Category Archives: Retirement Planning

Ideas to help preserve and grow your money

Top 10 Benefits and Risks of Forming a Captive

retirement_roadMy Comments: I recently published an eBook with the title CAPTIVE WEALTH!

It explains how to use an 831(b) Captive Insurance Company to create, to grow, and to preserve wealth.

While not a simple idea, it does have the blessing of the IRS if you do it the right way, under the right circumstances. That alone makes it valuable and something to know about.

From the perspective of a successful small business owner, it allows him or her to turn a current expense item into an asset at a later date. Think about it; money spent now comes back later as an asset, which can be used many different ways. This article outlines some of the caveats you should be aware of.

By Donald Riggin, from Guide to Captives and Alternative Risk Financing | November 11, 2013

Buy Term and Invest the Difference?

Comments from me, Tony Kendzior: For many years, my primary income resulted from my license to sell life insurance, health insurance and annuities in the State of Florida. But like so much over these many years, the markets changed, the rules changed, the perception of need by consumers changed. And then came the internet.

One change that led to the headline of this article was driven by the fabulous return on investments during the years from 1987-2000. Roughly 93% of every trading day saw a positive result. Which meant that putting lots of money into a permanent life insurance policy was dumb, since you could buy term, invest the difference and come out way ahead.

Until you couldn’t. Which is what folks are facing now. My children now own the life insurance policy on my life that is essentially a term to age 120 policy. A level premium, very little cash value, but my family will get a payday to offset the fact that my savings got decimated during the 2008-2009 crash. Unless I live past 120 which means all bets are off.

by Jeff Reed on March 27, 2014

In the last year, one of the major tenets of financial planning came under fire. Studies uncovered that the 4 percent withdrawal rule for retirement may not be sustainable. As significant as that news is, perhaps the more important part of the exercise is questioning the conventional wisdom in the first place. That process leads to any number of other tried and true “rules” of financial planning that could also come into question, and maybe even be exposed as unreliable.

One that was in the news recently was the concept of “buy term and invest the difference.” This long-held belief by many CPAs and CFPs may be crumbling as retirement age is pushed further and further out for many individuals, and their term insurance expires while they still have an earned income to protect.

Truly, the Achilles heel of the strategy has always been, “What if things don’t go according to plan?” In this article, I try to answer that question.

It’s about risk management, not cash value

The historical battle lines of this issue have had the life insurance professional recommending permanent insurance on one side and the CPA or CFP recommending term insurance on the other. One of the major elements of the insurance professional’s argument has been the presence of cash value to offset premium or provide an income. But what if that is really the wrong battle? What if the real issue comes down to providing coverage with a finite termination point to cover a risk that has proven to have a duration of unknown length?

That’s really a square peg being driven into a round hole. If a more effective strategy is to match the risk profile with the right risk management tool, then we need to look at the problem completely differently. We need a risk management tool that has the ability to extend its useful life if we need it to, and at a price that is reasonable. The reality is that the best-suited product for this risk may not be term insurance. It’s simply too rigid.

The problem with averages

This issue comes up time and time again in our business. Put frankly, averages create a false sense of security. In 2013, according to Gallup’s annual Economy and Personal Finance survey, the average retirement age rose to 61, up from 57 back in 1993. Seems like a reasonable rate of increase, and today’s 45-year-old could expect, on average, to retire at age 65. The issue, however, is that means that 50 percent of current retirees, more or less, were over age 61 when they retired — some of them probably quite a bit older.

A portion of that 50 percent almost assuredly had to make some tough decisions about their life insurance coverage as they aged, particularly if their contract reached its natural expiry. So, too, will the cohort turning age 65, 20 years from now if they need to push their retirement age out beyond the norm.

Underwriting class drift

The obvious solution is to buy a new term insurance contract. Unfortunately, we all know that our clients’ health changes as they age. That exacerbates the problem with term insurance as an income protector, as just when these clients may need to make a new insurance purchase, their health may put the price out of reach, or they may not be able to qualify. How real is this issue? We pulled some data from one of our insurance companies about the changes in underwriting results as clients age.

The trend is obvious, with the percentage of applicants approved at standard rates increasing by 25 percent from age 40 to 65. This only represents applicants approved at standard or better, and there are almost assuredly a significant percentage of declines as well as clients who simply do not apply, knowing that they either can’t afford or can’t qualify for new insurance. The assumption that the client will be in the same health as they were at the time of their original underwriting and that today’s products are indicative of pricing that will be available 10, 20 or even 30 years from now is simply not realistic.

Based on the above, that is not a bet I would take, nor would most informed clients.

What’s the alternative?

This is the real question: Is there a life insurance product out there that matches this risk profile more closely than term insurance? Yes, there is, and it turns out that everybody may have been wrong about this one.

The issues with term insurance have been explored above, but what about the cash-value life insurance side of the argument? The accumulation solution works, but only if the client has the income to fund it. Logically then, it would follow that the people who successfully execute on that strategy are also likely to be retiring at or before the average retirement age. Where this issue really rears its ugly head is within a standard deviation or two of the mean, where retirement is much less secure. These clients are likely to have issues over-funding a policy on a consistent basis, or may have started to save for retirement at too-late an age to really utilize the income-generating potential of a life insurance contract. Whatever the reason, this group’s retirement is much less certain than their peers. And these people at the fat part of the bell curve need a different solution.

