Retirement Income Knowledge Less Than Believed

Jim Lorenzen, CFP®, AIF®

There’s seems to be a huge gap between perceived retirement income knowledge (how much people really know) and the knowledge people actually possess.

That appears to be the conclusion one can draw from the results of the American College’s National Retirement Income Survey.  The survey used questions commonly used to gauge financial literacy and the results of the quiz were pretty poor.  The mean retirement income literacy score was 47%… only 26% of older Americans passed the literacy quiz in 2017.

While only 12% of those with the lowest levels of wealth ($100,000 to $199,000) passed the quiz, the passing rate for those with $1.5 million or more in wealth was only 50%!

If  you would like to take the American College’s Retirement Income Literacy Survey for yourself and read the full report on the national survey results, you can do it here.

Enjoy!

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Don’t Make These IRA Mistakes!

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Jim Lorenzen, CFP®, AIF®

Have you reviewed your beneficiary forms lately?  You should.  IRA mistakes there can’t be fixed after the IRA or plan owner dies.

The two biggest problem areas most prone to beneficiary form:  Divorce and trusts.  Problems often arise when someone erroneously believes that a trust takes care of naming the beneficiary for IRAs.   It doesn’t.

When someone names a trust in a will as the IRA beneficiary, a problem can arise when a new will is prepared with no trust named.    Most new wills revoke the old ones – so the trust under the first will no longer exists as a beneficiary leaving no named beneficiary.

Other problems arise when a trust is created to inherit an IRA but never named on the IRA beneficiary form.  The trust must be named on the IRA beneficiary form; and if a new trust is created to inherit the IRA, the IRA beneficiary form must be updated again.

Make sure your IRA beneficiary forms name the correct beneficiary – and contingent beneficiaries.  And, if the trust is named, make sure it’s still accurate.

If you want to learn more about IRAs, I’m never hesitant to recommend Ed Slott’s books and DVDs.  He’s one of a very minute number of ‘gurus’ (you’ll often find him on PBS) who is actually the ‘real deal’ (he’s also a CPA) when it comes to dispensing well-researched retirement and taxation knowledge.

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Three Quick Tips for Building Family Wealth

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Jim Lorenzen, CFP®, AIF®

Here are three quick tips you might find helpful:

Choose your beneficiaries wisely when allocating inheritance money.  Leave tax-deferred accounts (IRAs and non-qualified annuities, for example) to younger family members.  They’re likely in a lower tax bracket and have longer life expectancies for taking the required minimum distributions, which means the distributions will be smaller, as well.    Highly appreciated assets are best left to beneficiaries in higher tax brackets as long as the cost-basis can be stepped up to the current price levels.  This means wealthier recipients can sell the asset with little or no tax consequences.  The high-income beneficiaries would most benefit from the tax-free benefits from life insurance policies.  Talk with your advisors.

Don’t be too eager to drop older life insurance policies.  Some may wonder why keep the policy if they no longer need it.  Those older policies may be paying an attractive interest rate, which is accumulating tax-deferred.  Secondly, those small premiums may well be worth the much larger tax-free payoff down the road.   How to tell?  Start by dividing the premium into the death benefit.  Got the answer?  If you think you’ll pass away before that number (in years), you probably should keep paying.

Convert Grandpa’s IRA to a Roth IRA.    When grandpa passes away, his IRA assets will likely be passed down to children and grandchildren, which means they’ll have to begin taking taxable required minimum distributions (RMDs) – which means they’ll probably be taxed at a higher rate than grandpa would have paid on his own withdrawals.  If grandpa converted some or all of his traditional IRAs to Roth IRAs while alive, this problem wouldn’t happen.  Smart kids might want to encourage this and even offer to pay the tax bill on the conversion now!

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Are You Managing Money? Maybe you should be managing risk.

Jim Lorenzen, CFP®, AIF®

Markets are sensitive to risk.  We know that.  According to analysts at Lockwood Advisors, only 8% of global economies are now growing above recent averages; but, the U.S. is still the best; the G10 countries are the worst.   Headwinds do include politics:  Many market insiders are worried about a reversal of tax cuts and the anti-business stance of many incoming members of Congress.

Just like back in 1950 (remember?) the U.S. economy has been growing above recent potential, propelled by the growth spurt from major corporate and personal tax cuts; however these cuts just might have staying power since they’re not based on wealth redistribution.  The real headwinds just may be coming from two economic realities:  Demographics and the large U.S. government debt.

