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Why Insurance Premiums Keep Going Up…

Jeff Atwater is the chief financial officer of the state of Florida.  The numbers and issues he relates in the following letter will teach you why we all have to pay higher and higher insurance premiums. This kind of nonsense is happening all the time, in all the states.  Check out his letter then resolve to be on the look out to help curb this horrible cost.

Dear Friends,

As swirling conversations about rising insurance rates continue in Tallahassee, I’d like to talk with you about one reason for those rises that may not be top of mind:  fraud.

The FBI estimates that the total annual cost of insurance fraud in our country tops $40 billion, and that doesn’t even include health insurance fraud. When you break that number down, it comes out to roughly $500 per family per year in increased premiums.

There are as many types of insurance fraud as there are types of insurance, and crooks seem to always find a way to cheat the system.

Our insurance fraud and arson investigators recently ran across an outrageous case that outlines just how bold some of these criminals can be and just how quickly thousands of dollars can be stolen.

Late last year, a man from Orange County reported that his car, a 2016 Toyota Camry, had been stolen in the state of New York. A terrible ordeal, but it happens and that’s what insurance is for.

Imagine the man’s surprise when just a few months later, his car is found on fire near Orlando. He’d already filed an insurance claim worth $10,000, and when the local fire department asked our arson investigators to look into the cause of the blaze, they quickly became suspicious.

As the story unfolded, the man ultimately confessed that he paid someone $300 to destroy his car and to make sure it was never seen again. Why would anyone do that? Maybe he was tired of making his payments or perhaps he wanted a different car to drive. Whatever the reason, the fact remains: By stealing from his insurance company, he’s causing all of our insurance rates to rise.

Now he faces 20 years in jail, but the reality is that this sort of thing happens frequently.

It happens when people intentionally inflict damage to their homes or when they stage automobile accidents. It happens when employers cheat their way out of paying proper premiums for workers’ compensation. It even happens when people fake injuries to get out of going to work.

Insurance is a business just like any other, and insurance companies can’t afford to absorb $40 billion in fraud without raising prices.

I think we can all agree that no one enjoys paying more for their policies, and we must all do our part to help stop this cost driver.

If you see something that looks suspicious, say something. Our investigators are doing a great job, but they can’t be everywhere all the time. If you think there’s something they should look into, give us a call…

We’ll keep working, and I hope you’ll keep your eyes peeled.

Sincerely,

Jeff Atwater
Chief Financial Officer
State of Florida

You Are Only One Critical Illness Away from Financial Ruin…

Consider these statistics and then let’s stick you in the middle of them and see what you should be doing today to provide for your financial future:

  • 75% of all working people over age 40 will suffer a critical illness in the near future.
  • 54% of all bankruptcies are due to a critical illness.
  • 27% of all adults do not have health insurance.
  • 41% of businesses that fail are due to a critical illness.
  • 31% of homeowners do not have a retirement savings account.

If you became ill tomorrow and could not work, how long would it take before you became broke?

screen-shot-2016-11-24-at-12-32-06-amAs you can see from this simple illustration, when you have a critical illness not only do expenses go up, but, income generally goes down.  This creates more debt than any other single thing.  More debt comes from a critical illness than over-spending, job layoffs and career changes. 

Here’s what I suggest: Go to www.moneymastery.com and sign up for the Select program; you can try it for just one month for $19.95 and get specific training tailored to your personal circumstances. You will be amazed what you can discover about your finances and the options available to help you deal with difficult potential problems, like a critical illness.

Look at the above statistics again. Seventy-five percent of all working people will have a critical illness in their lifetime. That’s 3 out of every 4 people… not good news. So now is the time to take action. When you are prepared and this event occurs in your life, write me a thank you email: peter@moneymastery.com.

The High Cost of Obesity

As workers gain weight, so do the expenses to their employers.  Obesity costs more than $73 billion annually in higher health care costs, according to numerous studies.  Obesity is defined as a body mass index of 30 or higher, (BMI) says Eric Finkelstein, Ph.D.