What they need is efficiently priced coverage that has flexible premiums and does not have a set expiration date, which sounds an awful lot like some of the efficient, low-cost insurance products discussed in previous posts. So much so, in fact, that we took a look at how that might play out by comparing the cost of term insurance versus permanent insurance utilizing low-cost permanent products that are not used to accumulate cash. Rather, they’re used to effectively match the risk we’re attempting to insure by eliminating the set expiration date of term insurance.

Thought for the Week – Longevity Risk

retirement-exit-2The economy we have been experiencing since 2008 has seen historically low interest rates. It’s taken five years to recover what has been lost. We should be paying attention to some of the implications here since ignoring their impact on many of you and on me personally could be dramatic.

Think about it:

• We have an ageing Bull Market that is pushing the historical limits and looking at the next Bear.

• Clients and prospective clients are retiring and are looking for help to support a comfortable lifestyle.

• Clients no longer have the singular goal of building their wealth for future use. We’ve moved from working to earn money to making sure our money is working for us.

• Clients expect us to position their assets to provide income they won’t outlive, additional income when needed to help pay the increased cost-of-living when they become infirm; and pass a legacy to heirs who are facing an even more uncertain future and can use all the financial help they can get.

As investment advisors, we have historically faced one most significant risk….Market Risk. With diversification, asset allocation and intelligent strategies we’ve been able to help our clients overcome Market Risk and successfully build their wealth.

Today, however, there are many more risks that must be addressed. Consider, you have now retired and must live on the wealth you managed to create. Now you face Inflation Risk, Deflation Risk, Withdrawal Rate Risk, Sequence of Returns Risk, Long-term Care Risk, Regulatory Risk, Taxation Risk and the granddaddy of them all, Longevity Risk.

Longevity Risk… the risk of outliving our income. But that’s not all. The longer we live, the more opportunities for market losses, the greater the possibilities of running out of money, the more significant the Sequence of Return issue and the greater the likelihood of needing long-term care.

The most important strategy therefore is to remove the Longevity Risk from a retiree’s portfolio so that you can eliminate, or significantly reduce, most or all the rest. Now we can concentrate on continuing to help clients earn a respectable return on their investments.

Stock markets and other investment instruments are never expected to specifically address these issues. And many successful individuals will die poor when their investments are unable to meet all of their requirements in an environment of volatility and uncertainty. Only insurance companies are able to eliminate Longevity Risk. They can do this successfully because they also deal with Mortality Risk. They win when people with life insurance live a long time and they win when annuitants die too soon. Everything in the middle is just a calculated profit. No other investment or institution can do that.

Some clients have so much money they cannot possibly run out of money, even if it’s simply stuffed in a mattress. But most people need help to properly position their assets, take the Longevity Risk off the table and cover the extra cost needed when they require long-term care.

I’m not suggesting that investment portfolios should be replaced with insurance policies. But there is no doubt that retired clients will be better off when their portfolios include a guaranteed Pension Income floor that eliminates Longevity Risk. It’s an insurance strategy to increase income when needed to protect your portfolio from decimation due to excessive health care costs and even provide a more efficient and predictable solution for leaving a financial legacy.

Most planners like myself admit to modest knowledge of the insurance industry, its unique products and the many sophisticated strategies that can be employed to address these retirement-based concerns. But some of us continue to rely on the investment concepts we have used for years to grow assets. What is really needed are concepts for our retired clients so you can spend your money to maintain the best possible life style without running out of money before you die.

We want to help you take Longevity Risk off the table, increase the security and predictability of your retirement income, and reduce stress.

The idea behind this post comes from a colleague in southern California, Gene Pastula. Thanks Gene. Tony

Social Security Tips: How to Use File & Suspend

SSA-image-2My Comments: I offer great thanks to the author of the following article, Michael Kitces. You’ll find his credits at the end of this post.

This will take a little time to read and understand. But if you are getting ready to file for Social Security benefits, or are just now starting to think about when and how to file, you need to read this and develop at least a basic understanding.

As part of our efforts at Florida Wealth Advisors, we will provide you with a no-cost analysis and report that creates a timeline to help you maximize your benefits over time. The two caveats are (1) we have no idea when you are going to die and (2) we make no assumptions about cost of living increases each year.

Getting it right is important. There are 97 months for you to choose from when it comes to filing for benefits. The difference between the best one and the worst one can be as much as several hundred thousand dollars over your lifetime. Doesn’t it make sense to ask us for one of these reports?

by: Michael Kitces / Monday, March 24, 2014

An especially popular strategy for maximizing Social Security benefits is to utilize the file-and-suspend rules. These permit an individual to file for benefits but suspend them immediately, allowing delayed retirement credits to be earned while letting the spouse begin spousal benefits simultaneously. They can even be used to activate family benefits for young children.

Yet the file-and-suspend strategy is not just an effective planning tool for couples and families with minor children. Since benefits that have been suspended voluntarily can be reinstated later, even singles may wish to routinely file-and-suspend if they intend to delay anyway, as a way to hedge against a future change in circumstances.
At the same time, there are caveats to the file-and-suspend strategy, as well: Suspending will put all benefits on hold (which limits couples from crisscrossing spousal benefits by having each file and suspend); filing and suspending also triggers the onset of Medicare Part A benefits, making a client ineligible to make any more contributions to a health savings account.


