ARE 401K FEES DESTROYING THE VALUE OF YOUR RETIREMENT?

The Retirement Gamble: What They Don’t Want You to Know
 

Many Millennials, Gen-X and Late Baby Boomers have a view that their futures are tied to an obscure financial wasteland based on the last fifteen years of extreme financial uncertainty, stock market volatility and less perceived opportunity than their parents before them.

Many manufacturing jobs have disappeared over the last 20 years and a stifling over-reach of government regulations has hampered many industries and has discouraged corporate America to accelerate investment and job growth. Real wages have not increased in nearly a decade and GDP growth is anemic at best (the worst economic recovery following a deep recession in U.S. history).

While corporate America is generally hoarding their cash (not investing) in hopes of greater clarity with respect to tax rates and a more favorable business climate, many of the aforementioned generations are also not overly optimistic about their future.

We will explore ways to ensure that the money you invest now is there for you later when you really need it. Here we go:

According to Jonas Elmerraji of Investopedia, “once you’ve determined how much you’ll need for retirement you come to an even bigger question: “What the heck do I invest in?” There is a vast universe to choose from. The correct answer will change over time and depending on the market you encounter.”

But what is the best way to figure how much you’ll need for retirement and how do you ensure that you’ll have what you need when you get there?  Wealth Path IQ believes that the best way to begin to get some straight answers is to complete a Financial Needs Analysis (FNA) with a licensed Agent to better understand your options based on your unique financial situation (income, fixed and variable expenses, investments, retirement age, etc).  Be honest and thorough with your licensed Agent as that is the only way you can begin to take real action towards building your path to wealth.

 Get your complimentary financial needs analysis from a licensed Agent:



 

A Safe Way to Contribute (or begin) To Build Your Financial Portfolio:

Indexed Universal Life

In general terms, Indexed Universal Life Insurance (IUL’s) provides a cash value which is the opportunity to build money inside your policy, based in part on the increases of market indexes. Even if these indexes should dip, you’re still safe with a guaranteed minimum interest rate.

  • Stronger growth potential than traditional universal life
  • The money in your policy grows income tax-deferred in fixed and indexed strategies
  • Flexibility in how you decide to pay premiums
  • Death Benefit Protection part of policy

 

How Long Until Retirement

If you have a longer-term time horizon, say 30 years or more until retirement, investing in a healthy balance of diversified assets (see below under Diversification) is favorable. If you are nearing your retirement it’s prudent to continue to reduce your exposure to Equities (stocks, mutual funds, ETF’s) and increase the income producing assets to offset stock market risk and increase your monthly income.

“Of course, personal preferences are second to the financial realities of your investment plan. If you are getting into the retirement game late, or are saving a large portion of your monthly income just to build a modest retirement fund, you probably don’t want to be betting your savings on high-risk stocks. On the other hand, if you have a substantial company pension plan waiting in the wings, maybe you can afford to take on a bit more investment risk than you otherwise would, since substantial investment losses won’t derail your retirement.”

“As you progress toward retirement and eventually reach it, your asset allocation needs will change. The closer you get to retirement, the less tolerance you’ll have for risk and the more concerned you’ll become about keeping your principal safe.” 

The Importance of Diversification

“There are countless investment books that have been written on the virtues of diversification, how to best achieve it and even ways in which it can hinder your returns.

Diversification can be summed in one phrase: Don’t put all of your eggs in one basket. It’s really that simple. Regardless of which type of investments you choose to buy – whether they are stocks, bonds, or real estate – don’t bet your retirement on a single asset or asset class.”

“As you contribute savings to your retirement fund month after month, year after year, the last thing you want is for all your savings to be wiped out by the next Lehman Brothers collapse. And if there’s anything we have learned from the ‘Enrons’ of the world, it’s that even the best financial analysts can’t predict each and every financial problem.

Given this reality, you absolutely must diversify your investments. Doing so isn’t really that difficult, and the financial markets have developed many ways to achieve diversification, even if you have only a small amount of money to invest.”