Here are the sad statistics:  

  1. Obese workers are absent on average one more week each year than other employees of a healthy weight.
  2. Obese workers spend 77 percent more on medications than non-obese people.
  3. Medical expenses are 42 percent higher for an obese person than for a healthy-weight person
  4. The average annual medical costs of an obese person are $1,400 higher than for someone whose BMI is in the normal range.
  5. Obesity-related costs are greater than from using tobacco, alcohol, or being poor and impoverished.  

With obesity there is reduced productivity and at the same time increasing health care costs.  

What to do?  

Wellness programs need to be established and incentivized.  Just as the Money Mastery program focuses on financial wellness, it is imperative that we all individually focus on our physical wellness.  If you aren’t managing your health, you’re probably not doing well making and managing your money either. Learn how to get on top of things by signing up at Money Mastery today!

6 Tips for Finding Money You Are Wasting

Here are some practical ideas for how to find more money:

  1. Establish a spending plan and track all expenditures.  You will discover a ton of extra money you are wasting by doing this.  I have found in my coaching that the average amount of money found is 1 percent of annual income per month. Example:  If someone is making $60,000 a year, they will most likely find $600 a month they could stop wasting.
  2. Use an existing IRA, with tax code 72(t) to retire this money.  When you receive this annual distribution it is not subject to the 10 percent penalty for early distribution.  Example:  A person has $100,000 in an IRA and life expectancy is age 84.  This person is age 44 so he has 40 years to withdraw.  The calculation allows $3,367 a year to be pulled out and used in any manner.  You can use this toward savings, or pay off debts that may have interest rates as high as 24 percent.  This could save $808 of interest a year, or $67 a month.  Taxes will be due on the $3,367 but not the 10 percent penalty.  Also, the account will keep growing so when the 10 percent penalty rule falls off at age 59.5 you can have the same $100,000 you started with, as you have only been withdrawing the growth.  Why would anyone want to save money on taxes into a locked box earning only 3 to 5 percent while spending out the backdoor 24 on credit card interest expense?  You are transferring money away from yourself by doing this. Think about taking a different road.
  3. Some people have a 401(k) they can borrow from.  The amount that can be borrowed is usually 50 percent of the balance or, up to  $50,000 which ever is less.  When you get this money at an average 6 percent interest charge, you could use it to pay off debts, which frees up a lot more money.  Two benefits to this plan: 1) your money is no longer at market risk because you have used it; 2) you are paying yourself back the money, and it is all yours, both principal and interest.
  4. Do you get a tax refund each year?  Stop this process by taking more exemptions.  Remember you have already established a spending plan as directed in my tip #1, so you no longer need this tax refund to pay off debts each tax season.  Here’s how: If a person gets a $2,800 tax refund each year, divide this by 12 months to determine how much extra you paid the IRS each month.  Answer:  $233. Since each exemption taken is worth $43 a month in tax savings, then in this example you can take 5 more exemptions and receive about $220 more a month in your paycheck.  If you used this money to pay down debts, you would save interest expense and feel better about retirement savings.
  5. Do you have a 30-year level term life insurance policy?  Switch this to a 10-year level and save two-thirds of the premium.  People are living longer and therefore premiums have been declining for the last 25 years.  Purchase a 10-year life insurance policy every three years and save the money that a 30-year level term policy will cost.  If your insurability changes and you no longer qualify for new life insurance, then convert the term to permanent insurance and keep it for the rest of your life.
  6. You might be able to sell an asset.  For an example, I had a client with an old motor home they could not use.  They could not afford to license it each year.  They sold it and got $8,700 which allowed them to reduce debts and save even more interest expense.

Add up all these potential savings and you can find as much as $1,377 a month.  This is tons of money…  And to think, you thought you were broke!  But let’s suppose you can only find a $377 a month to save.  When you find this extra money that would normally be gone forever, you gain confidence and will probably be able to find more as you go forward and become smarter with your spending and tracking.  Example: When you get a pay-raise you don’t just spend it and can it to pay down debt, which over time could equal $200,000 in saved interest expense.

Unfortunately, most people do not take the time to open themselves up to examination.  But if you will have the courage to try my experiment above, you are likely to find at least $377 a month.  As you may find $377 to $1,377 a month, just know you need to do this examination at least once a year.  Oh, and remember me in your will!

What Is a “Life Bank” and Why Do You Need One?

