to live life to its fullest. There are people that care for you and want to help.

There is no perfect step-by-step method to getting your life back in order. With that thought in mind, the following information is in an outline form. Use it as a guide. It is up to you to fill in the details that best fit your personal and financial recovery. The first step in any disaster recovery is to assess your financial situation.

Where do you have available cash?

Savings

If you have CD’s and you need to access them, ask if your bank or credit union will waive their early withdrawal fee.

Mutual funds, stocks, and bonds.

If you have any funds that are losing, this may be time to take the tax loss and use the cash value. Tax loss harvesting can be a complicated matter. Ask a financial adviser or accountant if you need more detailed help. The key to this aspect is keeping track of your losses and gains so it can be reported when you file your income taxes.

Life insurance cash value

If you have a whole life insurance policy, see if you have a dividend cash value. This may be cashed in without a loan. Note that loans on life insurance policies do have interest and some life insurance companies pay lower dividends to customers that take loans.

Retirement accounts

Many retirement accounts do have special hardship provisions. Although remember that if you do take retirement cash values, it may seriously affect your future retirement. If you must take money out, by all means, do take it. Just be aware of the consequences. If you would like more information on retirement plan loans and hardship withdrawals, read my blog post “Don’t let Harvey take a bite out of your retirement.”

What insurance do you have and what will it cover. What is your deductible?

a.     Liability insurance

b.    Flood insurance

c.     Wind damage insurance

What are your expenses right now?

a.  Current expected living expenses

b.  Can you live in your home?

c.  Do you need to make arrangements to live with a relative or rent a home? How will you pay for those expenses?

d.  Food budget – this can be one of your biggest expenses. Eating out may have been a necessity after the hurricane, however, make a food budget and stick to it. Your family will be healthier, and you will save money.

e.  Transportation – Does your vehicle need repair? Did your vehicle sit in water that came to the bottom of the door? When water is high, it can seep into vital working components and cause expensive damage. Your vehicle needs to be inspected by a mechanic even if it appears to be running well. Do you have insurance and what is the deductible? Do you need a rental car or can you borrow a car?

f.  Child expenses – Do you have education expenses or child care expenses? After a natural disaster, you may need to find different child care if your previous child care business is not operating. What are your children’s extracurricular activity expenses and will they continue?

What do you owe?

a.  This must be one of the hardest aspects of rebuilding after a hurricane. If your home has major damage and you have a mortgage on it, you still must pay the mortgage.

b.  Make a list of what you owe along with the contact numbers of the creditors.

c.   If you can continue to pay payments, do so. If you need an extension, contact your creditor first. Do not wait for them to call you. Creditors that have customers in disaster areas know people are hurting financially and most will be willing to work with you. Perhaps you can work out a lower payment or a delay in payment.

d.  If you can continue making payments to your creditor, do it. Many student loan creditors have already contacted student loan holders to let them know that they have an automatic grace period on paying back their loan. However, one important point is not mentioned. The interest continues to add up. Do not take an automatic extension if you do not need it.

Do not forget your taxes. 

Property taxes still must be paid. If you pay quarterly income taxes, you can adjust your payments based on your expected income. If you can foresee that you will need an extension, take what is available. However, as with most creditors, do not use the hurricane as an excuse to put off what must be done. Interest will continue to grow on what you owe.

Do not overlook taking personal and business casualty tax losses. The floor for personal liability losses is 10% of your adjusted gross income. There is no limit for business losses. If you are not sure how to take tax losses, it is important to talk to a tax professional.

One item often overlooked for personal losses is clothing. Most garments that are damaged from flood water need to be thrown out because they will become contaminated with mold. Document every item, it all has a value. If you are not sure what value to use, refer to the IRS’s clothing valuation for donations. That may give you some idea as to what valuation to use for a loss.

Detail everything that is a loss of from your home and business. Taking pictures of every item may be labor intensive however it may save you a lot when it comes time to file your taxes. You must be able to prove any loss you claim.

Getting back to work.