The aging population, increasing the percentage of the population in the decumulation stage, may apply downward pressure on growth for decades.  The Administration on Aging estimates that the population age 60 or older will increase by 21% between 2010 and 2020 and by 39% between 2010 and 2050.

Most people, it’s safe to say, think of future market returns using a frame of reference based on the past.  Indeed, most advisors – I’m guilty too – continually put-up mountain charts to show clients what’s happened before even as we tell them it’s no guarantee it will happen again.  But, the baby-boomers who remember the 1950s and 1960s – and especially the go-go 1990s – should be reminded the current is no longer flowing in the same direction.   Defensive allocations just might be the best defense going forward.

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Here’s Your 10-Point Financial Discussion Checklist!

Jim Lorenzen, CFP®, AIF®

How does your financial future look?  Your chances for financial freedom will depend on how well you’ve covered your bases!

Here’s a checklist for your kitchen table discussions:

  1. When do you plan to retire?  Your retirement age will impact how many years of spending your retirement assets will have to cover.  It will also likely affect just how much you may spend each year.
  2. What are your retirement goals?  Get them down in writing and sort them by needs, wants, and wishes – the prioritize each goal and put a dollar amount on each of them.  For those that are recurring, you’ll not only need to put a dollar amount on each event, but you’ll need to adjust for inflation, as well (car purchases are an example).
  3. When do you plan to file for and start Social Security payments?  How will this affect your tax picture when combined with other sources of income from retirement plans, etc.
  4. How will you design your investment portfolio to provide both income and inflation protection while mitigating downside risk?
  5. Will you need to reduce living expenses?  If so, where can you cut?  Not everyone will need to, but running out of money in your old age wouldn’t be a happy picture either.
  6. Should you get a reverse mortgage?  Does it really provide the security the commercials talk about or is it just a band-aid?
  7. Have you provided for the possible need for long-term care?  Long-term care policies are available, however many are concerned about not using the benefits after paying out high premiums for years.  Some policies also have many restrictions.  It’s worth reviewing the fine print.
  8. How will you protect yourself against financial fraud?  This can take many forms, from cyber threats to the Bernie Madoffs of the world.
  9. How can your spouse and children be protected when the main breadwinner is gone?
  10. Is creating a financial legacy important to you?   This can be accomplished for children and grandchildren, but they’re not the only ones.  Some people think giving is only for the rich; but affluent people often wish to do it, too.

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Your Cash Value Life Insurance Has Value!

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Jim Lorenzen, CFP®, AIF®

People often purchase cash value permanent insurance, throw the policy in a drawer or filing cabinet, and forget about it.   This could be a big mistake.

Most all permanent insurance has a cash value and that cash value has real value you shouldn’t ignore!  First a quick word about  what permanent insurance is.

Term vs Permanent

The terms themselves should tell you something.   Term insurance is simple:  You’re renting death benefit protection from an insurance company.  It’s like a lease, in a way.  You’re premiums stay level until the end of the lease.  You can renew your lease, but the rent will be higher.  How high depends on the length of the initial lease.   If you’re 40 years of age, and in good health, the purchase of a 20-year term policy means the ‘lease’ will be up when you’re age 60.  If you no longer need the death benefit, you simply let the policy expire.  If you do, you’ll either have to renew at what will likely be a much higher rate or buy a new policy, which means re-qualifying health-wise.  You might be able to convert to a permanent policy with the same company if your term policy offers that feature, but you’d still be paying the higher premiums.

Permanent insurance isn’t a rental.  This is a purchase on a sort-of installment plan.   Examples are whole life, universal life, and many other iterations that are now available.   In most policies, premiums do not increase and your protection doesn’t go away unless you fail to maintain the policy.  These policies have cash value and that brings us back to our topic.

Cash Value has Value!

Someone will end-up with the policy holder’s cash value:

A)The policy holder

B)The policy holder’s beneficiaries

C)The insurance company

If the policy holder dies before accessing cash value, the answer is C!  The insurance company pays out the death benefit but will keep the cash value.

