September Power Hour – Life Insurance Awareness Month

“Enjoy the little things in life because one day you’ll look back and realize they were the big things.” – Robert Brault

Market Updates

Earnings & Valuations

  • Corporate earning continued to be solid through second quarter with average S&P 500 year over year earnings growth was 6.3%…this was driven by high sales (revenue growth) which is positive because it indicates profits resulted from actual business growth (rather than financial maneuvering – cost cutting, layoffs, etc).
  • 75% of companies beat earnings expectation.
  • With continued positive earnings growth, not matched by stock pricing, Valuations continue to go lower as great companies become cheaper.
  • As to be expected, forward Earnings estimates have come down pretty much across the board reflecting the cautious environment and uncertainty around inflation and rising interest rates.  This has a silver lining for long term investors because it now ensures a lower hurdle rate for companies to meet/exceed earnings in the future this paired with current low valuations is a win/win for patient investors.
  • Inflation & Rates
  • With the mixed signals between actual data points and actions by the Fed (which for the time being we are still in a rate hiking cycle) there is sure to be continued volatility in equity markets in the near term.  The positive of this, with the backdrop of strength in corporate earnings and in different pockets of the economy, it opens up opportunity especially with individual stock selection.
  • The other positive on higher rates is in the bond markets, where we are seeing higher yields (over 4% tax free) and better upside opportunity than we have seen in years.  Tapping into the way we identify inefficiencies within the bond market, certain spread relationships are indicating potential equity type returns on certain bonds when the spreads normalize.
  • Best buy right now is Silver. It it’s resistance point, which signals buy as it should bounce from this level. Couple that with all the fundamentals to cause growth in Gold and Silver as listed below. 10-15% of net your should worth in Gold and Silver as it provides wealth insurance
    • Unsustainable debt
    • Inflation pressures
    • Political chaos
    • Geo-political conflict

 

The Life Insurance Multitool

I know many of you might think you don’t need life insurance anymore and in the traditional sense, you don’t but as we go through this I am hoping to clear up any misconceptions about how life insurance can work.

 

The Cash Alternative Tool

We have talked a few times this year about a new option for cash, a CD alternative sort of speak. It’s a properly structured Indexed Universal life insurance policy with United Life. This is not your typical Life Insurance, the focus is on cash accumulation.

With this plan, there’s protection from market losses and 100% liquidity. You have the ability to take out your money as you need.

There is potential for meaningful gains, up to 8% per year. Your interest is tied to the performance of an index, the S&P 500. Right now the cap is 8%, which means that if we start this September 15th, we’re going to come back next year on September 15th to see how we did and credit gains for the year. If the S&P is up 12% then that means you make 8% because that is the cap or the most you can make.

On the reverse side, let’s say we come back next year and the market is down. Then that means you made zero for the year. In this case, zero is your hero because you didn’t lose. And really, you’re not much different than what you would have been in CDs, money markets, or savings.

We never say you’re going to make 8% a year but you should average  4 to 6% per year, and have complete liquidity and protection, now that is pretty awesome!

 

The LTC (long term care) Tool – The smart way to self insure

Life insurance can be designed in a way where you can smartly self-insure for long term care. It’s putting money aside where you have access to it if you need it for anything, access to the death benefit (part of it or more) for long term care and, if you don’t use it, it goes to your beneficiaries.

We call that a win-win-win and this is a way to smartly self-insure without paying a premium.

It’s leveraging money that you already have to provide better care or have more funds available for long term care if you need it yet have access to it at any time.

This has to be structured properly, we have to make sure your income is taking care of your retirement, then,  if you don’t need all the assets that you’ve saved in order to create the retirement income you need then it’s very possible that you can leverage some of your other accounts or other assets to provide for long term care coverage.

These plans can be designed in a variety of ways, you can have more for long term care, a higher death benefit, better cash accumulation or a combination of all. This is best done with non-IRA money, but there are some options to leverage and IRA as well.

 

The Tax-Free Income Tool

This can really be looked at in two ways, for those still saving for retirement and those close to or in retirement.

If you’re younger and you’re trying to figure out how you’re saving for retirement, whether you’re 5 years away or you’re 35 years away it’s always good to look at the different options and vehicles available.

One of the specialist in this area and an actuary, Martin Ruby, and he wrote a couple of book on this topic,  The New Rules of Retirement Savings and The No Compromise Retirement Plan. In these books, he talks about using life insurance as a tool for saving for retirement, highlighting a couple of key factors: index-based growth without market risk and is tax-free growth with more access to the money and being able to take it out without penalties or government restrictions.

So, the living benefits of being able to create tax-free retirement income can apply whether you’re saving or if you have already saved, but you’re transitioned some of your taxable retirement income to an IUL.

 

The Legacy Tool

We find many people for done a great job in saving for retirement and end up with more in their IRAs than they need for income. But, fi you just take out your minimum distributions, which is what a lot of people do, how much in taxes are you going to pay on those accounts?

Most people end up finding that the number on the lifetime tax on that IRA is surprisingly high. Sometimes it can be as much as half or more of the value of your current IRA. This means that if you have half a million dollars in your IRA, then the lifetime taxes could be as high as $250,000.

In this case, using life insurance is a way to maximize the legacy you will leave to your family vs leaving them a tax burden. Using life insurance will allow us to reduce the lifetime taxes on your hard-earned retirement accounts.

 

Estate Planning Spotlight

Life insurance is like the pitcher in a baseball game and an estate plan is like the catcher who then distributes for maximum impact. This is especially important when you are leaving money to young people or those who may need creditor protection. Talking through what you want is the first step in any good plan, it is very likely it won’t just happen the way you want without a plan in place. Who, what, when, how… are all questions to be considered.

Yes, life insurance has beneficiaries listed and will avoid probate, but you may need something more to ensure your wishes are carried out.

 

Tax Talk

ROTH accounts and life insurance are the only investment vehicles that will pass to your beneficiaries tax-free, all other investments are subject to taxes, if you owe income taxes, your beneficiaries will owe income taxes. They should receive a step-up in cost basis for capital gains purposes, but IRAs and other traditional retirement accounts are fully taxable. Here is a chart on how different investment are taxed for a better understanding of this.

 

 

 

We serve clients in Mineral Point WI, Dodgeville WI, Platteville WI, Lancaster WI, Fennimore WI, Boscobel WI, Richland Center WI, Muscoda WI, Spring Green WI, Mazomanie WI, Sauk City WI, Middleton WI, Madison WI, Fitchburg WI, Verona WI, Mount Horeb WI, Barneveld WI, New Glarus WI, Monroe WI, Belleville WI, Oregon WI, Stoughton WI, Darlington WI, Cuba City WI, Hazel Green WI, Belmont WI, Dubuque IA, Freeport IL

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