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.

July 1, 2013 Congress doubled interest rates for student loans from 3.4 percent to 6.8 percent after a one yeareprieve. On average, the cost of schooling increases by about 6percent per year. A less than 10 percent tuitiion hike may not seem significant, but it is because the cost of obtaining a college education roughly doubles every 12 years. Unfortunately, an increase in the principle and the interest compounds the burden on families who already struggle financially to provide their children with a college education.

Something Has to Give

In America, almost all families are expected to pay some out-of-pocket expenses for college. Those families must fill out a Free Application for Student Aid (FAFSA). The information collected from this application will help a family find out their expected family contribution. Currently, the cost of college is increasing faster than the rate of inflation and the cost of living adjustment in wages. Over time, each family’s expected contribution will erode disposable income and therefore, the provider’s ability to accumulate both short-term and long-term savings for other areas like retirement and vacation.

Strategies To Decrease The Financial Burden

There was a book written thousands of years ago that stated, “My people perish for lack of knowledge”. That statement is as true today as it was back then. There are so many unexamined assumptions about paying for college because people simply don’t know what they don’t know. The following is a simplified list of suggestions to decrease the cost of college:

1 – Take Less Time To Graduate

There are high schools designed for students who want to accelerate the time it takes to graduate. These students have the opportunity to take college courses at a local participating college. In some cases, these highly disciplined students graduate college with an Associate’s degree.

The amount of units a student needs to graduate is based on a four-year scheduled timeline. Students, however, end up staying in undergraduate school five years. This trend is very costly for students and their parents. One reason this happens is because there is little emphasis placed on selecting a relevant major for college. Consequently, students go to college, and don’t find out what they want to do even after their general education courses are completed. A simple solution is to provide high school students with more opportunities to identify their personality strengths and career interests.

2 – Take More Time To Find The Right School

Students often choose schools for the wrong reasons. Perhaps they followed their favorite sports program or a brochure had cool school colors that attracted them. Sometimes the location of the school plays the primary factor in a student’s decision. The right school is a college that best aligns with the student’s career preferences, academic expectations, and to a much lesser extent, social interests. Students who have achieved high levels of academic success have more flexibility to choose an institution that is the best match in each area listed above. Schools desire students who have the potential to make their institution more appealing as a result of a graduate’s success. In fact, they are willing to provide scholarships as incentives for those students to attend their school. In return, it is the institution’s hope that those alumni will give back by making financial contributions.

3 – Decrease The Expected Family Contribution (EFC)

There are strategic ways to lower the EFC. Interestingly, scholarships are not one of them. That being said, substantial scholarship amounts can certainly lower the out-of-pocket expense for college. College savings plans such as 529s actually increase a family’s EFC because many of the grants are awarded based on need. There are financial vehicles that can strategically be used to lower a family’s out-of-pocket expense, but it is sometimes complex and goes beyond the scope of this blog. There are experts who can provide you with assistance, but be sure they are well versed in college planning strategies.

If you are close to retiring or have the fortune of being retired, here is a quick opportunity for you to learn about mistakes people make when they invest in the stock market. Always keep in mind that everyone’s situation is different so it is important recognize your specific circumstance.

Mistake #1 – Buying or Selling Stocks Based on Emotion

Everyone is familiar with the phrase, “buy low and sell high”. However, market research shows that people tend act in exactly the opposite manner. If stocks are trending upward, their emotions tell them to ride it out a little while longer to maximize profits. This perspective may be even more difficult to ignore for those whose fortunes decreased back in the mid 2000s. If you entered the market when share prices were lower and you have made a profit, consider selling while you are ahead.

Conversely, you may be in the middle of a downward trend in the market. In this situation, you must know your living expenses, which will help you make a logical decision. Keep in mind that every percent that your portfolio decreases, you need to gain two-percent to get even, especially if you are no longer actively purchasing shares. Also keep in mind that you do not have the same amount of recovery time as you did 20 years ago.

Mistake #2 – Going too extreme. Risky to Highly Conservative

During the 1980s Cds were yielding over 16 percent with absolutely no risk. People who were retiring during that era who also had their homes paid off were ecstatic with their bank portfolio because their money was giving unheard of rates of return. Nowadays retirees assume that their money is better of outside of the risky stock market. Guided by this belief, they flock toward money market accounts, Cds, and other no-risk investments. As of the time of this writing, no-risk investments give either very low or no rates of return.

Believe it or not, this is actually a risky decision, and let me explain why: if you are like most retirees you are no longer generating income. If that is true, then your money could be suffering inflationary risk. If you took $1,000 and put it under your mattress today, will that $1,000 be able to buy the same amount of gas, vacations, and groceries 10 years from now? We all know that your $1,000 will have less purchasing power as time passes. Therefore, we recommend that you make it your goal to gain a higher rate of return than the rate of inflation.

