Why Seniors Should Not Let Their Life Insurance Lapse

Posted by on Dec 24, 2013 in Uncategorized | 0 comments

Researchers recently conducted a survey about senior citizens and life insurance ownership. Their survey concluded that about 55 percent of seniors had let their coverage lapse and saw it as a liability instead of an essential asset. In addition to this, about 80 percent of the seniors surveyed who were over the age of 66 did not know they could sell their existing coverage in exchange for a cash payout.

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Are you saving enough to finance your retirement?

Posted by on Dec 20, 2013 in Uncategorized | 0 comments

No one will lend you money to finance your retirement. Many recent studies tell us the current retirement savings rate is inadequate and that many folks exhaust their retirement funds within seven years of retirement. Saving for retirement is one of those “shoulds” like exercising, eating vegetables, and low- fat foods. It’s easy to defer and delay saving. There is always competition for our money and there is a need to save for a child’s education or paying off debt. There is only so much money available. A choice needs to be made. Your child may get a scholarship to college but you will not receive a scholarship to fund your retirement. Earnings are a function of time and compound interest. The longer saving is deferred the more money is needed. The shorter the time period the higher the return needed. So what it comes down to is how much money do you want to have in retirement? There are different schools of thought about how one gets to a retirement dollar number. Generally, there is the single bucket approach of drawing off earnings to provide income and there is the two-bucket approach. One bucket provides income and the other bucket grows assets which can be used to supplement income or pay for expenses that are not covered by insurance and become big money pits such as health care and home repair. There are many Internet sites which offer online calculators and various rules of thumb. These sites require the user to make assumptions about the future. Unfortunately, no one can predict the future. There are just too many variables including income, job loss, illness, and changes in financial obligations. So it comes down to a good faith best guess about what the future holds. How do you spend your money now and possibly in the future? Other questions to ask yourself is the likely equity of your home at retirement age, probable decreased spending needs, family longevity, relocation to a less expensive part of the country or is there an avocation that can really be turned into a profit making business? There also is an alternate way of looking at the retirement income problem. A study by Alice Munnell of Boston College’s Center for Retirement Research, suggests that the measure of being able to maintain one’s standard of living in retirement should be measured by a replacement concept, benefits as a percent of pre-retirement earnings, rather than dollar amounts. Professor Munnell focused on the amount of income Social Security replaces from pre-retirement earnings. She notes that best case is about 50 percent because Medicare premiums are scheduled to rise over time and these are deducted from Social Security....

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Retirement Dependent on Government?

Posted by on Dec 18, 2013 in Uncategorized | 0 comments

Is Your Retirement Dependent on Government? Thus far, Social Security has been a remarkable success. Since its inception in 1935, it has provided a desperately needed retirement income cushion to millions of senior citizens and certain disabled individuals for generations. But there is trouble on the horizon. People are living many more years into retirement than planners banked on when they set up the system during the Great Depression. In those days, it was common for people to work until age 60 or 65, then pass away at 72. Now, retirees are still retiring at age 65 or 68 – and living well into their 80s and 90s – drawing benefits the whole time. On top of that, the baby boomers are now beginning to draw Social Security benefits – and the burden must be borne by a comparatively smaller work force. In prior generations, 15 workers would contribute to the Social Security system to fund benefits for one retiree. By 2020, that ratio will fall to as low as three to one. Already, the Social Security Administration is beginning to pay out more in benefits than it is taking in in premiums. That means it must cash in the treasury bonds in the portfolio to pay benefits. But since these bonds are obligations of the general fund, the net result is that any shortfalls must eventually come out of the general fund of the United States Treasury. By 2030, the Social Security Administration projects that it will only have enough revenues coming in at current tax rates to fund 76 percent of promised benefits. There are no guarantees Even though you have paid into Social Security your whole life, the fact is that you have no enforceable contract with the United States to keep paying you the benefits that are currently projected. Indeed, Congress is free to undertake a number of measures to repair the shortfall. For example: • They could increase Social Security taxes from 12.4 to 14.4 percent, based on the current actuarial scenario – a measure that would disproportionately burden the young. (The longer we wait to act, the higher that break-even tax becomes). • They could raise the retirement age. • They could simply cap benefits to balance outflows with revenues. • They could privatize a portion of the Social Security trust fund in hopes of increasing returns. • They could lift the earnings cap – currently set at $113,700. That is, the OASDI tax could apply even to earnings above that threshold. • They could restrict cost-of-living adjustments (COLA) until the plan comes into balance • They could ‘means test’ Social Security. That is, they could apply an asset test or income test...