After you have accessed your readily available assets, you should consider your employment status. Is your employer open and is your job continuing? If you are a small business owner and you are rebuilding, this may seem like a crazy idea. However, ask yourself, is it time to get another job while you rebuild your business? If you can get a second source of income going, this is the time to do it. An additional job does not have to be in your current line of work. One of the most readily available jobs will be sales, even if it is telemarketing. Just make sure it is not straight commission (unless you consider yourself a selling wiz). This is supposed to be a second income, not a head and heart ache. Every job or career has something to do with sales, so a second job in sales may help you get your small business back on track.

Make a budget

If you had a budget, it probably needs a lot of revision. If you do not have a budget now is the time to start. Trying to pay off debt and rebuild your finances after a disaster without a budget is like running east and looking for a sunset. You will work yourself to death and never know if what you are doing is working.

Creating a budget is easy. The simplest budget tool I have found is an app called Mint, and it is at the right price, it is free. If you are electronically challenged, I would still suggest you try Mint. You have nothing to lose but a little time. If computer apps are outside of your comfort zone, then make a written budget. It does not need to be complicated. List what you owe and your sources of income. If what you owe is bigger than your income, go back and rework the list of what you owe. Contact the creditors and cut expenses if necessary.

Budgeting is an ongoing process, not a once a year exercise. At least once a month, take the time to review what is working and what is not. Do you need to be more mindful of spending in one area of your life?

As you look for ways to cut expenses, remember that there are some costs that you need to keep. Insurance is one of those areas. If you have more than one vehicle that was damaged by water, will you replace each one immediately? If the answer is no, then suspend the coverage on vehicles that are just sitting. I would not recommend dropping coverage. However many liability carriers will allow you to suspend coverage for vehicles that are not being driven. Contact your insurance agent and ask for help in making this determination.

If you have life and disability insurance, do not drop it if possible. If you have cash value policies, talk to your agent to see if the premiums can be lowered. Universal life policies may allow you to make lower payments and whole life policies may permit you to pay premiums with cash value or policy loans. Do not drop coverage to start a new policy until you have a replacement. Older permanent policies cannot be repurchased at the same rate, and you will more than likely lose some value. If you must make a change, ask your agent if there is a commission to be paid on the new policy. Some life insurance carriers will waive commissions on internal replacements. Although if your new policy is not cheaper than what you can purchase on the open market, they are not doing you any favors. You may need to find a new life insurance carrier. If your income has changed and you need to get a cheaper policy that is a good reason to change policies, however, be comfortable with any changes you make. The same goes for term life insurance. If it is a policy you have had for a long time, there may or may not be something cheaper available. You may need to do some shopping for coverage.  This is an important point that bears repeating, do not if you are applying for new insurance, do not discontinue your existing insurance until the new insurance is delivered and paid.

Everybody’s situation is a little different, so it is impossible to detail every aspect of rebuilding your finances after a big loss like a hurricane. The details of dealing with insurance companies, contractors, and a mortgage company could fill a book. However, good advice is to be patient and persistent. And if you are a God-fearing person, prayer helps a lot too.

Posted by: Van Richards

Van is the founder of Advice4Retirement and Advice4LifeInsurance.

You can contact him at van@advice4retirement.com Follow on Twitter @VanRichards or Facebook at Advice4Retirement or Advice4LifeInsurance

Hurricane Harvey Financial Recovery

Hurricane Harvey may throw some peoples’ finances into chaos.

This is a natural disaster that may affect peoples’ finances in abnormal ways. Here are several important items that may help you or others you know get through this difficult time. Click on the links for more details.

Information for Now

  1. If you are forced to seek medical or dental attention and the provider imposes a penalty because you are out of the network that penalty should be waived if you are affected by the storm disaster.Communicate with your medical provider and your insurer concerning your status.
  2. If you have prescriptions that are due for renewal, however, a new insurance company approval is required, that requirement should be delayed for 90 days. Communicate with your insurer to clarify your status.
  3. If you are an employer and you have commercial vehicles that are participating in the storm relief effort, commercial insurance should extend to cover those vehicles during their relief activity.

