What if I could show you how to buy dollars with pennies, would you be interested? If you or someone you know is 65 or older, this financial secret is something you certainly want to know about. There are people who are saving their individual retirement account (IRA) for a rainy day or an emergency. Believe it or not, these IRA accounts often are never spent by their owner. People who own these like the idea of having a nest egg to pass to their loved ones if they never need it during their lives.

The After 70 ½ Rule for Your Ira

One major financial setback of an Ira is that sometimes these accounts are taxed upwards of 50 percent when they pass it to their heirs. As people age, Uncle Sam gets greedier. For example, John is 71. He has a pension from his job and social security that covers all of the monthly expenses. He also has $75,000 sitting in an IRA. There is currently a tax code in place that makes it mandatory for John to take money out of his IRA account even if he has no need or desire to spend that money. This is true for anyone who is 70 ½ or older. Worse yet, John has to deduct money out of that account each and every year.

Uncle Sam Needs Your Money Even After You Retire

In case you are wondering why John is forced to take money out of his personal account, the government wants him and everyone else his age to take a distribution each year because individuals pay taxes on the money they withdraw. The reason why this occurs is because taxes are the fuel that runs the government engine. If there are millions of retirees withdrawing money, there are billions in tax revenue generated for the government. As you continue to read, there is a way to turn this “have to” money into “want to” money. In other words, you are going to learn how to look forward to putting a required minimum distribution to work for you.

How to Make Uncle Sam Work in Your Favor

You will most likely be shocked to find out that cash value life insurance is the answer. One reason why people shy away from life insurance is because the annual premiums are so high. This becomes the perfect scenario for a retirement account that has a required minimum distribution (RMD). Instead of John spending money from his (RMD) on unnecessary purchases, he can take that money and purchase a policy that will last for the rest of his life. Perhaps the best advantage is that the money passes to the beneficiary tax free.

Since the distribution is tax free, John has great flexibility with his IRA as long as he knows that he intends to save it for an emergency and pass it to his loved ones. If we compare John’s options side-by-side, it will be easy to conclude the decision that would be in John’s best benefit. If John keeps his money in his Ira, he will have to withdraw money from his account yearly. If the amount taken out is more than the interest earned the value of his Ira is going to decrease. When John dies, the entire amount left over will be taxed before his heirs receive the money. If John places his money in an insurance policy, he may end up spending all of his money down in his Ira as he transfers that money to his insurance policy on an annual basis. However, the difference is that if he purchases a $75,000 policy, the entire $75,000 plus any earned interest will pass to his heirs. If done properly, this strategy will always allow anyone to pass more money to their loved ones without any out-of-pocket expenses.

Obviously, every situation is unique. If you live in the greater Los Angeles area or the Inland Empire, please feel free to ask one of our experts if you need help to maximize the amount you pass to your loved ones, church, or even your favorite charity.

Simply put, if you have people who love you and depend on you financially, you need life insurance. This is a very difficult subject to talk about because very few people feel comfortable enough to talk about death. In fact, I was sitting down with a family in Fontana, CA and the spouse was driven to tears just thinking about losing her loved ones. Even though life insurance is not fun to discuss, that fact does not diminish the need to prepare for the inevitable.

Life Insurance Serves Many Purposes

Throughout your life you will experience different phases in which life insurance can fulfill a specific purpose. The following examples illustrate the various uses of life insurance.

Single People

People who are not married and have no kids do not typically consider life insurance as a need. However, if you are providing financial support for aging parents or siblings who lack the ability to care for themselves, you should consider life insurance. Unfortunately, some debt passes to your family members, but money from life insurance is not considered part of an estate so it is free of estate taxes.

Married Couples

After the 1950s, families needed dual incomes to get ahead financially. If a wife makes $50,000 a year and the husband makes the same, chances are the family is living at least a $100,000 lifestyle. If one spouse unexpectedly passed away, the family would suddenly have to survive on half the income. Funeral Expenses, plus all of the existing expenses such as credit card balances and outstanding loans that are still in both names still have to be paid.