Mutual Funds and ETFs

“Consider buying mutual funds or exchange-traded funds (ETFs), if you are starting out with a small amount of capital or aren’t comfortable with picking your own investments. Both types of investments work on the same principle – many investors’ funds are pooled together and the fund managers invest all the money in a diversified basket of investments.

This can be really useful if you have only a small amount of money to start investing with. It’s not really possible to take $1,000, for example, and buy a diversified basket of 20 stocks, since the commission fees for the 20 buy and 20 sell orders would ruin your returns. But with a mutual fund or ETF, you can contribute a small amount of money and own a tiny piece of each of the stocks owned by the fund. In this way, you can achieve a good level of diversification with very little cost.”

Wealth Path IQ believes that stocks, Mutual Funds, and ETFs should typically not exceed 25% of your retirement portfolio. Why? The safe and prudent strategy does include owning some stocks, Mutual Funds and ETFs; but if you are overexposed in equities most of you are taking too much unnecessary risk: There were two major stock market collapses that crushed equity investors from 2000 to 2014; in some cases, many portfolios were wiped out that were heavily invested in stocks. We are not necessarily predicting a major meltdown in the stock market anytime soon: the point is that being over-exposed in equities is not a prudent strategy for most individuals.  

We look forward to sharing proven and time tested strategies:

  • Unique Advantages of Owning Physical Gold
  • The Rule of 72
  • The Power of Compound Interest
  • Investment Strategies to Avoid Losses and Taxes

Many of these strategies live in the tax exempt side of the
market in the form of insurance based products.

Most of you should have a good percentage of your wealth in physical Gold, some in Equities (stocks, mutual funds, ETFs), bonds, annuities, and insurance. The percentages of each asset class will depend on the results of your Financial Needs Analysis conducted by a Licensed Agent to pinpoint your unique individual needs.

We will take the journey together.  Until next time.

http://www.investopedia.com/universityretirement/retirement6.asp#ixzz4Xl9tYMtW

Tax Exempt Money

A well diversified portfolio should include a healthy balance of asset classes including stocks, bonds, annuities, and insurance.  Ultimately, the percentage mix of each asset class will depend on the age, savings, earning power, retirement goals, family needs such as college expenses, etc of each individual.  There is no one size fits all approach.

The first step in getting the upper hand on your finances immediately is to complete a Financial Needs Analysis with a licensed Agent.  Wealth Path IQ believes that all retirement and safe money strategies begin with finding a licensed Agent that will patiently explain options available that are suitable for each unique person.

Get your complimentary financial needs analysis:



 A Safe Way to Contribute (or begin) To Build Your Financial Portfolio:

Indexed Universal Life

In general terms, Indexed Universal Life Insurance (IUL’s) provides a cash value which is the opportunity to build money inside your policy, based in part on the increases of market indexes. Even if these indexes should dip, you’re still safe with a guaranteed minimum interest rate.

  • Stronger growth potential than traditional universal life
  • The money in your policy grows income tax-deferred in fixed and indexed strategies
  • Flexibility in how you decide to pay premiums
  • Death Benefit Protection part of policy

According to Joe Allaria in his Investopedia article, when asked the question difference between universal life and whole life policies, he does a great job of explaining in plain terms:

“Indexed Universal Life (IULs) are a type of universal life policy. The universal portion means that premiums are flexible and the components of the life insurance policy (death benefit, savings element and premium) can be altered throughout the contract.

“Universal policies are also permanent insurance policies, like a whole life policy, although there are some major differences between universal life and whole life.  One difference lies in the flexibility of universal life and the inflexibility of whole life.”

“Within universal life policies, there is a cash component as well as an insurance component. It is the cash component that makes these policies differ from VULs (Variable Universal life) and ULs (Universal life). The cash bucket inside of a indexed universal life policy grows as a result of index performance (and the indexes are usually selected by the client or advisor each year). The indexes will usually reflect broad market indexes like the S&P 500, DJIA, etc.”