What can you do to make sure you make the most of your cash value?  Here are some simple strategies you might consider:

  1. Use your cash value to make premium payments

    Why not use your cash value for premium payments to keep ‘paid-up’? You’ll not only save money each year, but maintains your death benefit protection.
  2. Increase your death benefitUse your cash value to purchase a larger death benefit! Life insurance death benefits generally go to beneficiaries income tax-free!   If you have a $500,000 insurance policy with $250,000 in cash value, you might want to take your cash value to zero and increase your heirs death benefit  to $750,000.   Better that than your heirs getting $500,000 and the insurance company taking $250,000 (which means they had only $250,000 ‘at risk’).
  3. Take a loanYou can borrow against your policy’s cash value at rates lower than your typical bank loan. In some cases, the net loan interest rate might be close to zero (the cost of the loan could be close or equal to the policy’s interest crediting rate).   Here’s the good part:  You’re not obligated to pay back the loan since, in effect, you’re borrowing your own money (you should know that any amount you borrow, plus interest, will be deducted from the death benefit when you die).   Here’s a smart strategy many people use:   They borrow money from policy cash values to pay cash for their new car, the make ‘car payments’ back to the policy.  The money they borrow is tax free.  And, in many policies, the money they took out to buy the car is still ‘on the books’ in their policy for interest crediting.  Every five years or so, they buy a new car almost interest free.
  4. Withdraw the moneyYou can withdraw your cash value—which could reduce or eliminate your death benefit. Don’t do this without checking with your agent.  Calculations may not be dollar-for-dollar.
  5. Surrender the policyNo more death protection, however.
  6. Supplement retirement incomeThis is a 10-15 year strategy that can provide excellent benefits and protections. Talk to your advisor—preferably someone who is independent of the companies and a CFP® professional.  Now, if we only knew where we could find one…..

 

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Here’s Your Important Document Checklist!

Jim Lorenzen, CFP®, AIF®

 

A fiduciary advisor is good to have; but, YOU are a kind of fiduciary, too!

Your family depends on you, which means you have the responsibilities a fiduciary would have.   Step one, of course,  is knowing where your important documents are.

Here’s a checklist to help you get your ducks lined up.

Hope you find this helpful.

If you would like help, of course, we can always visit by phone.


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Beware of Mortgage Loan Scams

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Jim Lorenzen, CFP®, AIF®

First I want to point out that this post is really courtesy of Senior Deputy Becky Purnell of the Moorpark Police who provided this information in the City of Moorpark Guide; but, I thought it was so worthwhile I wanted to relay the information here.

According to Deputy Purnell, you should be aware that scammers are targeting email accounts of realtors and escrow and title companies in order to steal your money!

So, if you are buying a home or refinancing, you should be alert to what could be happening and how to protect yourself.

  • The scammer hacks into the email account of a real estate agent or escrow officer and monitors correspondence between that person and the home buyer.   The scammer then creates an email that is nearly identical to the agent or officer’s email, including their writing style, logos, and signatures.
  • About the time the home buyer would expect to receive instructions on how to wire the money, the scammer sends instructions to wire the money to a specified account which goes to the scammer.  The agent or escrow officer is unaware this is happening

This scam targets people who are in the refinancing process and any other transactions that include the wiring of money.  Here are some ways Deputy Purnell recommends for protecting yourself:

  • Before you wire money, speak with the realtor/escrow officer by phone or in person to get wiring instructions and confirm the account number is legitimate.
  • Do not email financial information.  It isn’t secure.  Many financial firms do what I do:  they provide secure vault access to their clients so that documents never go through an email system.
  • Look for web addresses that begin with https (the s stands for secure).   Don’t click on email links that come in emails – it’s always safer to look up the website’s real URL and type in the address yourself.
  • Be cautious about opening email attachments.  Those files could contain malware.
  • Be sure your browser and software are up to date.

Especially if you’re getting emails from someone you don’t know, never click on the link.   Even when I get a link from my own bank, I never click on it.  I always enter the correct URL manually to gain access.

You can set-up a spreadsheet with columns for website names, URL, ID, Username, Passwords, and security questions and answers; but, make sure you spreadsheet is password protected and not accessible to others (you may want to store the data on an external drive, or example).

Hope this helps!   If you’d like to learn more about IFG, we can always visit by phone.   You can click on that link (if you feel confident), or you can simply go to the IFG website and contact me through the site.  www.indfin.com.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Old-Age Financial Security: Silence is NOT Golden, yet Some aren’t talking!

Jim Lorenzen, CFP®, AIF®

Generational planning didn’t seem important  for old age financial security in my grandparent’s day.   They were living at  a time when Social Security was passed and designed to last for a lifetime beginning at age 65.  Of course, life expectancy back then was around age 68!  Who needed to worry about generational issues?  Longevity wasn’t a risk.