Parenthood

Raising a child is sometimes the most difficult and rewarding challenge that parents will encounter. Baby formula, baby food, diapers, clothes, toys, and college are a few of the many expenses for parents regardless of socioeconomic status. The US Department of agriculture estimates that the average cost to raise each child is $235,000 (not including college). If your income suddenly stopped upon your death, would your spouse be able to provide your children with the same lifestyle that the two of you always dreamed about? How would you pay for their sports, dance, and college? If you are a single parent, how would your passing away impact your household?

Homeowners

The title of home ownership is a misnomer since a home cannot technically be owned until mortgage payments end. Life Insurance can be used to pay down partial or full mortgages. Some companies offer life insurance policies that equal the number of years remaining on a mortgage. For example, if a mortgage has 28 years left, some companies offer 28 year term life insurance policies. Besides the strictly practical use for life insurance, a family who receives a death benefit can also use the money to maintain their existing lifestyle.

Retirement

If the pitfalls of life never visited you during the early years, consider yourself lucky. Now that the kids have graduated and they have stable incomes, and your home is paid off, people have perhaps taught you that there was no longer a need for life insurance. That stated, what would happen if you died today? Would your spouse have enough money to maintain the same lifestyle for 10 to 20 yrs? Contrary to popular belief, this is the best time to have had life insurance with some cash savings. Structured properly, you can begin to live on the compounding interest that has accrued over the years. Term insurance during this phase of your life gives you peace-of-mind, and cash value life insurance gives you lifestyle. What is so great about insurance is that you can’t lose. It’s a fixed fight. If you die too soon, your family is going to benefit financially by maintaining their current standard of living. If you save and survive, you put yourself in a position to have more money to spend during retirement.

This is a true story about Angie, a person I will never forget. She was not a person one would think would need a life insurance policy. She was not married, not a home owner, and she had no children. She sat down with me because she had two financial goals. One was to have a comfortable retirement from her job in San Bernardino. The other was to take care of her mom and two of her siblings just in case.

The First Phone Call

I was getting a few groceries one evening at a local supermarket when my phone rang. After a long day, I looked at my phone to determine if I wanted to talk or not. When I saw that it was my client Angie, I was puzzled because she never called. I answered the phone curious to find out why she called. After a few seconds of small talk she said, “I’m calling make sure that my life insurance policy is still active.” I informed her that it was, and then asked her why she was asking.

She said, “You are the second person that I called because I have something important to tell you.” I said, “Tell me.” She said, “I just found out that I was diagnosed with breast cancer. I am deciding to believe that everything will be fine, but I just wanted to make sure that the life insurance policy is in good standing”.  Wanting to reinforce her belief, I said, “I’m believing with you that everything will be fine.” We ended the conversation and I said a prayer for Angie before I resumed to grocery shopping, but with a heavy heart.

Angie’s Second Phone Call

I made it a point to call Angie once a month to check on her. She told me month after month that she was fine, until one month she called me before I called her. “Hello, Dr. Cooper?”she asked. “Hey Angie!” I said, happily surprised but concerned why she called. She told me that the cancer spread aggressively and she was on her way to surgery to have a mastectomy. I was hurt to hear the terrible news, and honored at the same time that she thought enough to inform me as she was facing the most traumatic event of her life.

Two days later she called me, and I could tell from the background noise that she was still in the hospital recovering. We set up a breakfast a month from that day to celebrate her life and survival. When we sat down, she just kept telling me how blessed she was and how much more she appreciated life and the simple pleasures it gives. From that day, I decided to call her about once every three weeks to touch basis with her.

Angie’s Final Phone Call

About a week after our previous conversation she called me again to tell me that the cancer was back, but this time it metastasized into her bone marrow. Speechless, I paused for about ten seconds, and she said something that I will never forget. “Len, don’t worry about me. I believe that I am healed and besides, God is in control of my life regardless of what happens.” I immediately felt ashamed that I felt enough pessimism for her to sense that she had to lift up my spirits with her optimism. After this call, I wanted to be the one initiating our telephone conversations.