Information for After the Storm

  1. If you are displaced because of the storm and your employer is still operational, contact them to let them know your status if you cannot make it into work.
  2. If you are forced to leave your home for an extended period, let your property insurer know and ask them to waive the occupancy requirement because of the disaster.
  3. If you experience a financial hardship and cannot make payments that are due, contact your creditor and let them know you will be delayed. If your area is part of that which is considered a natural disaster, delays should not affect your credit rating. It is important that you communicate with your creditors.
  4. If you have insurance renewals that change or increase and the change is attributed to your status as a storm victim that change is inappropriate. Contact your insurer to clarify the reason for any changes to your policy.
  5. If you have insurance premiums due and are unable to make payments because of a hardship from the current disaster, insurers have been encouraged to allow extra time to pay. It is important to communicate with your insurer and let them know your status.

The key to making it through this difficult time is communication. 

There are a lot of people that are eager to help. However, be aware that there are also unscrupulous people that may attempt to take advantage of your situation. If you have an issue that is related to insurance coverage, call your agent or insurance company. If you cannot get the answer you need you can turn to the Texas Department of Insurance.

Posted by: Van Richards

Van is the founder of Advice4Retirement and Advice4LifeInsurance you can contact him at van@advice4retirement.com Follow on Twitter @VanRichards or Facebook at https://www.facebook.com/Advice4Retirement/ and https://www.facebook.com/advice4lifeinsurance/

Set Retirement Plan Expectations

Expectation is the conflict between frustration and reality. The first step to creating a low stress company retirement plan is a common understanding of everyone’s expectations. This includes all the entities involved in the retirement plan process. From the employees’ perspective, they see only the processes listed below in blue. However, the employer must look at a retirement plan from a very different perspective. The process in orange is a typical list of the people involved in the management of a retirement plan.

customer-service

Knowledge of a customer’s needs is where satisfying expectations begins. Knowing the process necessary for a low stress company retirement plan is critical to fulfilling expectations. This is an outline of the operation of a company retirement plan.

  • Develop a retirement plan strategy
  • Design a plan to fit the business
  • Create a method of choosing and monitoring investments
  • Have a plan that is competitive within the company’s industry.
  • Manage the vendors that interact with the retirement plan.
  • Stay compliant with fiduciary standards
  • Provide education to employees that satisfies fiduciary requirements.
  • Manage employee communication.

Developing a strategy that will accomplish this process and be reasonably flexible is important. Businesses change, employee demographics changes, and regulations change so the operation cycle of a retirement plan must be able to change. The result is that customer expectations change too. The next step to fulling customer expectations is developing a retirement plan strategy.

To see the next step, check back for the next post in this series, The Company Retirement Planning Process or visit www.advice4retirement.com

Posted by: Van Richards

Van is the founder of Advice4Retirement and Advice4LifeInsurance you can contact him at van@advice4retirement.com Follow on twitter @VanRichards or Facebook at https://www.facebook.com/Advice4Retirement/ and https://www.facebook.com/advice4lifeinsurance/

 

Buying Sight Unseen

Purchasing a car and life insurance online have many similarities.  People buy cars regularly sight unseen. You can go to Ebay or a national dealer like CarMax and find a car and have it shipped to you from anywhere in the United States. One of the most attractive aspects of buying a car online is you do not have to see a salesperson.  Like a purchase of a car online, buying life insurance online does not require you to see a salesperson either.   There are some lessons to be learned from car buying online that can help you when shopping for life insurance online.

If you purchase a car online, you want to see a picture.  How do you see a picture of a life insurance policy?  What you are insuring is your family’s financial well-being, that is the picture of a life insurance policy.

family-car

Let us put it into numbers.  With cars and life insurance, size of your family matters.  If you have a family of four, you probably will look for a four-door family vehicle.  If you have a family of four, your life insurance will need to settle your debts and replace your income if you are not in the picture any longer. Let’s add up a few numbers as an example for a young couple, both earning $50,000 a year.

$30,000 car note. The average new light vehicle priced by Kelly Blue Book is $34,372 [i].