Mistake #3 – Using an All-In or All-Out Approach

Depending on your risk tolerance and your need for current income, you may want to find a way to diversify your money. Leaving some of your portfolio in stocks may be a good idea, but consider a more conservative asset allocation mix. If you decide to take out your all of your money, taking it out from the most risky to the most conservative is a prudent approach. Also, if you roll your money into an indexed account, the money is automatically diversified.

As a retiree, this should be the most enjoyable time of your life. Financially, the stakes are higher than they have ever been before. Time and timing is critical, and therefore any mistake you make becomes magnified. Because of this, understand that this blog is not meant to provide investment advice, but ideas to consider before you take any action. Be sure to seek the guidance of an expert to help you make informed decisions that best meets your financial needs.

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.

As a country we are addicted to debt. Just like a drug addict, we need the debt to avoid pain, but our pleasure is also leading to our demise. The same is true for millions of people who are in credit card debt, and have no idea about how to escape it. If you or someone you know is suffering from the suffocating grip of credit card debt, perhaps you can apply some very simple concepts to get your financial freedom back.

Consumer Ignorance = Massive Profits

The first concept to understand is that credit card companies are itching to give you credit as long as they feel that you will make payments. The source of their revenue is dependent on your lack of understanding. When you have a credit card, companies charge interest if you allow an outstanding balance to remain longer than 30 days.

A popular tactic that department stores use is the 12 months same as cash approach. Let’s say that you wanted to buy a product that costs $2,000, but don’t have the cash to make the purchase. You decide to make affordable monthly payments throughout the year. If there is an outstanding payment of $300 at the end of the 12 months, it makes sense that you would pay interest on $300 right? Wrong. Not only do you owe interest on the $300, you also owe interest that accrued throughout the year on the entire $2,000.

Consumer Ignorance is massive among college students. Credit card companies smell new blood in the water every fall when a new crop of freshman enters college throughout the country. According to Huffington Post, banks spend roughly $83 million a year to lure college students to start amassing credit card debt on top of their student loan debt.

Staggering Amounts Of Credit Card Debt

The Federal Reserve revealed an outstanding credit card debt (at the time of this writing) of $748 billion. To put this in perspective, if a person paid $100 every second to pay off this credit card debt, his payments had to have started back in 1781. That is assuming that no interest accrued during the payoff period. Unfortunately, interest does accrue on average, at around 15%, which is broken down into a finance charge based on an average daily balance.

For example, if your daily charge rate was .02805, $748,000,000,000 would be charged $209,814,000 per day. Therefore, the outstanding balance would be $748,209,814,000 the following day, which adds up quickly. With the existing amount of credit card debt, 100 credit card companies would be making an average of a little more than $2 million per day just on daily interest on the existing debt.

How To Pay Off Credit Card Debt

In my experience, I found that most have taken a logical approach to paying down the revolving balance on their credit cards. In other words, they tend to pay over the minimum amount on each of their credit cards with the belief that this strategy will minimize the overall interest they will pay. Unfortunately, logical thinking will make them pay more. On the contrary, the most efficient way to pay down debt is to pay as much as possible toward the credit card with the highest interest rate, and pay the minimum on all of the other cards. After the first card is paid, then all of the money dedicated toward that card is redirected toward the next card with the highest interest rate. This process continues until all of the cards are paid.

Obviously, this strategy requires consistent discipline. People who have over $10,000 of credit card debt who lack the discipline may need help to structure a very strict plan. There are companies that provide this type of service, but there are specific criteria that you must meet to make this approach a fit for you. It would behoove you to look into a good debt relief company before you declare bankruptcy. The key to paying off debt your debt is to gain an understanding about how it works. Be sure to connect with an expert who can help you make informed decisions about your financial future.

If you are a teacher or any member of the educational community, there is a high likelihood that you are supplementing your retirement plan with a 403(b) or tax-sheltered annuity. If that is the case, pat yourself on the back because you are taking steps to secure your ideal retirement. That stated, you also probably have a 403(b) because it was the only option presented to you. By the time you are done reading this, I hope that you will explore other options and implore your friends and colleagues to do the same.

How a 403(b) works

The purpose of a 403(b) is to set aside a portion of your income now so you will have more income during your retirement.  There are three stages of retirement when you use a 403(b) as your savings vehicle. In this hypothetical example, we will use 30 years as the time-frame to prepare for retirement.

Stage 1 – Contribution

If you decided to place $500 a month toward your retirement, you would have contributed $6,000 ($500×12) that year towards retirement, and $180,000 ($6,000×30) that you have invested. The contribution simply is the amount of money you take out of your pocket to invest.