As I was driving, I saw her name appear on my telephone. I felt a weird feeling in the pit of my stomach. However, wanting to learn from the previous call I received from her, I answered with as positive of a voice as I could muster. This time, her voice was faint. She asked me if she could re-arrange the percentage of the life insurance death benefit to her beneficiaries. I explained that her request had to be in writing, but I would have the insurance company email her the paperwork. Immediately after the call, I reached out to one of her colleagues at work who was also a client. I asked her to check on Angie, but not to let her know that I initiated the visit.

The Most Difficult Phone Call

The following day, I called Angie’s colleague to give me a report about how she was doing. She told me that she went to visit Angie’s classroom, but there was a substitute teacher there instead. So I called Angie, but there was no answer. Despite all the negative feelings that swirled in my heart, I convinced my head that everything was ok.

The next morning at 5:48 I received a phone call. I answered the call listening to a man whose voice I did not recognize trying to maintain composure while he asked to speak to me. Suddenly, he burst out crying saying, “She’s gone, she’s gone.  Angie’s gone!” Lost for words thinking about the fact that she was only 48 years young, all I could do was express my sincere, but seemingly empty condolences.

The Power Of Life Insurance Hit Me

A week after the phone call, I attended Angie’s funeral. I walked up to a young lady, who was obviously Angie’s sister to introduce myself. What happened next, forever changed my perspective about the life insurance profession. Her eye’s opened widely with delight, and as she gave me a hug she said, You’re Dr. Cooper? Angie talked about you all the time. Thank you so much for what you have done for my family!” I hurried to accept her gratitude before she could see the tears that flooded my eyes. At that moment, I realized that within a week, Angie’s mom will have paid off her home and her brother and sister would be debt free with money to spare.

When Angie purchased life insurance, we never thought that she would use the death benefit for her mom and two siblings. She wanted tax-free income during retirement. Had Angie not been motivated by what insurance could do during her lifetime, she would not have decided to purchase life insurance. Angie’s choice to get life insurance changed her family’s life. Not only that, it completely changed my professional life because I gained a level of conviction that my profession significantly transforms the lives of my clients and their loved ones. I now want every individual and family to have the same piece-of-mind.

Most of us believe that insurance is only for our loved ones when we die, but some types of life insurance fulfills a variety of personal needs and wants while we are still living. The following points can help you decide how to choose between term insurance, permanent insurance, or a combination of both.

Term Insurance

Advantages

• Cost of insurance is lower. If you are healthy, you can buy dollars for pennies
• Ideal for young families who have a limited budget but have a need for lots of insurance
• Coverage lasts between 5 and 30 years. For example, if a person has 24 years left on a $250,000 mortgage, they can get $250,000 of coverage for 24 years.

Disadvantages

• Once the contract ends, it is expensive to renew
• If the policy lapses, it is very difficult to reinstate
• Term policies do not accumulate cash value
• Coverage ends

Permanent Life Insurance

Advantages

• Offers coverage for the insured’s entire life as long as the premiums are paid
• Premiums can be flexible or fixed depending on different financial needs
• Significant tax advantages
• College savings inside of cash value do not increase the parent’s expected financial contribution for college
• No probate. If a spouse passes away, the proceeds from insurance can’t be used to pay outstanding debt in the insured’s estate
• The policy accumulates cash value, which the insured can access during his or her lifetime and, if structured properly, can provide income during retirement

Disadvantages

• Initially larger premiums are required to properly fund this type of policy
• Some plans provide few or no guarantees, and while increased benefits may occur, poor investment performance can cause a reduction in the cash value account, the death benefit, or both. Be sure to get the product that best meets your needs and risk tolerance

Combination of Term and Permanent Life Insurance

To determine if you need both types of life insurance, consider using the DIME method:

D = Debt – If you pass away prematurely, you want to make sure you consumer debt like outstanding car payments or student loans for your children.