$14,000 household debt. The Federal Reserve[ii]  says the average household debt is $14,452

$157,000 average mortgage. Business Insider reported this information from Experian [iii]

$28,950 average student debt. Reported by the Institute for College Access & Success [iv]

$490,680 cost of raising two children. Reported by The Department of Agriculture [v]

$10,864 Final expense cost as reported by CSG Actuarial & LIMRA [vi]

$ 253,622 Cost of educating two children at an in state four-year college [vii]

Using the life insurance calculator from the non-profit organization Life Happens and this average debt information you can estimate that one parent’s life insurance needs at $356,278[viii].   If you fill the calculator in with your personal information, you will probably come out with a different number.  The $356,278 gives us a point to use as an example.  Here is a screenshot of the calculations page so you can see how I arrive at the recommended life insurance amount.  This calculator is available for free at www.Advice4LifeInsurance.com

life-happens-calculator

To make our conversation easier, let us round the number up to $360,000.  In comparison, if you know you need a four-door car, you now want to look at the reliability of the manufacturer.  In selecting life insurance, if you know you need a $360,000 policy, this would be the point where you want to look at the suitability of the policy and the financial strength of the life insurance company.

There are dozens of websites on the internet to select life insurance companies.  Most of them require that you provide your personal information before you decide what life insurance company you want.  That is why I designed the life insurance calculator on Advice4LifeInsurance.com to offer life insurance company options before you enter your personal information.  If you enter in some basic information, you can see which life insurance companies offer the policy for which you are shopping.

life-insurance-quotes

If you are shopping for a car, you do not stop at the price.  You look at manufacturer reports and surveys.  Most life insurance sales sites on the internet stop at this point and ask you to sign up.  Not so fast.  There are more questions to answer.  In buying a car, you look at the dependability of the manufacturer.  In life insurance, you look at the financial strength of the life insurance companies you are considering.  In some instances, there may be several life insurance companies that are only a few dollars apart.  If you see a life insurance company that you have questions about, the next step is to visit our ratings page at Advice4LifeInsurance.com [ix]

On that page, I list three of the most prominent financial rating services and the Comdex rating along with their rating of dozens of insurance companies.  The Comdex rating takes all four of the most prominent financial rating services and cumulates them into a scale that goes from 0 to 100. The theory behind the Comdex rating is the higher the financial rating, the better the financial strength of the company.  Rating services charge a substantial fee for their rating, so not all insurance companies choose to be rated by all four rating services.

You can buy a car and life insurance online, however, that does not mean that you should not speak with the person from whom you are buying. If you found the right car at the right price, the next step that most people take is to call and inquire about the car.  That is the same thing that you should do when buying life insurance online.  After you have determined the amount of life insurance that you want, found the price that is within your budget, and narrowed the selection of the company down, it is time to complete the application and talk to the person from whom you are buying.  You do not have to submit payment to begin the application and you can back out of the application at any time.  Even after you buy the policy you have 30 days to change your mind and get a refund.  The attractiveness of buying online is that you do not have to meet with a salesperson.  It is much easier to say no thank you on the phone.  However, remember not to rush through the process. Verification and communication are vital. If you do both, you are well on your way to a smooth transaction and purchase that will protect your loved ones for many years.

References

[i] Kelly Blue Book. “New-Car Transaction Prices Increase Nearly 3 Percent Year-Over-Year In September 2016, According To Kelley Blue Book – Oct 3, 2016.” MediaRoom. Last modified September 2016. http://mediaroom.kbb.com/2016-10-03-New-Car-Transaction-Prices-Increase-Nearly-3-Percent-Year-Over-Year-In-September-2016-According-To-Kelley-Blue-Book

[ii] Federal Reserve Bank of St. Louis. Households and Nonprofit Organizations; Credit Market Instruments; Liability, Level – FRED – St. Louis Fed. Board of Governors of the Federal Reserve System, 2016. Accessed October 17, 2016. https://fred.stlouisfed.org/graph/?id=CMDEBT

[iii] Kiersz, Andy, and Libby Kane. “Mortgage Balance State Map.” Business Insider. Last modified October 14, 2014. http://www.businessinsider.com/mortgage-balance-state-map-2014-10

[iv] Institute for College Access & Success. “State by State Data 2015.” Project on Student Debt. Last modified 2015. http://ticas.org/posd/state-state-data-2015.

[v] U.S. Department of Agriculture. “Parents Projected to Spend $245,340 to Raise a Child Born in 2013, According to USDA Report | USDA Newsroom.” Newsroom. Accessed October 18, 2016. http://www.usda.gov/wps/portal/usda/usdahome?contentid=2014/08/0179.xml.

