Tax Hikes Are on the Way - Positioning Your Retirement Money

You won't be terribly surprised to learn that the Congressional Budget Office (CBO) has recently released a new report confirming  the likelihood of tax rates going up 30% or more over the next tow years.

This will be due to the expiration of the Bush  tax cuts at the end of this year and corresponding massive increase in the national debt.  In the just the past 3 years, our runaway national debt has soared from $9 trillion to over $15.3 trillion and there are no signs of it slowing down.

In response, President Obama has been openly calling for higher taxes, which means that married couples earning over $200,000 and singles earning over $100,000 may find themselves paying tax rates as high at 62.5%.  Sadly, a poll taken in late last year indicates that many Americans appear eager to "tax the rich" out of a sense of making the wealthy pay what politicians say is their "fair share".

Who Owns Life Insurance And Why?

Last week I spoke about why you should dislike using mutual funds as your primary investment. This week I am talking about Life Insurance. Now let me be clear, like mutual funds, life insurance will not make you wealthy. However, it will provide a hedge against inflation and will protect you from the tax man.

Interestingly, most of the mass media “financial experts” tell people to buy term insurance and invest the difference, while some tell you how bad insurance is as an investment. Well, as usual, their advice runs contrary to what the wealthy actually do.

Why you should hate mutual funds?

There are three reasons:

1. Very Little Diversification - There is an open secret in the investment world that diversification is for suckers or at least for folks that will never capture wealth. You see, mutual funds were invented as a marketing strategy. After academic finance disclosed you could reduce risk (variance) by diversification, Wall Street companies knew they could market this to average folks. Previous to mutual funds and the idea of diversification the average person felt that investing in the stock market was like gambling and shied away from it. But those folks in Wall Street knew a good marketing opportunity when they saw one and ran with it. Diversification reduces the variance to a point where the likely outcome is single digit returns. Single digit returns are fine if all you want to do is beat inflation, but it will never create wealth. What started as propaganda aimed at getting average folks to own stock has turned into common advice that is normally wrong. Every wealthy person from Warren Buffett to Donald Trump when being honest tell us that concentration is the way to go. Diversification before we obtain wealth is a fear based strategy. People think by diversifying, when things go badly, they can hang on to some of their wealth. Unfortunately, diversification is a block to building wealth, so they are protecting themselves from a loss that means nothing. Since fear keeps most folks from building wealth, when they hear diversification can protect them, they jump at it. Its a perfect fit for a fear based environment. Not that fear is a totally wrong emotion to have for the middle class. After all this is a group that is experiencing the economic changes most acutely.

Why EIUL Makes Sense?

I am a big believer in equity indexed universal life insurance as well as a seller of it. I have had  my own EIUL for a number of years and it has performed exactly as it was advertised too. Since I decided to sell the product, I have learned quite a bit about the product and the tax codes that make it work so well. Here are some key points for anyone interested in the product:

1. It is permanent insurance, therefore has all the good and bad of an insurance product. Primarily the bad part is the front loaded expenses (over the first 10 years). So this product is not one to be entered into on a whim. This is a decision you make and live with. Now the good part. If you have dependents or heirs then the insurance aspect is a great bonus to most retirement plans. How many 401Ks/IRAs do you know of that will pass on 5 to 10 times the invested value to your spouse? But most of all that is why you really don’t need to worry about the front loaded expenses. If you die prematurely, no one will worry that you paid a lot of expenses in the first 10 years will they? In the long run the expenses will cost you between .5% and 1.5%. This is actually below the average expenses from the mutual fund industry.

Happy Birthday Dr. King

Just Win...

The Time For Action Is Now

We all know the story of the shoemaker whose children went without shoes and the roofer who never got around to fixing his leaky roof. Except for the details, their stories may not be too different from our own. Despite knowing that we need to be doing something about planning for our personal financial goals – whether it is saving for retirement; doing a better job of managing our debt, or setting money aside for our children’s college education– most of us put off doing anything about it for one or both of two reasons: we aren’t sure where to begin, or we don’t think we have sufficient assets to make it worthwhile.

The truth is, there is no single place to begin when it comes to planning for your financial future; and there is no level of income or assets one needs in order to make the process worthwhile. You can take action regardless of where you are in life, and regardless of how much money you have (or don’t have).