The basic concept of file-and-suspend is straightforward: A client files for retirement benefits (triggering all the rules that normally apply), but then suspends the benefits without receiving any payments (allowing the client to earn delayed retirement credits that increase the future benefit by 8% of the individual’s primary insurance amount). The strategy’s primary purpose: By filing for benefits, the client can render a spouse eligible for spousal benefits (only available once the primary worker has applied for retirement benefits), while still earning delayed retirement credits.
• Example 1: A 66-year-old man eligible for a $1,500-a-month benefit chooses to file-and-suspend, letting his 66-year-old wife begin a $750-a-month spousal benefit. The husband continues to accrue 8% a year delayed retirement credits on his monthly $1,500, which by age 70 rises to $1,980 a month, plus cost-of-living adjustments.

Notably, the ability to suspend benefits is available only to those who have reached full retirement age (66 years old for those born between 1943 and 1954; up to 67 for those born in 1960 or later). If benefits are filed early, the election generally cannot be undone (though clients can change their mind within 12 months of the first filing).

Even if benefits were filed early, they can still be suspended going forward once full retirement age is reached. This will not undo the reduction that applies for taking benefits early, though it can almost fully offset the original reduction as delayed retirement credits are earned.
• Example 2: A 66-year-old woman eligible for a $1,000 monthly benefit filed for benefits early at age 62, reducing benefits by 25% to $750 a month. If she now chooses to suspend benefits, she can begin to earn 8% a year delayed retirement credits for the next four years, ultimately increasing the benefit by 32%, back up to $990 a month. (Ongoing cost-of-living adjustments would also be applied along the way.)

While the file-and-suspend strategy is often explained as a loophole to maximize benefits, it actually was a provision added to the Social Security system in 2000, under the Senior Citizens’ Freedom to Work Act, to allow for the associated planning strategies (especially for couples’ benefits).

As noted in example 1, the primary purpose of the file-and-suspend strategy is for married couples to better coordinate the claiming of individual and spousal benefits – in particular, for one spouse to claim spousal benefits while the other continues to defer individual retirement benefits to accrue the credits. Otherwise, both members of the couple could face benefit delays. If the husband in example 1 had chosen to delay benefits without going through the file-and-suspend strategy, for instance, both he and his wife would have had to wait until he reached age 70 for retirement benefits.

File-and-suspend may be relevant even in situations where both spouses have their own benefits, but each wishes to delay. By adopting the file-and-suspend strategy, one spouse can claim benefits while both generate delayed retirement credits.
• Example 3: Both members of a couple are 66; the wife is eligible for $1,600 a month in benefits and the husband for $1,300 a month. Both are very healthy and wish to hedge against the risk that they could live well into their 90s, so both want to wait and earn delayed retirement credits. If the wife goes through the file-and-suspend process, then the husband can file a restricted application for just spousal benefits while delaying his own individual benefits. The husband gets $800 a month in spousal benefits based on his wife’s record, then can switch to his own $1,300 monthly individual benefit in the future (and earn 8% a year in delayed retirement credits while he waits). And because she filed and suspended, she also earns 8% a year delayed retirement credits on her benefit.

Another benefit of the file-and-suspend rules is that by filing, the primary worker not only activates eligibility for a spouse to claim spousal benefits, but also for dependent benefits to be paid on behalf of minor children as well (albeit subject to the maximum family benefit limitations).


While the file-and-suspend rule primarily helps married couples, the strategy also allows individuals who started benefits early to change their mind, suspend benefits and begin to earn delayed retirement credits.

There is another file-and-suspend planning opportunity as well. Under Social Security rules, those who are full retirement age can file for retroactive benefits, but only as far back as six months (resulting in a lump-sum payment of prior benefits). An individual who is 66 1/2 can retroactively file for benefits back to age 66, receiving makeup payments for the prior six months; at age 68, the payments can only go back to age 67 1/2.

Yet if the individual files-and-suspends at full retirement age, a subsequent filing for retroactive benefits goes all the way back to the date of the file-and-suspend. Under Social Security rules, there’s a difference between the standard filing for retroactive benefits and a request to reinstate voluntarily suspended benefits. To preserve flexibility, a client who plans to delay benefits may want to file-and-suspend rather than simply waiting.
• Example 4: A single 66-year-old woman is eligible for a $1,600 monthly retirement benefit. Because she’s in good health, she plans to delay her benefits until 70 to earn delayed retirement credits. But at 68, her health takes a significant turn for the worse and she believes she may not live much longer. Realizing there’s no longer a reason to delay her Social Security benefits, she applies immediately – and retroactively – but at best she can only get benefits going back to age 67 1/2.

If the same woman had filed and suspended at 66, then when she got the unfortunate health news, she would be able to reinstate her benefits all the way back to age 66 – giving her a lump-sum payment for 24 months, rather than just six.

Alternatively, if the woman stayed healthy after doing file-and-suspend, she could still delay her benefits to age 70.

There are a few caveats to the strategy. First, remember that the request to suspend benefits will suspend all benefits, barring couples from crisscrossing spousal benefits.

The act of filing also makes the client eligible for Medicare Part A. In fact, because enrollment is automatic for anyone older than 65 who applies for Social Security benefits, clients can’t opt out of Medicare Part A even if they want to.

Automatic enrollment in Medicare Part A isn’t necessarily problematic – at worst, it’s duplicated coverage, but doesn’t have separate premiums or cost like Medicare Part B. However, it renders a client ineligible to contribute to a health savings account. For clients with a high-deductible health plan, file-and-suspend will render them ineligible to make new contributions.

Beyond these caveats, the file-and-suspend strategy provides a great deal of flexibility, a lot of opportunity to maximize Social Security benefits and the ability to hedge the risk of delaying benefits with the potential to reinstate the voluntarily suspended benefits in the future.