[vi] CSG Actuarial. “Final Expense Insurance Sales Nearly $400 Million in 2013, Life Insurers Council and CSG Actuarial Report.” CSG Actuarial. Last modified September 8, 2014. https://www.csgactuarial.com/2014/09/final-expense-insurance-sales-nearly-400-million-in-2013-life-insurers-council-and-csg-actuarial-report/.

[vii] College Board. “Average Published Undergraduate Charges by Sector, 2015-16.” Trends in Higher Education. Last modified 2015. https://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2015-16.

[viii] Richards, Van. “Life Happens Life Insurance Calculator.” Advice 4 Life Insurance. Last modified October 18, 2016. https://www.advice4lifeinsurance.com/

[ix] Richards, Van. “Ratings.” Advice 4 Life Insurance. Last modified October 14, 2016. https://www.advice4lifeinsurance.com/ratings.html

 

Good Financial Advice

When was the last time that you asked for a second opinion on your finances?  Money is one of those subjects that is hard to bring up in conversations.  If you talk about money with friends it may open your life more than you want or more than your friends, want to know.  The hesitation to discuss money also brings up the problem of trust. Just where does a non-financial person go for financial advice that can be trusted?  Here is the short answer:

Employee benefits education at work

CPA’s and attorneys

Fee-based financial planners

Stockbrokers

Investment product providers

Life insurance companies

Life insurance agents

Credit union

Banks

Robo-advisers

The internet

What are the pros and cons of the various sources of information? Here is some brief insight into the different sources of financial advice.  This is not meant to be the end-all of financial information sources, but rather enough information to point you in the right direction.

Employee benefit education is a major source for many people, and its reliability is getting a big boost.  In April of 2017, new laws go into effect mandating that all employer retirement plan information be in the best interest of the employee (Department of Labor, 2016).  That does not mean that all employee benefit information will be equally informative.  It also does not mean that employers are entirely responsible for employees’ financial lives.  It does mean that the financial advice concerning the retirement plan should be dependable.  How you relate that information to other aspects of your finances is up to you.

Stockbrokers have changed over the past fifty years.  Stockbrokers used to be just what their name implied, someone that bought and sold stock.  They did not offer much unbiased advice because they usually worked for an investment banker that was organizing the sale of a company’s stock.  As time has progressed, stockbrokers have become less sales-oriented and more concerned about if they are offering financial products that are in the best interest of their clients.

Investment product providers are mutual funds purchase directly from the provider or a unit investment trust sometimes shortened to UIT’s.  There are some providers that offer good advice, but remember that they still do not have a high responsibility to sell the products that are best for you.  They have certain regulations that they have to follow. For example, they are not supposed to say things that are blatant lies.  Moreover, they are not supposed to sell their products to people that they find are financially unqualified.  However, your overall best interest is not their legal duty.  To some degree, it is still buyer beware.

Life insurance companies have some similarities.  Like the investment product providers, they are not supposed to stretch the truth.  However, the average person is far from qualified to understand some of their products, making the need for an experienced agent more important.

Life insurance agents are separate from the life insurance companies in this information because there are many life insurance agents that are independent.  The autonomy of an independent agent does give their financial advice less likelihood of being biased. However most financial advice from life insurance agents will be compartmentalized to deal only with the financial aspects related to their products.

Credit unions remain a good source for financial products and information.  They sell credit union and life insurance products.   Nevertheless, just like any product provider, it is up to the customer to be sure that they are buying a product that they understand and can afford.

For a long time, banks were perceived as the gold standard of safety.  Recently that image has fallen because one big bank let its branches get out of control and cost its customers millions of dollars.  It gives the impression to the average person that they cannot trust banks any longer. Time will tell how that circumstance gets resolved and if their image will improve.

Fee-based financial planners are perceived as one of the most unbiased parties when dealing with money.  They do not sell products so their primary incentive is client fees.

CPA’s and attorneys are listed together.  However, it has been my experience that many more CPA’s deals with financial issues than attorney’s.  If you are looking for financial advice, a CPA or attorney will be very straight forward in telling you if they will or will not be able to help you. Some of these professionals have expanded their practice to include fee-based financial advice.  Because of their level of fiduciary duty, I would not have any reservations in stating that if a CPA or attorney provides financial advice as part of their service, it is dependable.

