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.

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.

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.