I = Income – It is recommended that you get between 7 to 10 times your income in coverage. This amount is meant to replace your income for 7 to 10 years.

M = Mortgage – How much does is your mortgage?

E = Education – When your children do go to college, how much will it cost for them to attend college four or five years?

When you add up these four figures, you will know how much insurance you need. Your debt, mortgage and education are temporary, so term is appropriate to cover those amounts. Your income will hopefully increase over your lifetime, so permanent insurance is appropriate for this amount. However, this example is over-simplified to provide a basic understanding. Every individual and family has a different set of circumstances, and therefore, you should see an insurance expert to discuss your specific needs.

This blog post is the final post of a 7 part series on life insurance. You can find the first post here: http://www.your-insurance-experts.com/why-get-life-insurance-part-1/

The Real Power of Life Insurance Comes During Distribution

Now that Justin is ready to access the cash value in his policy, there are a number of options he can exercise. After maximum-funding a policy, the proper distribution of cash is the most important strategy. Since Justin is still living and his grown children have no need for life insurance, he could choose to surrender his policy. That would not be a wise choice because without an in-force life insurance contract, all of the gains in his cash value would be subject to taxes. In fact, that choice would have made this option worse than a tax-qualified plan like an IRA because Justin would have at least received the benefit of tax deferral.

Life insurance companies devised an ingenious provision that allows Justin to take out a loan based on the cash value in his policy. It is important to note that Justin will not borrow his own money. He will use the cash value in his policy as collateral. There is nothing particularly clever about taking out a loan and using something of value as collateral. What is inspiring to Justin is that he can take out his loan with no or little interest, and he will never have to pay the loan back.

Earlier, we stated that Justin was 35 and put in around $1,400 each month until he was 70, which equals $588,000 of cash value out of his pocket totaling around $2,000,000 of accumulated cash value in addition to the $500,000 he could pass to his heirs. Let’s assume that Justin is going to live on $100,000 a year during retirement. Justin could distribute or spend down his cash value in two phases.

Phase one – Justin could take a withdrawal of the money he put into his policy. Since he needs $100,000 a year to live on, it would take close to six years to withdraw his $588,000. After Justin has withdrawn the $588,000, there is a possibility that the $1,400,000 (the estimated result after you subtract $588,000 from $2,000,000) of growth could experience even more growth during the five years depending on market conditions.

Phase two – After Justin finishes withdrawing his out-of-pocket money, he could then take out a loan on the roughly $1,400,000 of cash value. The $100,000 a year would still come to Justin tax-free. The three most common purchases use a loan for are cars, homes, and student loans. We receive money to pay for these items, but we don’t owe any taxes on them, right? Instead, we pay interest to the lending institution. Similarly, the insurance company places Justin’s $100,000 into a separate account at a certain interest rate. What’s ingenious is that this $100,000 will also earn an interest rate during the year. If the interest rate is 5 percent and the $100,000 earns 4% in the separate account, then Justin’s net interest rate is only 1%. If the $100,000 earns 5% then Justin has a wash loan and doesn’t owe anything.

A logical question is, “This sounds too good to be true. Why doesn’t Justin have to pay back the loan?” Justin’s cash value is $2,000,000 and his death benefit is $500,000. For the sake of simplicity, let’s conservatively assume that the cash value doesn’t earn interest and the interest rate in the loan (say 5%) and the $100,000 in the separate account (5%) create a wash loan. If Justin lived until 86, (16 years in retirement at $100,000 a year is $1,600,000) he would have a $500,000 death benefit to pass to his heirs. At that time, the insurance company would deduct $1,600,000 from the $2,000,000 and his heirs would receive what was left over, which in this example, would be $400,000. Therefore, the total tax-free death benefit Justin’s heirs would receive is $900,000.