Michael Kitces, CFP, is a partner and director of research at Pinnacle Advisory Group in Columbia, Md., and publisher of the planning industry blog Nerd’s Eye View. Follow him on Twitter at @MichaelKitces.


My Comments: A quick check using your smart phone will reveal that this word, used as a noun, means “… a person to whom property or power is entrusted for the benefit of another.” In addition, it can be used as an adjective, an example of which is fiduciary capacity or fiduciary duty or fiduciary obligation.

In my years as a financial planner and investment advisor, I early on assumed a fiduciary role in my relationship with clients. For me, this means an ethical, legal and moral obligation to do only that which is in a clients best interest.

This distinction is important these days as there are “Wall Street” companies working very hard and spending millions of dollars to enable their employees to function as ‘advisors” to members of the general public, and not be held to a fiduciary standard. From a marketing perspective, they want their salesmen and brokers to call themselves “advisors” and not be held to a fiduciary standard. Unlike those of us not affiliated with Wall Street who are fiduciaries when we call ourselves “advisors”.

An analogy from my past is when I tried to earn a living for several months as a salesman for a local car dealership. I was allowed to say virtually anything I wanted to a potential customer, the objective being to sell a car. That was to the benefit of the dealership, and if the buyer got what he wanted, that was an incidental benefit.

When I became a salesman for a life insurance company, it was suggested that I not tell lies, but beyond that, all that mattered was how many policies could I sell. The more I sold, the more money the company made, and if I crossed certain thresholds, I got more money and more goodies. Great trips to the south of France, etc.

Along the way, I increasingly wanted to be held in high regard by my peers who happened to be CPAs and attorneys. By law, if you are a CPA or a member of the bar, you are, by definition, a fiduciary. But in the insurance world, it wasn’t until the invention of the designation Certified Financial Planner, that the fiduciary role was assumed. If you were awarded a CFP designation, you effectively swore that your conduct going forward was as a fiduciary.

This now causes no amount of angst among the Wall Street crowd as many of their salesmen and brokers have been awarded CFP designations which at a personal level makes them fiduciaries but at the corporate level, they are not. How to remedy this apparent contradiction and conflict of interest?

For a time, there was an attempt to force the folks behind the CFP designation to create a CFP Lite, meaning some folks could use the CFP designation in their relationships with clients without being held to a fiduciary standard. That idea eventually fell apart.

The pressure behind this problem is that companies that sell financial products don’t want to be held accountable and be financially liable if a dispute happens and their salesman or broker, someone they have encouraged to be identified as an “advisor”, did something NOT IN THE CLIENTS BEST INTEREST, and it’s now come back to bite them.

My reasons for writing about this are that (a) I consider myself a fiduciary and for many years now have held myself out as a fiduciary in my advisor/client relationships; (b) I don’t have the resources to lobby the Securities and Exchange Commission, the SEC, to give me an out if I make a mistake, (c) I like being able to hold my head high and have the respect of my peers in the legal, accounting, and advisory community; and (d) I’m tired of not working and living on a level playing field. And I suppose I can stress it’s not in my clients best interest to be faced with this arcane conundrum which potentially puts their financial and legal future at risk.

Here’s a full definition I found several years ago that you might find helpful.

Fiduciary Responsibility: A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. [2] The fiduciary duty is a legal relationship of confidence or trust between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary. In the case of insurance the fiduciary duty is between the agent and his or her client. One party (the agent) acts in a fiduciary capacity to another (the insured). In a fiduciary relation one person justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests. In other words, the agent cannot consider commissions above the interests of the client.

A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (called the principal): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust.

When a fiduciary duty is imposed, equity requires a stricter standard of behavior than the comparable tortuous duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without express knowledge and consent (acknowledging, for example, that a commission will be paid). A fiduciary cannot have a conflict of interest. It has been said that fiduciaries must conduct themselves “at a level higher than that trodden by the crowd” and that “the distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty.”

10 Things You Must Know About Medicare

My Comments: The people at Kiplinger have created another great blog post for me to borrow. And if you insist, you have “my permission” to click on their links and get more good information from them.

At the end of the day, however, you may need someone local, a dedicated, knowledgable professional whose experience over the past 40 years counts for something. I like to think I’m that person. At least my hand is raised in the air to let you know I want to talk with you and possibly help you find the right answers.

Here is an image of what you see when you go to the Kiplinger page about the Ten Things to Know. Be aware it is a slide show and to get to the next slide, note there is a red arrow at the top right which navigates you to the first of the 10 Things to Know. Just click on this image and you’ll be there. 10-Medicare-things

The Imperial Presidency is Quietly Striking Back

My Comments: I’m conflicted. On one hand I’m disturbed by the growing threat to our individual privacy as demonstrated by what the NSA has been doing and will continue to do. On the other hand I’m disturbed by the threats I feel coming from those on the right who are more inclined to live in the past than in the future.

The past is just that, the past. The only thing we can influence going forward is the future, and I don’t want us to become a country of old white men, who ruled the day as little as 50 years ago. What was “normal” for them is not normal for me today. That’s in spite of my being an old white man, but living in 2014 and excited by what the future holds.

The article written by Edward Luce asserts certain things about the presidency, and in particular, Barack Obama. I have little doubt Luce is right, and I’m still a fan of Obama. I reject what the Tea Party people see as a threat to our future as free Americans. For me, “free Americans” include ALL of us, not just a select few. That’s not to say he is not flawed, but compared to the Ted Cruz look alikes, I’m OK with the current leadership.

