Author: Dan Gallagher

Many advisors decry the use of life insurance that lasts lifelong. This is especially so–but flat incorrect–in the replacement of a pension’s survivor benefit (SBP) or Social Security’s loss of the lowest pay at the first death among spouses. Many advisors recommend “permanent” coverage only for estate tax liquidity or the luxury of leaving a legacy. They often dismiss using lifelong coverage to replace a survivor payment from a pension or social security. The reasons that many advisors are wrong in the assertion that lifelong coverage is a bad idea are these:  1. Old mortality costs have come down, but many advisors have not crunched the numbers, 2. many advisors use the wrong assumptions in calculating SBP equivalency (please see my book The Secrets of Successful Financial Planning) and ignore two disadvantages of SBP from pension plans, 3. They shy away from the complexities and sensibilities involved in “incentive” trusts that can encourage adult children & grandchildren from “beyond the grave” and 4. They are unaware of the trend in low-load life insurance (see my book on how to use illustrations to identify long-lasting vs high-internal-cost policies). Here are a few sources of low-load policies:  Ameritas Life Insurance Co., North American Co. for Life and Health, Southland Life, and USAA Life Insurance Co.

Please enjoy these free financial tips, just two of many in The Secrets of Successful Financial Planning (SSFP). Consider pre-ordering copies for yourself, for clients and for loved ones at your favorite bookseller. SSFP can have a meaningfully positive impact on young and old alike. So, you are warmly invited to sample SSFP, new fiction, humor and other works free at AuthorDan.com. Here’s the Youtube video link:  https://youtu.be/5n_R927UOeE . Best to you & yours!

Certainly there are those who do not buy in to the concept of sin; holding such a belief does not make the belief correct. But failing to properly plan can indeed be a “sin of omission.” On the other hand, financial planning that has the goal of maximizing wealth for one’s own benefit is obviously selfish and a “sin of commission.” So what about planning itself? Some say, “God will provide” and so choose to not carefully steward their resources with professional help or DIY with similar detail. After all, aren’t we advised to avoid storing up treasure in this world, but do so for the next? We are. If we realize that financial resources (earnings potential, risk management, prudent investing) are like any other tool or earthly resource, then we must conclude that we have the same responsibility to bring efficiency to the stewarding of financial resources as the stewarding and maintenance of other worldly tools. Should a farmer say, “God will make all work out fine, so I don’t have to work hard or efficiently at my farming (or any other pursuit)?” If we have the opportunity to enhance our Acts of Kindness to others, then we have a moral obligation to preserve and expand that opportunity; enhance God’s return on the “talents” that He loans to us. The crucial point is that the tool should be used for others’ sake as well as our own. Examples of this include leaving a legacy, tithing, budgeting to create and preserve cash reserve tiers, avoiding financial disaster in event of a Long-term Care stay or a disability, and many other financial-related duties. Analyzing the long-term effects of financial decisions (or lack thereof) is a duty, an issue of conscience. I offer many tips for such stewardship, including how to wisely choose and utilize professionals, in my book The Secrets of Successful Financial Planning detailed at AuthorDan.com. Since I am retired and no longer licensed, this resource lacks any bias or client-acquisition agenda (not that helping clients is some bad thing; it’s just that my book is focused on helping others). Try it, and consider that recommending or gifting copies to others about whom you care is also an act of kindness.

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.

People want yes/no, black and white answers.  The truth about annuities is that you will get a guaranteed return in the form of an eventual or immediate income, but not a great return.  So, if the stock market is best in the long run, why bother with annuities? The answer is this:  Predicting the future losses or returns for stock, realty, bond, gold, etc. is impossible. Yet you MUST have income that — at least — meets your expenditures.  All of your expenditures?  No, not discretionary ones; just living expenses.  Do people need annuities, such as pension, Social Security, or private annuities?  Yes; again, here is why:  It is prudent to match your guaranteed-to-pay-out expenses with guaranteed-to-receive income.  Selling off lots of shares when the market is down to get the needed income forces you to fail to recover well from a downturn, and there is serious danger of exhausting assets during life.  So, this simple equation can examine your basic expenses or all, as you may desire, but it is very — very — imprudent to risk not being able to pay your basic living expenses just because the at-risk investments probably will get a better return over the long haul. You might not have the long haul to recover from a stock downturn, either!  Your advisor should be able to convert your “minimum income” requirement to an amount that must be provided from guaranteed sources (pension, Social Security and private annuities). That calculation provides you with the amount that MUST be in an annuity, given reliable payout rates.  The remainder of your investable funds should be at the risk level that is reasonable for you, personally.  In summary, many will want more than the minimum needed for this “prudence” and many will want no money in annuities. But the fact remains that there is a method for determining this, independent of biased and generalized opinions.

Zero or low interest balance transfers to new cards can save you quite a bit of money.  But, if you use them for new purchases, that new amount owing accrues interest from day one, and is retained (no payments reduce it) until the transferred balance is paid off.  That can cost you far more money in the long run than using cash or non-promotional cards for the new purchases.  Watch for my book, The Secrets of Successful Financial Planning in stores in July; pre-order copies as gifts for those about whom you care the most!