A “life bank” is a properly structure whole life insurance policy purchased from a dividend-paying life insurance company.

Here are the 6 main benefits to having one:  

1. A gigantic death benefit for your family.  A whole life insurance policy will help you create the most cash values possible, which translates into a pretty hefty death benefit. When you die, the benefit will replace your income if you die too soon. The death benefit will provide college education for your children. And the death benefit will leave an amazing legacy for your loved ones. To purchase a whole life insurance policy you must learn to control your spending to create surplus.  When you are confident you can save money on a predictableCemetery basis, then place this surplus into a properly structured whole life policy so as to create the most cash values possible.  While this death benefit I’ve been going on and on about is very important, for the purpose of this discussion, I want to emphasize the living portion of a whole life policy more, so now onto more of the living benefits of a “life bank.”

2. You can use the cash value of the policy to pay off all consumer debt. This will get you quickly out of the debt that can cost you the most and prevent you from taking advantage of other opportunities that can come your way. Once debt is paid off, you should consider using the cash value to start a small business that will help create passive income you can use to fund retirement. If you aren’t the kind of person to strike out on your own, that’s okay.  But if you have any interest is creating a small business and making additional income, Debtthen cash values can act as the seed-bed for this purpose.

3.  A properly structured whole life policy has no tax liability.

4. Its cash values are extremely safe, while generating an average of 4% guaranteed interest year after year. While the dividends themselves are not guaranteed, once paid, they become
guaranteed as they flow into the cash values of paid-up additions. Paid-up additions are a type of rider on your insurance policy. This rider lets you increase the policy’s death and living benefit by increasing its cash value; it can earn dividends, meaning its value compounds over time.

5. All through the years you can use the money as needed for your money-in-motion purposes. Whole life can be used to recapture all principal and interest payments on any kind of debt, personal or business. Recapturing this expense is putting your money in motion to make more money and is worth far more than any “rate of return” from a bank or the stock market. It can be worth greater than the “match” from an employer’s sponsored 401(k) contribution.

6. In retirement, dip into your “life bank” and live on the tax-free income the policy provides, or, live on the passive income you have created from the funds that were available to you through your shutterstock_128683532 (534x800)whole life policy I have outlined above.

At the end of your life, after using all of these living benefits, you will still be able to leave a tax-free legacy of great value to your family through the paid-up additional life insurance that goes along for the ride, even after your death.

When you see a properly structured whole life policy in operation, you will start to understand its power to create a life bank you can use now, and a “bank” for your family after you die.

For more information about how to structure a whole life insurance policy, contact me: peter@moneymastery.com.

What Are the Financial Risks Associated with Your Death?

When will you die?  That seems to be a stupid question, because nobody knows when they will die.  But what if you died tomorrow?  If you knew for absolute surety that you would be gone tomorrow, what would you do today?  Now that you have some thoughts in front of you, overlay all your financial concerns associated with such questions. What would your death mean financially to your loved ones?  What money issues would they face because you are gone?

What we leave behind when we die is called our “legacy.” What will be the legacy you leave your family? What will be your community legacy or your spiritual legacy? What will be your financial legacy? Will your death be a hardship for loved ones? Once you allow yourself to contemplate such questions, you will begin to get a whole lot more concerned with what you want to have happen and what you don’t wantmy-goals to have happen when you die. As you make a list of things that you need to do to ensure the outcome you desire, this list becomes a high priority and you will realize you have to begin working on it now if you want to leave behind a legacy you can be proud of.

Here is a partial checklist designed to help you think about some items that you may need to take care of now before it’s too late:

1. Get cash reserves in place that will be enough to pay your debts and bury you.

2. Ensure you have enough income for dependents, i.e. life insurance.

3. Create a will and/or trust declaring your final wishes.

4. Name a guardian for your minor children and be sure this is in your will and/or trust.

5. Get assets organized in one place with instructions for your heirs on how they need to be distributed.

6. Prepare final/funeral wishes and final goodbyes (letters to loved one, life history, “emotional” legacies, etc.).

7. Record passwords and access instructions to computers that have information about your personal and financial information so that it won’t be difficult for your loved ones to sort out your affairs.