Robo-advisors have become a new option available for financial advice, and some are trustworthy sources of financial information.  The creators of robo-advisor services have taken the modern theories that are used to manage investments and put them into a computer program.  Plug in the parameters of your financial situation and the program will produce what is considered to be an appropriate investment allocation.  As the economy changes or personal financial circumstances change the program can alert customers of changes automatically or prompt customers to manually make changes.  Do robo-advisors work?  The reliability of robo-advisors is as good as the creator, person, or team that is managing the program.  Just as in the quality of investment advice that you obtain from real people depends upon the individual you are entrusting.  According to a study done by pollster Gallup, only 5% of U.S. investors use robo-advisors and an astounding 80% state that “they are not likely at all to use a robo-advisor” (Gallup, Inc.,2016).

flashing-red-lightIf I could post a big flashing red warning light on the page, this would be the place to put it.  The internet is an option that most people will turn to for financial advice however we should all be wary of internet financial advice because of the prevalence of scams.  It takes no financial experience, education or certification to start a website.  That is reason enough to be cautious. You may have found this article by surfing the internet for financial advice.  How do you know you can trust it or me?  The fact is you do not.  Ask yourself, does the source sound rational and can you research the advice?

When judging the quality or usefulness of any financial advice there is a reliable standard.  If a circumstance sounds too good to be true, it probably is.  People get caught up in scams because they find an answer to a problem or concern that they have and the solution they find seems to fit just right.  We all have some degrees of trust in us.  We could not live daily without some trust.  We believe a total stranger when we ask them the time of day.  Trust gets a little more away from personal control when we ask for information that will impact part of our life.  The education system teaches students to trust one another in projects.  Everyone’s grade in a group project depends on each other.  We trust colleagues at work when we share responsibilities.  However, even in these examples, you can see there is room for lapses in confidence.  As we broaden the circle of trust to encompass other aspects of our lives such as finance, reasons to mistrust widens.  There are people in our world that are putting their personal interest ahead of your best interest.  The cold hard fact is that there are people in our world that set out to deceive others.  How can you be sure that you are not getting advice for your money from a con-artist?

In her book, The Confidence Game, Maria Konnikova tells the fascinating story of Dr. Joseph Cyr, a surgeon in the Royal Canadian Navy (Konnikova, 2016).  Dr. Cyr was outstanding, he did surgery in the toughest conditions at sea, with little or no help.  The only problem was the Dr. Cyr was not a doctor at all.  He was Ferdinand Waldo Demar, a young man that had not even graduated from high school.  Konnikova’s captivating book looks at the reason why people fall for things that are not real.  She describes the people that commit these charades like this, “Their genius lies in figuring out what, precisely, it is we want, and how they can present themselves as the perfect vehicle for delivering on that desire” (Konnikova, 2016).  The thing we can learn from Konnikova’s insight is that when we are looking to find financial advice, be careful that the solution has not been created to prey on our needs.  If it is too good to be true, it probably is not true at all.

How do you make sure that you are getting sound financial advice?  Over the years I have worked for large firms and even though the firms had billions and billions of dollars under management clients did not rely as much upon the credibility of the institution as much as they did with the person that was in front of them.  Investment firms know this and try desperately to tie their employees to their company.  For the average everyday person or the CEO of the multi-billion-dollar corporation, knowing if you can trust the financial advice of your advisor boils down to work experience, life experiences, references, education, and last but not least common sense.

As people begin their careers, education is paramount.  As the years go by the value of classroom teaching is replaced with the work experiences encountered. Do not take me wrong, education is valuable, especially financial education.  My point is that life experiences have a significant impact on a person’s abilities.  If you are presented with financial recommendations, don’t be shy about asking for references of the advisor’s work.  Don’t be put off if there are not a lot of Yelp, Google or Angie’s List reviews. How some financial advisors interact online is regulated either by the government or their self-regulatory organizations making online research more difficult. If the circumstance warrants, ask for a referral.  Understand this too.  If you are asking for advice on a $35 per month life insurance policy, you probably are not going to get the phone numbers of the advisor’s top ten clients.  Samples of the advisor’s work can also serve as a good standard for trust.  I have mentioned it a several times, and it is worth saying again, the common sense factor is crucial.  If the service or results of services sound too good to be true they probably are not real.  Follow these guidelines, and it will help you in finding good financial advice.