Stage 2 – Accumulation

Accumulation is the amount of interest that the contributed money yields over time because of compounding interest. For example, if you contribute $180,000 over 30 yrs, that interest earning 10% ( I know it may not seem realistic these days, but it’s just an example to illustrate the concept) would yield $1,139,663.

Stage 3 – Distribution

After you have contributed your $500 each month to watch it accumulate over the years, retirement is the reward. The money you live on during retirement is the distribution. Typical rule of thumb is to live on not more than 5 percent of your total nest egg to ensure that you don’t outlive our money. There are some definite benefits and drawbacks that people should consider when you invest in a 403(b).

Advantages of a 403(b)

• pre-tax contribution
• Deferred taxes

Disadvantages

• taxes paid upon distribution
• you don’t know the rate that your money will be taxed upon distribution
• the money you take out in retirement may be taxed at a higher rate than the amount you saved on the money you put in years earlier

As teachers started to realize that their nest eggs were going to be depleted by taxes, they decided to explore other options that gave them more favorable tax treatment. With tax sheltered annuities, you simply delays taxes. Therefore, a more fitting name would be tax delayed annuities.

My objective was to simply open your eyes to explore other options that have:

• No loss of principle in the stock market
• More favorable tax treatment
• No taxes upon withdrawal – if structured properly
• No contribution limits

When you are able to find retirement investments that offer these benefits, you should take advantage of them because any investment that is missing any of the benefits above has the potential to diminish your long-term wealth building capacity.

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.

Recently, I was watching a television show called Open Court, which is a basketball show that features retired basketball players who had great professional careers.   I just returned from Italy and wanted to catch up on the NBA finals. This show is great because it gives casual fans and basketball enthusiasts an opportunity to gain insights about the mindset and lifestyle of professional athletes. These players on the show shared some interesting perspectives about why professional athletes end up broke even after making millions of dollars.

Shaquille O’Neal made an interesting comment that in my estimation should have been discussed more in detail. He said, “…The best word I learned is annuity. The way it was explained to me was, guys make a lot of money and then when you finish playing, you get some of that money back after you finish playing… We need to educate ourselves”. The great lesson in O’Neal’s comments is that the information is within our grasp, but we have to take an active role to acquire knowledge and then apply what we learn.

What Is An Annuity?

An annuity is an investment that you make that provides tax-deferred growth, guarantees, safety, a death-benefit, flexibility, and the option to have a monthly stream of income that you cannot outlive. In other words, an annuity is like having a pension plan that is not tied to your job, but potentially pays you for the rest of your life. If you are a Baby Boomer and you are ready to retire, an annuity is a great option for your hard earned money to grow without market risk if you structure it properly.

How You Can Use An Annuity

If you were born in the post Baby Boomer era, chances are you have little or no intention to stay at your current job for 30-plus years. However, if you have a nest egg that you have been growing through your previous (or soon to be previous) employer, you have the option to place that money in an annuity and continue to grow your nest egg until you are ready to retire. Just make sure that you don’t get too anxious and spend the money early because you will make Uncle Sam very happy. When you have an annuity, the tax code currently requires you to leave the money in the account until after you turn 59 ½ to avoid a 10 percent early withdrawal penalty.

Long-Term Value Of An Annuity

Shaquille O’Neal pointed out that if pro players take 50 percent of their income and put it into an annuity, they would be able to survive financially after their NBA career. To put this in perspective, if an “average” NBA player starts at age 22 and makes $10 million (after taxes) over the course of his career, and places half of it in an annuity for 30 years, this is what it could hypothetically look like:

• $5,000,000 earning 6% for 30 years  = $28,717,455.86 –(Accumulation from Age 30 until 60)
• At age 60, if he lives on 5% per year = $119,656.07 per month.

The challenge of O’Neal’s idea is to convince people to value the idea of deferring gratification, which is a virtue that American culture seems to appreciate less these days. Those of us who follow basketball know that O’Neal is a big kid at heart, but I also recognize that he took some wise steps to remain relevant even after his playing days stopped. He still receives millions of dollars from a combination of commercials, product endorsements, and his work as a basketball commentator.

Although Shaq has earned more than most, he also saves more than most. For people who have the vision and discipline to take steps now to ensure a financially stable future, Shaquille O’Neal provides a great example by using an annuity to fulfill that objective.

Toward the end of the 1800s companies in America began to evolve from mom and pop shops to large corporations. With that shift, Americans began to trust in their employers to provide them with pension plans. By 1980 35.9 million private-sector workers (46 percent of all private-sector workers) were covered by a pension plan. In the 21^st century, pensions are rapidly becoming a thing of the past. If you still believe that a pension plan is going to take you to the glorious sunset of retirement, perhaps a dose of reality may open your eyes to a sobering outlook.