To summarize, Justin maximizes the amount he puts into his cash value life insurance policy with after tax money. His cash value grows over a long period of time. During his retirement years, he withdraws $100,000 a year tax-free until that money is gone. After he withdraws his money, he will then take a loan of $100,000 a year tax-free for the rest of his life. When Justin passes away, the death benefit and the remaining cash value will go to his beneficiaries without any tax liability. In other words, for delaying gratification for 35 years and contributing $588,000 in this example, Justin lived retirement on $1.6 million tax-free and still had almost a million tax-free dollars to pass to his heirs. I would say that it was good that Justin and his insurance agent met.

Now that you have the information, do not become a victim of procrastination. Contact an insurance expert in your local area who can sit down and discuss your individual situation (if you reside in the Southern California area, I will be happy to help you — my contact details are below). Whether you decide to make this a part of your retirement portfolio or not, take action now by making an informed decision. Your retirement future and the financial well-being of your family could depend on the steps you take today.

This blog post is a continuation of a 7 part series on life insurance. You can find the first post here: http://www.your-insurance-experts.com/why-get-life-insurance-part-1/

Using Life Insurance for Favorable Tax Treatment

If you had a dollar that doubled every year (100 percent gain) for twenty years, you would have $1,048,576, which would be fantastic. However, if that money was taxed each year at 30% you would have a meager $40,642. I am in agreement that we should all pay our fair share of taxes, but I also believe that we should make ourselves aware of ways to redirect our hard-earned money that favors us. Permanent cash value life insurance is a way to place large sums of cash, and if structured properly, receive the growth of that cash free of income taxes (based on current tax laws as of the time of this writing).

Perhaps you are wondering why you did not know about this, and how is it possible to have an increase of cash value without having to pay taxes. Firstly, it is important to understand that many insurance professionals only know insurance and many financial professionals only know finance. Utilizing cash value as an investment strategy within a life insurance policy combines two different professional industries in one product. As time passes, more professionals are starting to see the value of understanding both industries, but this process is still in the infancy stages.

The money you place in cash value life insurance has already been taxed by the time it enters your bank account. Because the money is a part of a life insurance policy, there is no tax liability on the growth as long as you stay within the funding limitations from the government. For example, Justin needs $500,000 of coverage. Depending upon policy variations from one insurance company to another, he could put around $1,400/mo. into his policy. At age 70, he could have around $2,000,000 even after the fees and cost of insurance. Additionally, he still has $500,000 to pass to his heirs. The best part of the $2,000,000 is that he has access to that money tax free!

You may have noticed the many disclaimers about having a properly structured cash value life insurance policy. To illustrate this point, a dragster racing car requires a special type of fuel and a properly structured racing course to get the maximum use out of that type of high performing vehicle. A specific combination of methanol and alcohol are used as fuel to help these cars to reach speeds in excess of 300 mph in less than 5 seconds. If I decided to fuel a dragster with unleaded 87 fuel, and drive it around the neighborhood, could I possibly get the maximum use from this vehicle? Absolutely not. Similarly, cash is the fuel and time is the course for this type of funding vehicle. Along these lines, someone with a cash value life insurance policy should put as much cash as the policy will allow for at least 20 years to accomplish the absolute best benefit. I would imagine that there is no exhilaration like going from 0 to 100 mph in less than a second. Likewise, having access to over a million tax-free dollars is a thrill like no other.

In the next blog post I will discuss how the Real Power in Cash Value Life Insurance comes during Distribution…

This blog post is a continuation of a 7 part series on life insurance. You can find the first post here: http://www.your-insurance-experts.com/why-get-life-insurance-part-1/

How to Outpace Inflation Using Life Insurance

There are lots of different types of investments that people use to outpace inflation. It’s reasonably safe to assume that every investor desires to sacrifice capital now for a greater amount of capital in the future. The difference is how people plan to get the greatest return on their investment given their ability to tolerate risk. Some like stocks, bonds, or mutual funds. Each one of these investment vehicles have the potential to have very competitive gains. However, the downside is the risk to lose the gains in a down year.