By Edward Luce / The Financial Times / March 9, 2014

Forty years ago, Arthur Schlesinger coined the term “imperial presidency” to describe the growing power of the US executive. Today we are told it is shrinking. At home, President Barack Obama is impotent – unable to persuade Congress to confirm minor ambassadorial appointments. Abroad, he is in full pursuit of what Niall Ferguson, the Harvard historian, calls a “geopolitical taper” – underlined by his tepid response to the challenge from Vladimir Putin.
America’s executive branch is getting weaker, they say; Mr Obama will be remembered for the post-imperial presidency.

The argument is mostly nonsense. In the first instance, it confuses means with preference. Mr Obama is indeed loath to employ conventional US forces overseas, whether in the Middle East or the Black Sea. He was elected on a mandate to wind down wars and he is not about to revisit that in Crimea. Critics may worry about the White House’s willingness to threaten a full withdrawal from Afghanistan. But that is beside the point. If Mr Obama wanted to occupy it indefinitely he could do so with little reference to Congress. In 2008 George W Bush barely even considered confronting Russia militarily over its semi-invasion of Georgia. That would have risked everything. Mr Obama is firmly in the mainstream in believing the US should not threaten war with a rival nuclear power unless it or its treaty allies are under direct threat.

In contrast, he has no compunction about using less conventional military tools when he wants – and without consulting anyone outside of the executive branch. The Pentagon’s latest budget captures this well. Headline writers focused on the planned shrinkage of the US army to 440,000 troops, which would be the lowest since before the second world war. Hawks describe the budget as confirming a US in full retreat. In reality, soldiers are now vastly better equipped. In 2001 it cost $2,300 a year to equip a US marine. Now it is more than $20,000. As in the private sector, downsizing reflects growing productivity. The Pentagon uses robots, too.

Even under the new budget, overall US defence spending remains almost two-thirds higher than it was before the September 2001 attacks. Prof Ferguson describes these as “deep cuts”. Tucked into the proposal, however, are increases to the US drone fleet, special forces and cyber attack technology. Mr Obama wants to expand the number of US special forces from 66,000 to 69,000. And he plans a continued growth in the Pentagon’s robotic warfare capabilities. These are tools that the president can use – and has – with impunity. Congress and the media are only informed afterwards, if at all. At any rate, Congress is unlikely to agree to the proposed cuts. They are probably dead on arrival. There is little doubt it will give robots the green light.

But the biggest growth in the imperial presidency is in the data intelligence complex – the shadowy network of US agencies and private-sector contractors that operates largely beyond the control of Congress and the courts. There are 854,000 private contractors alone, all of whom have security clearance. Mike Lofgren, a former Republican congressional staffer, recently wrote about the US “deep state” – “a hybrid entity of public and private institutions ruling the country … only intermittently controlled by the visible state whose leaders we choose”. In the aftermath of Edward Snowden’s revelations, Mr Obama has shown belated angst about the extraordinary powers at his disposal. He has even “welcomed” the debate Mr Snowden’s leaks have caused, while also vowing to prosecute him as a traitor.

Through his words, Mr Obama suggests he is reluctant to use his vast capabilities. Through his actions, he conveys the opposite. In January Mr Obama rejected the advice of his own panel of legal advisers to take data storage out of the hands of National Security Agency. The NSA is proceeding with a storage centre in Utah that can contain a yottabyte of information – equal to 500 quintillion (that is, thousand trillion) pages of text. To you and me, that means infinite. No other facility on earth will come close. It will be able to store every electronic trace of everybody’s lives.

Mr Obama also rejected curbs on the secret 11-judge Foreign Intelligence Surveillance Court that issues the warrants the NSA needs to tap into people’s phone logs and emails. In 2012 the court received 1,789 requests, one of which was dropped. All others were waved through. There is no reason to believe anything changed in 2013.

Mr Obama promises self-restraint. But even if we assume the “deep state” follows his orders and keeps him informed of what it is doing, his example will not bind his successors.

It is unarguable that on the domestic front Mr Obama’s presidency is as weak as any in living memory. That may also be the reality for whoever replaces him. Partisan gridlock is here to stay. But beneath the surface life of Washington politics, another state is operating beyond any reasonable system of accountability. In the theatre of US politics, Mr Obama looks like all talk and no action. Behind the scenes, he has more power at his fingertips than any US president in history.

To test the theory that he embodies a post-imperial presidency, imagine Richard Nixon were president instead of Mr Obama. Would you trust Congress to provide oversight of Nixon’s data-intelligence complex? Would you be talking about a weakening US executive? Neither would I.

12 Steps to a Blissful Retirement

retirement_roadMy Comments: Monday morning, the sun is shining, and perhaps an exciting week ahead. Only I tried retirement, and it was not blissful (billsful maybe). So I’m back working full time, knowing that what used to take me an hour to accomplish, now takes at least two.

That being said, whenever I see a list presented about something in which I have an interest, I tend to read it. I suspect that may also be true for some of you. Or at least it will be when you have enough years under your belt.

By Paul Merriman / Jan. 29, 2014

OK, maybe “blissful” is a bit too strong to be realistic as an image describing retirement. But some of the smartest people I know have figured out how to make this stage of their lives very satisfying and rewarding.

This article isn’t about money. I would be the last person to play down the importance of having adequate financial resources when you retire. But no matter how much — or how little — money you have, the quality of your life will be determined mostly by what you do with your time, energy and opportunities.