8. Bequeath special items, like a gun to a son, or china and furniture to daughters, etc.

20429. Make amends with anyone you feel you have offended or that has offended you.

10. Arrange photographs with descriptions so your family can continue to pass these along knowing what they are about.

Don’t get depressed over this subject, just get prepared.  What I have done for the last several years, when someone asks a favor of me, is to ask them for a favor in return by being willing to come to my funeral.  I wait to see if I get a verbal yes, and then don’t push the issue. In one such instance, a young man I had helped in the Boy Scout program played the piano really well.  I was so impressed I asked him if he would be willing to play at my funeral.  He reluctantly said yes.  So I offered money, to see what he would say.  “I will be happy to pay you $25 now, or name your price, if you will play.”  He smiled and said “no, I will be happy to do this.” He said I had helped him with his Scouting activities a ton, so there would be no charge.  Sometimes it’s good to think about how you want to be remembered when you die rather than worry so much about all that’s happening around you right now, then get prepared, spiritually, socially, and financially for your desired outcome.

Few people get prepared for what will be a certain event.  In my experience, this kind of preparation really helps leave good memories and alleviates a whole lot of financial worry while you are still alive.

A Retirement Miscalculation Story…

Karen lives in Texas and is age 46.  Her annual income is $55,000.  Her goal is to retire on 80 precent of her income at age 65.  She asked me for help to verify the numbers that proves she can retire at her goal age.

Karen said she should easily be able to accomplish this objective because she is saving the 5 percent maximum she is allowed in her employer’s retirement 401(k) and they match her contributions.  So the number to use is 10 percent per year of $55,000, which is $5,500 going into her tax-deferred retirement account.

Using my Hewlett-Packard 10bII hand-held calculator and a 4 percent rate of return (which is a common return rate for employees unfamiliar with playing the market and without the time or means to take a chance on riskier investments), I calculated that her annual $5,500 deposits would be worth $156,141 in 19 years when she retires. I then asked Karen what she currently has in her account.  Answer:  $52,435.  Adding the $52,435 and the $156,141  together means she will have $208,576 at retirement.

For Karen to retire on 80% of her current income at age 65 she willClock need $44,000 annually.  She wishes to use her Social Security benefit in this calculation, which is $1,500 a month.  This means that Karen will need to withdraw $2,166 from her 401(k) retirement fund each month after age 65 in order to meet her needs.  My calculations show that if she has a balance of $208,576 at age 65 and receives a 4 percent rate of return annually on that sum while withdrawing $2,166 monthly, she will run out of money after 9.5 years.  She would be 74 years old and be totally dependent upon Social Security income alone.

When I discussed these numbers with Karen she totally objected. She asked why in the world she would only have 9.5 years of income at retirement when she puts in the “maximum amount of money allowed”?   Answer:  The math doesn’t lie.  When a person takes the time to prepare accurate numbers, they discover that 98 percent of all workers will only have five to six  years of retirement money (largely because they’ve bought into the idea of saving for retirement using a 401(k) or IRA alone).  And in terms of today’s mortality rates, the average person reaching age 65 will live to age 83 for men and 87 for women.  You can see the dilemma.  What can a person do to make ends meet when they will literally be out of money so soon after retirement?

Short answer:  Work longer, and spend less so you can save a whole lot more money before and after retirement.  In Karen’s case, she went from ecstatic about her retirement future to fully-depressed.  She was so shocked to find out she would only have $208,576 she became humbled and very teachable. We then started talking about solutions. 

 

Important Points to Consider

  • It’s not about getting a bigger rate of return on your invested dollars.  Rather, it becomes necessary NEVER to lose any of it.  Will Rogers has said, “I am more concerned about the return of my money, than on the return on my money.”  As a person gets within five to 10 years of retirement, they should vigorously protect their money from any kind of loss.
  •  A wonderful tool to be used to get more income at retirement is to use an insurance company.  They spread the risk out over millions of people and can give you income you cannot outlive.  And don’t be misled by the bad reputation insurance annuities have gotten because of the loss in the market of variable annuities. Not all annuities are “variable,” in fact only 7 percent of all annuities are variable. An annuity can provide extra income if a person needs long-term care.  Annuities can add extra life insurance upon early death soon after retirement.  Annuities can be indexed with the S&P market and if it goes up, you get the up.  If it goes down, there’s no loss of principal.