When your money is in a market that can lose investment capital, you might be surprised how long it takes to recover from the losses. For example, let’s assume you are aggressive, and you decide to take some market risks for potentially attractive gains. You invest $100,000, but the market goes in the wrong direction and you lose 50% of your portfolio. Looking at the math, the value of your portfolio is now $50,000. During the following year, the market recovers and goes back up by 50%, how much do you have in your portfolio? If you answered $100,000, your response was the same as 75% of the people in which we ask this question. The correct answer is $75,000 because 50% of 50,000 is $25,000. This exercise is not meant to be a tricky math lesson, but more of a way to illustrate that losing your money to market loss is dangerous because it takes two-percent of an increase to recapture every one-percent loss.

The cash you place inside of permanent life insurance depends on how you prefer to combat inflation. One approach is to place the cash value directly in the market. With this strategy, you can participate in all of the gains that the market has to offer, but you also participate in all of the losses from the market. Someone who has a high risk tolerance may choose this approach if they have the discipline to think long-term and the discipline not to react emotionally when the market conditions are temporarily unfavorable. As stated before, a one-percent loss creates the need for a two-percent gain.

Another strategy that you can use is an equity indexed life insurance approach. In this case, the money you earn is not actually in the stock market so it is not subject to the losses. In other words, when the stock market has a positive year, your cash value will experience a gain up to a percentage that each insurance company determines. That “cap” rate is typically around 10 percent; some companies are slightly higher and some are slightly lower. If the market gains more than the cap, you will earn what the cap rate allows. If the market, however, experiences a loss during a year, you will not risk any of your principle due to market loss. This strategy is for a moderately conservative person who is willing to forego some of the market gains to eliminate the market losses.

In the next blog post, I will explore how to use Life Insurance to Save on Taxes. 

This blog post is a continuation of a 7 part series on life insurance. You can find the first post here: http://www.your-insurance-experts.com/why-get-life-insurance-part-1/

Life Insurance Solution – Financial Swiss Army Knife

Maria, the financial planner, asked Justin to consider a properly structured Indexed Universal Life Insurance (IUL) policy. Considering that Justin wanted to make a responsible decision that was best for his family, he asked Maria to explain how it works. Before Maria was willing to give any details, she had to make sure Justin realized that he would not deviate from the plan, short of a life altering emergency. Justin agreed.

Maria began to explain that the foundation of this plan is permanent life insurance. Justin politely interrupted Maria to inform her that he already had a permanent policy. Surprised, Maria asked Justin to get the policy so she could see it. Even more surprisingly, Justin had an indexed universal life policy, but it was not structured to provide the most efficient financial benefit for Justin. His IUL was structured to make the minimum payment possible to cover the death benefit.

In order for Justin to use his policy to outpace inflation, Maria encouraged Justin to take his extra income to maximum fund his Indexed Universal Life Insurance. Justin looked puzzled because that meant instead of paying $400 a month for a $500,000 policy, she asked him to put away $1,400 a month. Noticing Justin’s non-verbal disapproval of her suggestion, Maria asked, “If I asked you to put $1,000 a month into your bank account, you wouldn’t say that’s too expensive, would you?” “Of course not”, Justin replied, “It’s my money.” “Exactly”, Maria explained, “Making deposits into your bank account isn’t a cost. In fact, it’s a favor you are doing for yourself now to significantly benefit you later. This is the same way you have to view your IUL.” Justin began to look at her idea differently, and was open to hear what she had to say.

Regarding investment and financial matters, we are either uninformed or misinformed. As a result, it is very difficult for us to distinguish between truth and opinion. In the case of cash value permanent life insurance, misconceptions often run amok because some of the people who offer their opinion are well respected and popular. No matter what, every investment has pros and cons.

In the next blog post, we will discuss why it is my opinion that cash value life insurance is the best place to allocate your retirement income so that you can Outpace Inflation.