I’ve had the good fortune to know lots of very smart people, and they taught me a lot about how to live well. Here are some pearls of that wisdom:

1. What I just said
Happiness in later life isn’t a direct function of how much money you have. This is no surprise to the smartest people I know. To a large extent, your happiness depends on your attitudes, your behavior and your choices. This is equally true before you retire, but sometimes it becomes more obvious after you stop working.

2. You won’t stand out if you wait to be told what to do
The happiest people I know cultivate habits and follow rules that others don’t. Want examples? Look closely at the people in your life that you most admire. What do they do that you don’t?

3. Smart people know what makes them tick
They’ve found whatever it is that’s likely to make them want to get up in the morning — and they make sure their daily life has some of that special something. Want examples? Again look around at the people you know who are actively embracing life.

4. Have fun
The smartest retirees I know make a point to have fun every day. Here’s an interesting thing about fun: It isn’t the activity itself. What’s fun to one person (golf?) may be drudgery — or worse — to somebody else. If you pay attention, you may notice that what makes something “fun” is often an attitude of playfulness, mischief, creativity, surprise. Try to pay attention to what’s going on when you’re having fun. Chances are you will find that you’re focused instead of scattered, loose instead of uptight.

5. Search for balance
Smart retirees look for a balance of taking it easy and working on things that matter to them. The right balance between relaxation and activity won’t be the same for you as it will be for your friends, and it will undoubtedly evolve over time. The key point is to find it and maintain it.

6. Have a mission
The happiest retirees have at least one driving force or mission in their lives. It can be as complex and demanding as running an organization or as seemingly simple as mastering a craft or fulfilling a family obligation. You will know you have found this special something when, every time you do certain things, you just feel good about yourself and you’re glad to be alive. For many people, this leads naturally to my next point.

7. Find something you can do for others
Whether you realize it or not, you have something valuable to give somebody. If you figure out what that is, and if you actually give it, I am pretty certain that a couple of things will result. First, the world will be a little bit better place because of you; second, your life will be richer and more satisfying. In the words of an old country song , “He who’d walk a mile just to hold an empty hand, knows what it means to be a wealthy man.”

If you have an entrepreneurial bent, look around in your community and see what needs fixing. Then figure out whether or not you can get it fixed. If you are looking for a worthwhile established charitable or other nonprofit organization, I think a great place to start is at .

8. Combine passion (No. 6 above) with generosity (No. 7)
When you find something that gets you out of bed in the morning with a spring in your step AND it’s something you regard as really worthwhile in some way, you have truly found your calling. If anything deserves to be called a home run in retirement, this is it.

9. Surround yourself with people you love and who love you
As I wrote last winter, the quality of your life will be shaped by the quality of people in your life. Cultivate friendships with young people, and try to learn from each of them. Many studies have found that having a close group of family and friends is strongly correlated with health and happiness in retirement.

10. Don’t wait too long to do the most important things on your bucket list
We’ve all known retirees whose health or other circumstances prevented them from doing things they had so eagerly anticipated. If travel is a high priority for you, as it is for so many people, do it in the early years of your retirement, while you are physically able.

11. If you are a grandparent, be a good one
Spoil your grandkids. Love them. Teach them. Learn from them. Introduce them to people, experiences and places they wouldn’t know otherwise. Remember that they will learn most just from the example you set. It’s highly likely that even decades after you are gone they will still remember some of the things you said and did. There are many books on grandparenting. One that I particularly like, by Janet M. Steele, is Great Ideas For Grandparents: How to have fun with your grandchildren and promote positive family relationships .

12. Keep your mate happy
If you are married or in a primary relationship, keep your spouse or partner happy. Some of the smartest people I know express that commitment by regularly telling their spouses: “You should have what you want.” Obviously you cannot give your spouse the world. But you can seriously adopt this attitude. As one of my friends likes to say, “Life works best when my sweetie is happy.”

You may not need any guidance other than that. But if you want specific ideas, here’s an article that suggests 50 ways to please a wife and here’s one written for women on 50 ways to please a husband.

There is much more that could be said about living well after retirement. You can find a lot of it in a book I like: The Joy of Not Working: A Book for the Retired, Unemployed and Overworked- 21st Century Edition by Ernie J. Zelinski.

Click HERE for the source article and all the links.

When to Leave Your Money in a Trust

scales of justiceMy Comments: Recently, two clients have asked me about asset protection and whether they should start thinking about a trust. The answer is maybe.

First, I have to remind everyone that I am not an attorney, and cannot advise people on legal matters. However, I can share basic knowledge that I’ve picked up over the years.

There are any number of reasons to think about asset protection. We live in a litigious society, and people find reasons to sue all over the place. If you think someone might sue you because your minor children got into a scrape, then certain assets you own could be at risk.

Certain kinds of trusts do offer asset protection, but in the State of Florida, there are tools you can use that allow you to retain control over those assets even while they are protected against the claims of creditors. I can help you explore those options, given my status as a financial advisor here in Florida.

By Joanne Cleaver / February 27, 2014 / US News & World Report

Not everything about the future is unknowable. Some family circumstances are all too predictable: divorce, disability and dumbfounding behavior.

Trusts can be a defense against these asset-shattering factors, estate lawyers say.