 

Other Strategies that Can Help Solve Retirement Woes

Get a part time job and stay involved after retirement.  As you  could live to age 83 or 87, why not earn your basic expenses so you can have confidence that you won’t run out of money.  It isn’t ideal to keep working after age 65, yet maybe for you it is. Some people feel younger and stronger when they stay involved with others and active in the work force.  One example is the amazing life of Colonel Sanders, who established the Kentucky Fried Chicken fast food restaurants.  At age 68 he had an idea for chicken that he thought was worth offering to many local restaurants. If they would use his special seasoning to cook their Colonel Sanderschicken, he would split part of the profits they made from the chicken. He cooked up his chicken recipe for over 1,000 restaurant owners without much luck until he found Pete Harmon in Salt Lake City who actually took him up on the deal.  From Harmon’s restaurant on 39th South in Salt Lake the famous KFC franchise exploded and the rest, as they say, is history — and all after Colonel Sanders should have been long “retired.”

Don’t compare yourself with others.  When you compare and you don’t really know the details of whoever you are examining, you are guaranteed to be wrong.  It can depress your thinking and your confidence wanes.  Don’t worry about how massive your family or friends’ retirement is going to be — just focus on what you need and work to achieve it. If you worry that you don’t have as much saved up as someone else or that you don’t have a guaranteed pension, or that others are already traveling while you still have to work, you will not have what it takes to look for creative solutions. “Retirement,” as defined by our culture has come to mean the magical age of 65 as the time that you suddenly “stop working.” But I have found in coaching thousands of people that this can be a very limiting view of life. We need to stop thinking about retirement in this way. Define what it means to you and the age it actually needs to happen for you and work to meet the goals surrounding those decisions. 

You are what you are.  You have made many decisions that have determined where you are to this date.  Face your own reality and don’tDon'tWait kick this “retirement can” down the road any further.  Do exactly what I prescribe at the beginning of this post and see for yourself when you might be able to retire. It may not be 60, like you wanted, or even 65, but that doesn’t mean the end of the world.  Remember this is your life and you only pass this way one time.  Nobody knows what the future holds.  Decide now what you want to do for the rest of your life and go after it.  Have a purpose for retirement planning and what you might accomplish so you can get excited about what you are doing to help others and help yourself.  

I started with Karen’s story, and I will end with it.  Karen was so glad she found today that she will not have the money she thought at retirement rather than discovering it 19 years down the road when it will be too late. Now she has a plan in place to help her do more than just squirrel away 401(k) savings,  hoping it will be enough. She has been able to consider other options, including real estate and a small  home-based business she has always wanted to run for extra profit.

Don’t delay. Do what I have suggested and learn to use a financial calculator (or find a coach or mentor who does) and forecast your specific numbers so you will know exactly what you are up against, now before it’s too late.

How Retirement Risks Can be Minimized by Using Life Insurance Annuities

Planning for retirement can seem pointless at times because of all the unknown factors that can affect what happens to your money over time. That’s why I try to advise my clients to look into the way those risks can be minimized using annuities from a life insurance company. Here are some of the risks you face in retirement and how such annuities can help overcome them:

Risk of Living Too Long: The insurance company does all the investing and thenClock structures the results for your benefit. They spread the risk of you living too long out over millions of people. Thus, you will have huge peace of mind knowing you cannot outlive this income.

Risk of Dying Too Soon: Built into an annuity is life insurance that will give your beneficiaries more money than just the rate of return.  This is possible as the insurance company can spread the risk out over millions of people.

Market Risk: The insurance company provides an annuity that has a “floor,” or guarantee that you cannot lose any of your money.  Therefore, as you approach age 55, or older, an annuity is a wise choice so as to eliminate the risk of market declines. After a recession, historically, the market takes many years to return to the same value.  If you need this money for retirement before the values return, you will run out of money much quicker.  An annuity gives you level income for life, either single payments to you or joint payments to you and your spouse.