This blog post is a continuation of a 7 part series on life insurance. You can find the first post here: http://www.your-insurance-experts.com/why-get-life-insurance-part-1/

Life Insurance Sniper Three – Instant Gratification

As a child, I grew up in many cities near Los Angeles. I remember that going to the store with my mom was something I always looked forward to because more times than not, she would allow me to buy a little toy. One time we went to the store and I wanted her to buy a parachute soldier to throw in the sky and watch it parachute to the ground. I asked my mom to buy it, but she refused. I remember giving her my puppy dog eyes, which usually worked. She didn’t budge. I whined and then cried, and when she still said, “no” I gave her the silent treatment.

Although I didn’t like what my mom did at the time, it taught me a valuable lesson that I now understand and live by as an adult, which is, you must have discipline because you can’t always have what you want. My mother could have given in to my whining and crying, but she held her ground. I have used that same principle not only raising my kids, but also in my decision-making as an adult. I love nice things, but at the end of the day, they are things that lose intrinsic value after the newness wears off.

As a country, we have not learned the value of deferring gratification. We allow our emotions to take over, and when that happens, we buy things we want as opposed to living beneath our means. As we seek to gratify our immediate desires, we put off the need to save money until some other time. We are seeing the symptoms of this thinking more than ever among the growing number of retirees. The young adults of the 60s who lived life to the fullest are now finding themselves unable to take care of their basic financial needs today.

Life Insurance Sniper Four – Procrastination

This sniper is the deadliest of all because no amount of consulting, coaxing, or coaching can rescue someone from themselves. Conscious and consistent action is the only remedy, which is simply a matter of an individual making a decision to change. To put this in perspective, consider the following:

Alexis is 22 yrs. old and just graduated from college. She moved back home and decided to save $500 a month into an account that earned 8%. At age 30 (8 yrs.) and two years of marriage to James, she chose to stay home with her son. She never contributed another penny to her investment, but simply allowed the interest to work for her. When she turns 65, she will have $ 1,019,085.03

At 22, John graduated from college and got himself a car and a nice apartment. With his entry level position, John didn’t have $500 a month to save. John is now 40 yrs. old and has a wife and two kids. He has lots of financial obligations, but realizes that he needs to prepare for retirement at age 65. He struggles, but manages to put away $500 a month in an account that earns 8% for the rest of his working life (25 yrs.). When he is ready to retire he will have $473,726.49.

Although Alexis only saved $48,000 and John saved $150,000, Alexis has more than twice as much money as John at age 65 because she did not allow the procrastination sniper to help her justify why she should wait to save money while she was young. Alexis had to live at home even though she was adult, but a few years of sacrifice made a significant difference later in life.

Procrastination feels harmless during the years that we find valid reasons not to save money. John’s desire to get a new mode of transportation and live independently makes perfect sense. In fact, we would consider John as a person who acted responsibly. The insidious nature of procrastination is precisely why it is so dangerous. Left unchecked, one year slips into another until we find ourselves unable to live the great lifestyle during our retirement years as we envisioned our entire lives.

As we stated earlier, inflation has a major impact on our financial well-being. According to the Bureau of Labor Statistics, the average rate of inflation since 1914 is 3.35 percent. Justin recently received a promotion and wanted to make a responsible decision by taking a portion of his extra income to invest. He was not sure exactly where to put his money, but he was concerned about losing money in the stock market. After Justin had a conversation with his credit union, he decided that a CD or money market account might be his best move. Even though he was not happy with .5 percent rate of return, at least it was better than nothing, and much better than losing money.

Even though Justin took responsible steps to invest a portion of his disposable income, his money now suffers inflationary risk. In other words, if Justin had $10,000, it would take 21.5 years to lose half of its value if inflation maintained a constant rate of 3.35 percent. On the other hand, that same $10,000 would take 144 years to turn into $20,000 in Justin’s credit union. Justin realized that a CD might not be a good way to invest his money.