My generation—the baby boomerss—became the first  to experience the ‘sandwich’ effect:  Taking care of aging parents and children at the same time.   And, as that was unfolding, people were beginning to realize they were living longer, too!

The cultural quicksand began to materialize, but few have recognized it.  It’s like glaucoma:  You don’t see it coming; but, all of a sudden, it’s there.   It’s silence.  In a recent online survey (cited below), over half of GenX respondents and 60% of baby boomers indicated they’ve never had a conversation about planning for retirement or financial security in their old age, yet their fears were the same.

The reasons tend to tell is why.  They’re repeating the same mistakes their parents made.

Why do we study history?  Because we know human nature doesn’t change—it hasn’t changed for thousands of years.  Studying history allows us to learn the mistakes human nature, unencumbered by knowledge, tends to make.  But, knowledge helps us prevent a repetition!

When parents and children don’t talk about finances, guess what…

Why do they feel they’re not making enough money?  Why do they have too many other expenses and are paying off debt?  The answer is simple.

They’re  repeating mistakes.  But, the GenX group seems to be making more of them.  Are the boomers not talking to their kids?   Are their kids not involved in their parent’s own planning?   Maybe they should be.

As parents are living longer—longevity risk– they run a very real risk of needing long-term care.  If ever there was a threat to old age financial security, this may be it; yet,  relatively few address that issue usually because of cost or for fear of losing all that money paid in premiums if they don’t use it.   However if they do need it, and the kids end up having to pay some or all of the ultimate cost for that and their parents’ support, it also could eat-up their inheritance!

What we don’t know can cause financial hurt.  Perhaps they don’t know  that a professionally-designed life insurance policy might provide tax-free money that could be used to cover long-term care if needed and yet preserves cash if it isn’t—and still maintain the children’s inheritance!   It’s a financial ‘Swiss Army Knife”  type tool that can solve a lot of issues at once.

Unfortunately, few people take the time to have a generational financial planning session either on their own or  – maybe better—facilitated with a  family financial advisor acting as a guide and facilitator.   Some advance planning can make a big difference.  Here’s an example:

Real Life Case History (Names changed)

Fred and Wilma never discussed their finances with Pebbles or Bam Bam.  As Fred and Wilma grew into their 90s, it became evident they could no longer live on their own.  Fred was diagnosed with a terminal disease and Wilma, at  90, was diagnosed with Alzheimer’s.  They could no longer function and it was now Pebbles’ and Bam Bam’s turn to take care of their parents.  Fred lived for eight more months, but Wilma continued living for nine more years.  Despite the fact they did have some retirement savings, it was no where near enough to cover the more than $600,000 in costs that were incurred  by Pebbles and Bam Bam during that 9-year period. 

Had Fred and Wilma taken the right steps sooner, those costs threatening the old age financial security of Pebbles and Bam Bam might have been covered, or—at the very least—Pebbles and Bam Bam would have been reimbursed, protecting their inheritance … and all of the money might have been provided tax-free!   Unfortunately, their attitudes about various financial solutions available to them were colored by what they’ve heard from parents, friends, and even entertainment media, including television gurus selling DVDs.   Not surprising.  Some people even get their medical advice that way.

Old strategies simply don’t address today’s longevity and ageing issues.  Different strategies are required.   How can it be possible to make sure the parents have a lifetime of inflation-adjusted income and still provide an inheritance for the kids?

Rising Inflation ScreenYou might enjoy viewing this educational 20-minute video that shows one strategy that likely makes sense for many people.  While the tools used to implement it might vary, it’s still worth a view.  So, grab some coffee and see for yourself.

If you haven’t had a generational meeting with your family financial advisor, maybe it’s time you did.  Like Mark Cuban’s dad once told him:  This is as young as you’re ever going to be.

If you would like help, of course, we can always visit by phone.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Caring for a Loved One at Home? Here are some tips!

Sunday Brunch at home.

Sunday Brunch at home.

Jim Lorenzen, CFP®, AIF®

Taking care of family does present its challenges; but, it can extremely rewarding – and a lot of fun!

If you’re one of those who’s embarking on this journey, there are a lot of resources available to you; but, there’s also a lot you’ll want to know.

My wife and I cared for my mom for nine years, and we’re now caring for her mom.  As I said, there are challenges, but it can be a time you’ll never, or want to, forget.

The button below will get you to some tips you might find helpful, as well as some personal experiences that you may find worth knowing.

Enjoy!
Home Care Resources and Tips You Can Use!

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.