Risk of Inflation:  Inflation has been with us for over 100 years. It is a real problem as the cost of food, utilities, medicine, travel, and taxes increase.  Inflation is real and will erode your income throughout retirement. The insurance company does investing in such a way that you will always share in the gains of the index they use. The cost for this benefit is manifested in the margin. For example, the insurance company will take a stated 2.4 percent (this can fluctuate) of the gain to provide this benefit to you.  You get the rest.  Put another way, if the index receives 12.4 percent, you would net 10 percent.  If the index achieves 2.4 percent. you would net 0 percent.  The insurance company will guarantee you will never lose any of your money or the growth it has attained.  Once you begin taking retirement income, the insurance company will still apply this same calculation each year for the rest of your life.  An an annuity is structured not only to keep up with inflation, but to keep significantly ahead of it.

Risk of Increased Taxes: Do you think taxes will go up, down, or stay even? Regardless of what tax rates, at age 70.5 you must start taking distributions from your qualified retirement account — this is called a Required Minimum Distribution (RMD). If you don’t take this distribution, a penalty of 50 percent plus any ordinTaxary income tax is applied. This would result in a 65 percent tax rate!  Who would allow this to happen?  To resolve this, a retirement account of $150,000, for example, can be separated into six IRA accounts. This will allow you to change one IRA each year for the next six years into a Roth IRA. As you pay the tax on $25,000 one time, it is eliminated from your income forever, regardless of how much growth you have on this money.  There will be no further tax, even when you reach age 70.5 and face the RMD problem. Furthermore, this non-taxed income will not be present to force your Social Security benefits to be included for tax purposes either.  If you need to use the life insurance portion, no taxes are paid on that increase in value paid to you, or your beneficiaries. Even after you are deceased, your heirs will not have to pay taxes on this money either.  Just simply taking your IRA money and converting it to a ROTH IRA could  save tons of future taxes.  As discussed, when a retiree takes money from the ROTH IRA, this doesn’t count toward income and forcing your Social Security benefits to be included for tax purposes.  It is strongly recommended that you plan to pay taxes one time, on a smaller portion of your retirement funds, and never again.  Refer to an income tax specialist for counsel on your individual circumstances.

Risk of Long-term Care (LTC) Needs: National averages show three-in-four retirees will need to use some form of a LTC facility. The average stay in one of these facilities is four years. An annuity can be structured to double your monthly income if you do have this need, thereby reducing or eliminating your LTC risk.

Risk of Fees: It is important to know there are fees associated with insurance products. Read the small print. There are major differences between all insurance companies. To your benefit, an annuity can be structured without internal fees.

Risk of the Strength of the Insurance Company: While the insurance industry has an impeccable track record for safety, it is still important to examine the strength of an insurance company. You can do this by using a rating service. One such rating service is called Comdex.  Using your search engine, place “COMDEX insurance ratings” into your browser and do your own comparison on the annuity insurer in question.

 

Some additional thoughts on annuities and insurance companies:

Not all annuities are created equal.  Over the last 50 years, annuities haveBenefits been structured to allow investing in the market using mutual funds.  When the market goes down, the value of the annuity declines just the same.  In the past when this happened, some policyholders were very disappointed and said this, “There was no safety with this insurance company, and yes, we did lose money!”  That statement was correct, but the money was not invested into the insurance company, but through the company and right back out and into the market with all the normal risks associated.  Annuities got a bad reputation because of experiences like this.  A “variable annuity” is not what is recommended in this treatment.  Annuities are now structured into fixed income products.  They are indexed to the S&P 500, or Barclays, so when the market increases, so does the annuity.  Some indexed annuities have caps on this gain and some do not.  This is why indexed annuities are becoming so popular.  They have no downside risk, but share in all the upside gains.  Pretty exciting!

Not all insurance companies are equal, nor are their agents who represent them.  Most agents/representatives have a tendency to sell what they know.  Most don’t take the time to look at all the options that are available.  Our team here at Money Mastery has identified the top 42 insurance companies that have various financial strengths and product designs that will help everyone in almost every situation.  We make an extra effort to stay up-to-date on all these products and the many benefits to our clients.

If you haven’t considered annuities in the past, I strongly urge you to do so now. Annuities are structured for safety first, then to keep ahead of inflation, all the while bringing a guaranteed income stream you and your family can not outlive. This is one of the best retirement planning options around.