Justin started asking questions because he was determined to find a way to invest his money. He asked his Human Resources Manager at work if they offered a Roth 401(k) because he heard that he could pay taxes on the money he contributed, and not have to pay taxes when he retires. Unfortunately, his employer did not offer that plan. Finally, Justin sat down with a responsible financial planner named Maria who took time to learn his needs and came up with a solution that addressed all of Justin’s financial concerns.

Having identified the 4 Snipers to Life Insurance (what prevents those from getting life insurance), in the next blog post, I will start with the solutions life insurance provides, giving justification to using life insurance as an effective financial planning instrument. The next blog post is:  Life Insurance as a Financial Swiss Army Knife.

This blog post is a continuation of a 7 part series on life insurance. You can find the first post here: http://www.your-insurance-experts.com/why-get-life-insurance-part-1/

Life Insurance Sniper Two – Taxation

Teachers, fire fighters, police officers, and the roads they drive on are necessary to all of us if we want a learned citizenry and safe communities to raise our children. Our tax dollars, when used properly, significantly makes our lives more pleasant. However, history has shown that needs have a tendency to transform into wants as economies become more industrialized. If you feed a dog steak and chicken, then try to feed it dry dog food afterward, your best friend will become your worst nightmare. Similarly, we have become accustomed to a certain standard of living that is well beyond our means. If politicians even talk about taking steps to take our steak and chicken away, they know that their career in politics will end abruptly. As a result, they tend to do what is popular as opposed to what is best.

Those of us who complain about high taxes in America and claim that this country is headed toward socialism needs a brief lesson on the history of the marginal tax rates. As people earn more, they are taxed at a higher rate. Here is a snapshot of the marginal tax rate in America:

• 1918 (During WWI) – 77 percent
• 1939 (During Great Depression) – 75 percent
• 1944 (During WWII) – 94 percent
• 1952 (Baby Boom Expansion) – 92 percent

It’s important to note that a person who made $200,000 in 1944 did not pay $188,000 in taxes. Remember, we are talking about “marginal” tax rates. The marginal tax rate is the top rate of income tax charged to individuals on their last dollar of earnings. So in 1952, for example, when the top marginal tax rate was 92 percent, that was the tax rate owed on a person’s income over $300,000. That person would owe 20 percent on the first $2,000 of income; 21 percent on the next $2,000 in income; 24 percent on the next $2,000 and graduated up to the highest rate. A person making $400,000 in 1944 would owe $191,411 (47.9%) of their income in federal taxes.

One cannot argue that war creates jobs for the defense industry and military personnel, but it also places an enormous financial burden on tax payers. During the first two world wars, the United States government ran an aggressive campaign to get private investors to invest in government bonds since they knew taxes alone could not finance the war. The following is a breakdown of the cost of the three of the most expensive wars in US history:

• WWI – $32 billion – (roughly $471.8 billion in today’s dollars)
• WWII – $304 billion (roughly $3 Trillion in today’s dollars)
• Iraq, Pakistan, Afghanistan $3.2 Trillion

During each WWI and WWII, the marginal tax rate increased significantly to help finance them. Although the wars in Iraq, Pakistan, and Afghanistan were very expensive, the marginal tax rate did not increase to cover the increased debt. As we examine the marginal tax rate and its connection to war, it is evident that the highest marginal tax rates in history occurred as a result of war. Why did the marginal tax rate stay relatively level during these wars?

I would like the marginal tax rate to stay low because that means less money out of my pocket. That said, I would also like world peace and harmony among all nations so there is no need for war, but unfortunately we cannot have everything we want. As the nation’s debt keeps getting pushed further and further into the future, it keeps growing like a cancer. We are going to be forced to have surgery, which will hurt really bad and it will set us back for a while. The only other alternative is to let the cancer continue to grow. If that is in fact, the case, this malignant financial cancer will eventually take over and then we will not be able to do anything about it.

Before we discuss a solution and of course an action, we must identify life insurance third and fourth snipers: Instant Gratification and Procrastination.