Month: May 2018

When I had clients, I often discussed with them how it was that Indexed annuities and Indexed life or Long-term Care insurance could guarantee no principal loss while offering a part of the return from some equities or bond index. We would discuss this complex invention and how it could be used to hedge the risk of market fluctuations on their most crucial portions of their savings. The level of depth of these discussions varied with the client, but they always knew that delivery of the promised minimum returns and principal protection was dependent upon the carrier’s strength. They almost always went for the guaranteed income at the other end of the guarantee period because being confident in matching guaranteed income to guaranteed-to-incur living expenses was prudent.

Once in a while, however, the light would shine brightly in a client’s or prospect’s mind and the person would say, “Well, if the insurance carrier can get these underlying contracts enabling such protections, why can’t I directly?”

The answer was always, “You can. These are called ‘structured notes or certificates.’ But only a carrier has a reserve that protects policy owners in event that these structured notes lose money or fail to gain. Carriers also assemble enough money to buy in bulk and to stagger the maturities closely so that they can honor withdrawal demands. Only life and long-term Care insurance enables payout of gain that is immune to income tax. If you own the structured securities without the insurance ’wrapper,’ then your earnings are not tax-deferred, favored payouts are not tax-free, you have no lifelong income guarantee and your principal guarantee is generally not backed by any reserve. I must say, as I do in The Secrets of Successful Financial Planning for one’s ‘Tier 3 cash reserves:’ These structured notes work well for known expenses at maturities generally ten years & fewer away (e.g., college expenses coming up starting in five years, and you want a shot at good returns but relatively low risk for funds allocated for college). So, for long-term or retirement investing, do you still want to be your own insurer and buy structured securities?”

More on the stand-alone (i.e., non-insurance) structured products at http://www.finra.org/investors/alerts/structured-notes-principal-protection-note-terms-your-investment and other tips and “fun stuff” at AuthorDan.com. Best to you from AuthorDan!

For well over thirty years, clients — especially those planning or new in their marriages — have asked me whether their accounts & properties should be joint or individual. My advice always depended upon  what I learned from a rather invasive personal discussion. Sure, the government dictates that Qualified savings and IRAs be individual rather than joint. Sure, some items require special treatment to avoid inadvertent disinheritance of heirs, especially children of widows or widowers. Sure, joint ownership with adult children is convenient (but can result in disinheritances). The answer depends upon the couple asking this question and the reason for a contemplated exclusive ownership form, so this discussion is focused upon first-time marriages.

To answer this question for newlyweds, especially, one must dig very, very deep into the human relationship to answer this. If one spouse is attached to what that spouse earns and owns, a joint account for routine bills works, but only that will work as joint. Suppose further that the couple is not committed to traditional values, or only one spouse is:  That one factor reduces their probability of staying together and fully trusting each other’s access. (Stats and experience are on my side here; don’t ‘beef at me over this!) Such people see their marriage as not a total giving; they have expectations about fair and equal contribution that may not be satisfied unless they keep certain assets sequestered. To what are we attached at the deepest level? The success of a family — whatever that requires — or what we individually get out of the relationship? My book, The Secrets of Successful Financial Planning, has more detail and an eye-popping true tale of a couple who almost divorced over this very issue.  So, at the risk of seeming too promotive, I do recommend reading at least that section.

My wife, Laura’s and my accounts and property ownership forms have been joint wherever possible from the beginning. I do recommend this commitment, that “the two become one” to all who can get to that deep in the heart and in self-definition:  For, though Laura and I have had a tiff or two over our thirty years of marriage, “who owns what” never once became a source of contention or conflict. I wish the same to all for whom this is possible. Besides, it’s convenient to have a spouse who can handle finances without having to waive a Power of Attorney at a banker or broker. So, the answer to the question is not a financial answer at all.