“Of course, the fact that Indexed Universal Life Insurance provides a cash value, which is the opportunity to build money inside your policy based in part on the increases of market value.”

Wealth Path IQ recommends you focus your discussions with your licensed Agent with only “A” rated IUL’s. Although caps vary,  talk to your licensed Agent about caps approaching 7.75% and a floor of .75%.  This means you could earn up to 7.75% annually but you will earn no less than three-quarters of 1%.  This is a safe approach to earning a decent yield.

In conclusion, Wealth Path IQ agrees with the Joe Allaria’s assessment that it’s important to do the following:

1. “Understand how the indexes work. Ask a lot of questions. Ask if you can choose your issue date. Know your best and worst case scenario.

2.” Make sure that the illustrations that are shown to you reflect a realistic rate of return. If you the illustrations you are looking at assume a 7% annual rate of return, you need to ask them to re-run at something more conservative. Is it possible to get 7% on average over a long period of time? Yes. BUT, that is without caps and participation rates involved. To be safe and to make sure your policy does not lapse, I would suggest projecting a more conservative return (like 4%).”

3. “Explore other alternatives to IULs. GUL (Guaranteed Universal Life) policies, for example, are incredibly straightforward and are backed by a guarantee from the insurance company. That leaves little room for misunderstandings or misleading life insurance illustrations. UL policies are also easier to understand in my opinion. This doesn’t mean GULs and ULs are better the IULs, but it means if you’re unfamiliar with how IULs work, you should either do your homework or consider choosing a different policy type.”

All guarantees are based on the financial strength and claims paying ability of the issuing insurance company who is solely responsible for the obligations under its own policies.

http://www.investopedia.com/ask/answers/09/indexed-universal-life-insurance.asp

What are the Pros and Cons of Guaranteed Universal Life Insurance?

According to Ken Buccico, it’s critical to understand the pros and cons of Guaranteed Universal Life Insurance. Guaranteed Universal Life is often called “No Lapse” or “Secondary Guarantee Universal Life” in the insurance industry.

“Term life insurance will provide a guaranteed level premium and guaranteed death benefit for a limited period. Often times, you will outlive the guaranteed level period and must make a decision to secure a new policy at an older age when your health may not the best.

Whole life insurance will provide a guaranteed level premium and guaranteed death benefit beyond age 100, as well as, provide a guaranteed cash value. The whole life insurance policy will have the highest premium because of the existence of guaranteed cash value.”

Ken Buccico goes on to explain that “other options are there for you if you do not want: guaranteed cash value in the whole life policy, or cannot afford the whole life premiums and dislike term insurance because of the lack of long term guaranteed level premiums.

A possible solution is Guaranteed Universal Life insurance.”

His look at the Pros and Cons of this life insurance product:

Pros:

  • Premiums can be level for lifetime. You can select the age they want the death benefit guaranteed to, whether it is age 90, 95, 100, 105, 115 or 121….
  • The length of premium payments can be structured according to your preferences.
  • Interest rate volatility does not affect premium payments.
  • This product is inexpensive as a permanent life insurance product compared to other products, as the premium is calculated to maintain a level premium payment until death.
  • Comparisons of this product among insurance carriers are relatively easy as there are not many components to the plan.
  • Cash surrender values of permanent products can be transferred to this product without current income taxation on policy gains by utilizing a Section 1035

Cons:

  • This product may not have any cash value, unlike alternative permanent life insurance products.
  • Although premiums may be lower than whole life insurance or other permanent insurance products, they will generally be higher than term insurance.
  • The greatest con of guaranteed universal life is that the timeliness of premium payments is critical to maintain the guaranteed level premium. Other policies that contain cash value can provide a source within the policy to cover the required premium to maintain the death benefit, however, a missed or late premium payment can jeopardize the guaranteed premium feature resulting in a policy without a guaranteed premium.

http://www.pivot.com/Learning-Center/Pivot-Blog/Post/2106/What-are-the-Pros-and-Cons-of-Guaranteed-Universal-Life-Insurance