References

Department of Labor. (2016). Conflict of interest rule—retirement investment advice (Volume 81, Number 68). Retrieved from National Archives and Records Administration website: http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=28806

Gallup, Inc. (2016). Robo-advice still a novelty for U.S. investors. Retrieved from Gallup Poll website: http://www.gallup.com/poll/193997/robo-advice-novelty-investors.aspx

Konnikova, M. (2016). The confidence game: why we fall for it … every time. New York, NY: Penguin Random House.

 

Van Richards is the owner of Advice4LifeInsurance.com and Advice4Retirement.com he can be contacted at van@advice4lifeinsurance.com or on twitter @VanRichards

Securing the American Dream

Steven and Ngoc Anh Tang left Vietnam to pursue the American dream: They wanted their children, Jimmy and Nancy, to have a better life. The elder Tangs were responsible and honorable parents.  They knew they wanted to secure a future for their children. However, they needed guidance to assure their dreams would come true.  With the direction of an experienced insurance professional, they were able to make plans for their future and make plans for the welfare of their children if the worst happened.  The couple purchased permanent life insurance for both Steven, who worked for an hourly wage, and for Ngoc Anh, who was mainly a stay-at-home mom.

It was on a trip with her mom and sister that Ngoc Anh was involved in a car accident. Her life-threatening injuries meant she was in and out of the hospital, but because her policy had a disability waiver of premium, she no longer had to pay for the policy. However, Ngoc Anh never fully recovered, and later died of a stroke. Again, her life insurance policy came through. Their insurance professional had advised the Tangs to get an accidental death rider, and because Ngoc Anh’s heart condition was a result of the accident, the family was entitled to double the original amount of the policy.

Now that he was a single father, Mr. Tang’s insurance professional encouraged him to get additional life insurance to protect his children, which he did. Unfortunately, tragedy struck just three years after his wife had passed away. Mr. Tang learned he had liver cancer and died soon after his diagnosis. Nancy, a senior in high school, and Jimmy, who had graduated from college, were now on their own.

Thankfully, the Tang’s insurance professional and the money from the life insurance were there to shepherd the children on their way. Nancy is now attending college, and the siblings have bought a house near campus so Jimmy can help his sister as they start a new chapter in their lives. They credit life insurance for that opportunity. “It’s vital for parents to have life insurance,” says Jimmy. “It means if you do die, your loved ones can go on without worrying about money while they get back on their feet.”

To see the Tang family’s story visit my webpage at:

https://www.advice4lifeinsurance.com/securing-the-american-dream.html

Love Insurance

If you have a business with a partner and/or you are a physically disabled business person, you can learn something from Christy and Daryel Dunaway.  Their story is one of love, commitment, and understanding.  Their love story began as a friendship and stayed that way for more than a decade until, as Christy says, “I understood that love was about having someone who loves you as you are—heart and soul.”

Daryel also knew at a deep level that he needed to protect his love for Christy on a financial level, as well as an emotional one. He and his friend John had started a business together, Handicapable Vans, which adapts vehicles for people with disabilities. It is something both men knew about from firsthand experience. Daryel had become paralyzed from the chest down in a diving accident at 15; John was a quadriplegic as well.

The partners arranged legally for the business to pass to the other if one were to die with a buy-sell agreement.  However, Daryel knew he also needed to ensure his wife would be taken care of financially. You might not believe insurance is available for a quadriplegic yet with the help of an experienced insurance professional, Daryel got the life insurance he needed and made sure he increased it as his business grew.

It was fortunate that both men were so adamant about getting—and increasing—that coverage. Daryel faced his life with joy and optimism, despite his physical limitations, but it was eventually his body’s inability to shake off a series of infections that took his life at 57.

Christy was overwhelmed with grief in the wake of his death. She credits Daryel’s life insurance with giving her time to grieve and then being able to move on with her life. “It meant I didn’t have to sell our home, which we had adapted to meet our needs,” says Christy. Also, she has opened her consulting firm, which had been a joint goal for the couple. “Life insurance has allowed me to take action on our dream,” she says.

To see Christy’s story visit my website at : https://www.advice4lifeinsurance.com/christy-dunaway–love-insurance-1.html

 

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