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Check yourself before you Wreck yourself…

Posted by on Dec 18, 2013 in Uncategorized | 0 comments

Insurance agents and advisers have spent a lot of time worrying about the impact of the Federal Estate Tax. Largely ignored is the impact of state estate taxes. With the federal exemption at $5.25 million and unused amounts are portable so they can be transferred to a surviving spouse the impact of Federal Estate Tax is limited so few people actually owe the tax. Not so when it comes to state estate taxes. Insurance agents and advisers ought to pay closer attention to the estate tax laws in individual states and taking steps to reduce taxes and exposure to state estate taxes. The are 19 states and the District of Columbia which levy their own estate tax. Some jurisdictions levy both an inheritance tax and an estate tax. States have different estate tax exemptions. For example New York has a $1 million exemption while New Jersey uses the old federal tax credit which limits the exemption to only $675,000. So insurance agents and advisers have a lot of work to do. The most basic issue is whether the client will be relocating to a tax friendly state. If that is unlikely the next best thing is to use estate planning devices in jurisdictions where there is no estate tax, no income tax on trust assets, and significant asset protection; none of which is afforded in high tax states. Many clients use a revocable living trust that provides a credit shelter trust upon death. Usually, these estate planning techniques are placed while the client is alive. Assets placed in a credit shelter trust can be done in a state where the client does not reside. A client who is a New Jersey resident can have a credit shelter trust created in Nevada which does not tax trust income thereby allowing the client to avoid the 6% New Jersey state income tax. Recently, we ran an internal study in the tax friendly and asset protection states looking at income taxes, state estate tax, inheritance tax, real estate tax, and gift tax and found some of the best states to retire are Nevada, Alaska, South Dakota, Florida, Delaware. Since we have the software we offer a preliminary analysis of a client’s estate to measure the impact of state estate taxes on their overall financial plan. An appointment is necessary to do the...

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Is Your Retirement Dependent on Government?

Posted by on Dec 18, 2013 in Uncategorized | 0 comments

Thus far, Social Security has been a remarkable success. Since its inception in 1935, it has provided a desperately needed retirement income cushion to millions of senior citizens and certain disabled individuals for generations. But there is trouble on the horizon. People are living many more years into retirement than planners banked on when they set up the system during the Great Depression. In those days, it was common for people to work until age 60 or 65, then pass away at 72. Now, retirees are still retiring at age 65 or 68 – and living well into their 80s and 90s – drawing benefits the whole time. On top of that, the baby boomers are now beginning to draw Social Security benefits – and the burden must be borne by a comparatively smaller work force. In prior generations, 15 workers would contribute to the Social Security system to fund benefits for one retiree. By 2020, that ratio will fall to as low as three to one. Already, the Social Security Administration is beginning to pay out more in benefits than it is taking in in premiums. That means it must cash in the treasury bonds in the portfolio to pay benefits. But since these bonds are obligations of the general fund, the net result is that any shortfalls must eventually come out of the general fund of the United States Treasury. By 2030, the Social Security Administration projects that it will only have enough revenues coming in at current tax rates to fund 76 percent of promised benefits. There are no guarantees Even though you have paid into Social Security your whole life, the fact is that you have no enforceable contract with the United States to keep paying you the benefits that are currently projected. Indeed, Congress is free to undertake a number of measures to repair the shortfall. For example: • They could increase Social Security taxes from 12.4 to 14.4 percent, based on the current actuarial scenario – a measure that would disproportionately burden the young. (The longer we wait to act, the higher that break-even tax becomes). • They could raise the retirement age. • They could simply cap benefits to balance outflows with revenues. • They could privatize a portion of the Social Security trust fund in hopes of increasing returns. • They could lift the earnings cap – currently set at $113,700. That is, the OASDI tax could apply even to earnings above that threshold. • They could restrict cost-of-living adjustments (COLA) until the plan comes into balance • They could ‘means test’ Social Security. That is, they could apply an asset test or income test or both to Social Security –...

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