In the past, trusts have been the moat protecting the wealthy from estate taxes. But only about 0.3 percent of estates are likely to be hit with federal estate taxes, thanks to the high ceilings for such taxes ($5.34 million for single taxpayers and $10.68 million for married couples), says California lawyer Dennis Sandoval, who is also the director of education for the American Academy of Estate Planning Attorneys. Now, trusts are coming in handy as a first line of protection against illness and other potential complications.

“A trust gives you control and makes sure that the money is protected for the people you care about, and that it’s spent the way you’d like it to be spent,” says attorney Bernard Krooks, a specialist in elder law with Littman Krooks in New York.

Divorce. Sandoval estimates that more than 80 percent of the trusts he drafts are intended to protect an adult child’s inheritance in case that adult child divorces. The effort can be worthwhile for estates as low as several hundred thousand dollars, he says.

Continuing trusts, also known as “family access trusts,” protect the children’s inheritances. “It’s a relatively simple trust with the main purpose of keeping the child’s inheritance segregated and unavailable to a potential ex-spouse,” he explains.

Such trusts can also be used to ensure that a deceased spouse’s assets flow to his or her children, if the surviving spouse remarries (assuming there’s no prenuptial agreement). This is useful in second or third marriages in which one spouse is much younger than the other.

Disability and debilitation. A trust can extend protection for a disabled child or spouse, especially if the family wants to protect its assets from Medicaid payback provisions.

A special needs trust can wall off assets for a family member with chronic physical or mental needs and is especially valuable when planned well in advance with a trustee who understands the family’s intentions for caring for their loved one, both Sandoval and Krooks say. It’s important for the trustee to be fully conversant in the circumstances of the dependent family member. It’s also important to understand your intentions for leaving assets to others and know the rules of administering a special needs trust.

A “trust protector” is a third party who monitors the trust, providing an additional layer of accountability for fulfilling the purpose of the trust. Of course, adding a trust protector might also add another layer of cost to administering the trust.

A special needs trust should be set up as part of an overall estate plan and is not the same thing as a living trust.

Dumbfounding behavior. Drug addiction. Dangerous credit habits, including bankruptcy. Dereliction of personal responsibility.

H. Clyde Farrell, an attorney with Farrell & Pak in Austin, Texas, has a solution for heirs who are unlikely to use their newly inherited assets wisely: a trust, backed up by a contingent trust directive in the will.

“I recommend providing for contingent trusts that may apply to any beneficiary at the time of death, even if no trust would be needed as of the time the will or living trust is drafted,” Farrell says.

As it implies, a contingent trust is created when a certain theoretical situation becomes a reality. For instance, Farrell explains, if a beneficiary declares bankruptcy within 180 days before the death of the parent, a will including a clause for a contingent trust may be triggered, thus protecting the family assets from creditors.

Similar contingencies could be set up for drug abuse (no clean drug test, no money) and for those with chronic credit problems.

Do you want to prod your beneficiary to clean up his or her act? An “incentive trust” is your big stick from beyond the grave, Sandoval says. As one would guess, this type of trust rewards specific behavior, such as earning a college degree or taking time off work to care for a dependent.

Tightly drawn directives leave very little wiggle room for either an heir or a trustee to invoke a judgment call, should circumstances change. “In my experience, it is not the contingencies that lead to disagreement, it is whether particular discretionary distributions should be made,” Farrell says.

When trustees and beneficiaries disagree about the letter or intent of contingencies, or other elements of a trust, disputes can escalate. The very nature of contingent trusts tends to invite disputes, Farrell says, because the trusts rely on the “broad discretion” of the trustees. Usually, the disputes center around differing definitions of what is “reasonable” in terms of distributions, he says.

In Farrell’s experience, a trust is only as good as the trustee, who must exercise discretion and common sense to fulfill the intent of the trust.

Three Key Strategies for Helping Clients Navigate Aging Plans

retirement_roadMy Comments: OK, we’re all getting on in years, some of us more so than others. Baby boomers are starting to ask compelling questions about Social Security, about health care issues, and dozens of other topics that a 30 year old cannot yet start to think about. That’s OK; I couldn’t either when I was 31 and our son was first on the scene.

This came to me from an attorney friend who from time to time forwards interesting comments about the law and the issues faced by those of us who can and should now think about this stuff.

It’s a good start for someone as they start coming to terms with their mortality.

Acknowledgement goes to Louis Pierro, Esq., founder and principal of Pierro Law Group, LLC, for the content of this newsletter.

Many of your clients are baby boomers (now ages 50-68) moving into retirement and dealing with all the issues related to aging: elderly parents, kids in college, saving enough to last a lifetime and protecting what they have. With a dizzying array of financial instruments to choose from, complex federal and state laws governing estates, and the crisis in health and long-term care, your clients need your help more than ever to develop an effective plan for their senior years.

By 2050, the U.S. Census Bureau predicts there will be 86.7 million citizens age 65 and older living in the U.S., and they will comprise 21% of the total population. It predicts the number of people in the 65 and older age group will grow by 147% between 2000 and 2050, compared to 49% growth in the population as whole.

Waiting to plan for the “golden years” is no longer a viable option. Your clients need to look far into the future and develop an estate plan that will help them maintain their desired lifestyle and protect assets from a variety of risks, including the rising costs of care. We have identified three key strategies that can help your clients navigate the minefield of aging, and focus on a successful retirement.

Establishing Future Cash Flow and Determining Adequate Resources

The number one long-term concern of most clients is running out of cash as they age. No one wants to outlive their assets, but without pre-planning that could easily happen, especially if there is a medical crisis or chronic illness. Clients need to take care of themselves first, ensuring their income throughout retirement before worrying about the distribution of their estate. On an airliner, passengers are instructed that if the yellow oxygen masks drop, they must first put their own mask on and only then assist others. Only when your client is breathing comfortably about the future can plans be made to transition wealth to beneficiaries.