Steel Workers

The birth of high-rise buildings and railroads created an insatiable demand for steel. Both innovations enabled people to have more efficient modes of transportation, which fueled population growth in metropolitan areas. The steel industry gave people a chance to make a good living, and therefore, people worked in this industry their entire lives. As steelworkers have aged and the steel manufacturing industry has experienced a dramatic shift in recent decades, pension plans have failed to meet their financial obligations to hundreds of thousands of workers who count on their defined benefit plans to survive. In fact, the metals industry accounts for about 27 percent of pension plan failures.

Air Travel

Airlines throughout the world were forever changed by September 11 when all airplanes were grounded. Since then, the larger and more established air travel companies were crippled by high fuel costs, poor labor relations, and an economy that incubated an increasingly cost-conscious consumer. Consequently, 257,280 employees in the industry were financially impacted by a failed pension fund. This pension failure created a massive financial liability for the Pension Benefit Guaranty Corporation (PBGC), a government funded entity that assumes responsibility for failed pension plans.

Private vs Government  Pension funds

Previously, pension plans were the foundation of a solid retirement. However, times and economic forces have caused a seismic shift in the economic viability of defined benefits in the workplace.  As Baby Boomers retire at an increasingly rapid rate, traditional defined benefit pension plans offered by private employers are rapidly facing extinction.  Additionally, government funded pension funds are entering the endangered list in rapid fashion. The 10 worst state pension plans in the country are all less than 50% funded. In other words, if all of the employees left work today and demanded payment for their pension plans, less than half would get paid the full amount and the other half would receive nothing! To further put this into perspective, these low performing pension plans have roughly 1.5 million employees.

Why you should be concerned

Since 1981, the number of pension plans has decreased by nearly 70 percent. The previous generation of retirees was able to enjoy their pension plans, social security, and their individual savings as a solid foundation for retirement. Clearly, those days are becoming distant memories as the shifting economic climate is forcing us to take refuge in our own structured retirement plans. If we intend to survive the impending financial storm, we must take matters into our own hands since we will always serve our own best interests.

For more ideas about how to design a better financial future for you and your family, sign up for my free blog and newsletter.

Have you ever wondered about the history of Life Insurance?  Where did it all began, and why are so many high-rise buildings owned by life insurance companies? Based on my personal and professional experience, I have a sneaky suspicion that this topic is not going viral (because history is boring to lots of people and life insurance is a taboo topic for even more people).  There are, however, people who ask me to give a simple explanation about how life insurance started.

Life Insurance in Ancient Rome

Thousands of years ago Romans created burial clubs because they believed that people needed to have a proper burial so their spirit could properly travel into the after-life. Communities agreed to place a fraction of their earnings in a common fund that could be used to properly bury their members. This process lacked sophistication, this was the beginnings of life insurance.

Life Insurance in England

It is widely believed that the modern form of insurance we understand today began with a group of merchants in the shipping industry. Lloyd’s coffee house was the famous gathering place of shipping merchants and investors who formed associations to purchase shares to spread risk among the members. On long voyages the ships were subject to fires, piracy,  and shipwrecks. In return for their investment, they would receive their money back in interest along with goods acquired from other places around the globe.

Life Insurance in America

More recently in America, the colonists who migrated from Europe were dying in large numbers because of disease and famine. When the head of the household died, it put a large financial strain on the family. Often, a small number of the locals would contribute funds to help the family survive, but this practice often placed a financial hardship on their families.

Since people knew death was such a common occurrence that would eventually impact everyone, the colonists agreed to place money into a common fund so if someone in that community died during the year, a small amount of money contributed from a larger number of people could pay to support the effected family without draining any one family’s finances.

Over time, these communities grew larger and some of the colonists became more sophisticated in their understanding of life expectancy. Equipped with more knowledge, these specialists began to learn more about pooling risk and resources to create large cash reserves to pay insurance claims. Investors began to see the financial potential and created companies to sell life insurance at a profit.

Modern Life Insurance – Cheaper now, but purchased less

Following World War I people increasingly purchased life insurance, and by 1920, there were more than 120 million life insurance policies owned in the U.S. Based on census data, that equaled approximately one policy for every adult person in the U.S.

Nowadays, life insurance is a very precise industry that studies the life expectancy of huge groups of people, and can predict with incredible accuracy how many years the average person will live, and how many people per thousand will pass away in each ten-year band. This accuracy, along with increased life expectancy has benefited the clients by lowering insurance premiums since the 1980s.

Despite the good news,  sales have fallen steadily, and now LIMRA estimates (2010 report) that only 44% of U.S. households have individual life insurance coverage, which is a 50 year low, but life insurance has remained an important piece of a family’s financial planning.