Having a list of questions to ask your clients at the beginning of a discussion about their estate plan will help establish the outline and direction of the plan. Some of the basic questions to ask are:
· What are your sources of income in retirement, and if married, do they continue for your spouse?
· Do you plan to stay in your current home?
· If so, do you have enough funds to do that?
· If not, where do you plan/want to live?
· Will you have any dependents living with you (parents, special needs children)?
· What would put your plan at risk?
· What about a medical crisis?
· Who will take care of you?
· How will you pay for it?

Answering these questions gives both you and your client a starting place to discuss creating the right estate plan. It is also an excellent place for financial advisors and estate planning attorneys to work together to ensure that income and assets are properly structured and protected.

Regular Planning for Tax Liabilities and Protecting Assets
With the increased focus on income tax issues, CPAs are integral in capturing business opportunities to help clients protect their assets, smoothly transition estates and reduce tax liabilities. It used to be that tax laws didn’t change very often, and established estate plans didn’t need to change year over year. However, since 2000 the federal estate and gift tax exemptions have changed almost yearly. Other federal and state laws governing income, estate and gift taxes have changed as well, with increased income and capital gains tax rates imposed on January 1, 2013.

While on the surface it appears that we have entered a period of stability, at least for federal estate and gift taxes, given their history and the federal deficit, it seems likely that the tax laws are only going to get more complicated, burdensome and complex. Diligent advisors offer guidance and educate clients regularly about any changes to the laws that could impact their estate plans and tax liabilities, and “best practices” include a team approach.

What a client might need in an estate plan when they are in their 50s and 60s can be very different from what they need in their 80s and 90s. Although accountants and financial advisors meet regularly with clients, most attorneys do not. As laws governing Revocable and Irrevocable Trusts, taxes, Medicaid, VA benefits and health care change over time, and your client has personal changes that could seriously jeopardize his or her estate plan, ongoing counseling is required. For estate planners, setting up an annual maintenance program with your clients, and working with an interdisciplinary team that includes a financial planner, CPA and attorney, keeps you up to date on best practices and ensures that your clients’ estate plans are current.

Planning for Medical Crises and Long-Term Care

No one plans to have a medical crisis, but without a solid estate plan in place before a crisis happens, a medical issue can destroy financial security in short order. The need for long-term care is a looming prospect that gets ever harder to deal with as clients age, with uncovered long-term care exposure creating an insolvency risk for most seniors. With Medicare all but out of the long-term care (LTC) space, and LTC costs escalating, for 95% of the retiring population the greatest risk to financial security is uncovered medical expenses. People are living longer, and often those added years are unhealthy. Consequently, the “elephant in the living room” for retirees is paying for medical care without exhausting assets.

A Long-Term Care insurance policy is still the best weapon against a financial disaster caused by a chronic illness or aging. Such policies are not accessible to everyone, however, due to cost, pre-existing conditions and other circumstances. LTC coverage is not guaranteed available by the Affordable Care Act or any other legislation. Moreover, although premiums are “level” they are not fixed, and careful planning is required to tailor coverage and premium to fit the client’s plan. Those able to afford the premiums are well advised to purchase a policy for needed coverage. The cost of assisted living and nursing home care is skyrocketing, and without an LTC plan, a client can be faced with losing all assets acquired through his or her lifetime. Often, for those uninsured, the burden of care falls on a loved one, and because of the complexities and pitfalls of Medicaid, such as the 5 year look-back and penalty provisions, paying privately can result in complete impoverishment.

There are many LTC products and options to choose from, like traditional LTC insurance, LTC/life insurance hybrids or life insurance with an LTC rider. You can help your clients find one that fits their needs and enhance your position as one of their trusted advisors – one who helps plan effectively without a focus on selling products, but rather implementing a plan. With increased volatility in the LTCI markets, carrier issues and rising premiums, it is imperative that LTC policies be reviewed regularly and that the policy fine print is understood. When your client is most vulnerable or unable to manage his or her affairs is not the time to find out that a LTC policy has a problem!

What if your client can’t afford the LTC premiums or has been denied coverage? Without an LTC insurance plan, it is even more important to consult with an attorney on other ways to protect assets from the poverty requirements of Medicaid and the Veterans Administration. An attorney can construct a plan to create a Medicaid Asset Protection Trust or Veterans Asset Protection Trust, as well as make plans to protect the estate, even if home care, assisted living or nursing home care becomes necessary. The collaboration between LTC insurance agents and attorneys is key, and the opportunities for mutual referral and joint marketing are abundant.

Summary: Identifying the Need to Plan Now Rather than Later
As our clients grow older, their medical, financial and legal needs change. For many, instead of worrying about growing their net worth, the new worry is not running out of money before they die. Working in tandem with an interdisciplinary team of professionals — financial planner, accountant and attorney — provides the expertise needed to create strategic estate plans for your clients.

In spite of deep experience in their field, no member of the advisor team, whether CPA or financial advisor or attorney, can know all the nuances of estate planning. Each brings specialized expertise to the table.

By working together on behalf of the client, the combined knowledge of this interdisciplinary team provides the best possible planning options to protect the client’s estate into the future. And, each team member has the added benefit of gaining referral opportunities to continue to build their own businesses.