Hybrids help solve problems

I just spent two days locked up in a room  (sorta) in Tampa, Florida, (in the middle of winter!), talking about life, disability and long term care insurance.  Hey, don’t tune out just yet!

Every couple of years, some of us old dogs have to learn some new tricks. The world is changing pretty fast.

The operative word this year at our Low Load Insurance Academy was ”hybrid”, but not the car kind.  Both annuities and life insurance policies are sprouting wings that include coverage for long term care needs – and at a tax advantage in most cases.

If you've heard the pitch lately, you probably know that 70% of people age 65 today will need long term care services at some point in their lives.  Wow, the number has gone up.  I remembered when it was 60%.  We’re living longer and that is the result.  The second fact presented was that the national  average cost of nursing home care is up to $87,000 a year.  Another wow.  I was thinking maybe $80,000.

Now we financial planners love it when clients are predicted to “self fund” for long term care needs. That means they’ve saved or inherited enough money or property to see them through many years of high cost care. Remember that 70% figure?

Some people can self fund and hedge their savings by purchasing long term care insurance with a long elimination period or self fund and buy a short term policy to cover their needs until they can sell property that will provide a source of funding.

 

If people can’t self fund for all or most of their risk of needing long term care services, then you can buy insurance to cover that need, but guess what? Most people people we meet don’t buy LTCi (code for Long Term Care insurance).  Why?  “Because,” they tell me, “what if I don’t need it?”  The insurance industry has heard that excuse and come up with other options.

These days, both life insurance and annuities from several highly rated insurance companies offer long term care riders or supplements that turn them into a multi use product.  Being able to draw out assets from a life insurance death benefit or an annuity with no income tax implication is an attractive alternative.

 

So the next time you’re visiting with your financial planner ask about hybrids.  As usual, your mileage may vary.

Last Minute Tax Planning: Low Taxable Income

If your 2011 taxable income (line 43 IRS 1040) is going to be below $69,000 married or $34,500 single then you need to look at your taxable investment accounts and maybe sell and buy back (if prudent) to enable you to “recognize” long term gains this year. (This is not about short term, less than one year, gains.)

Why? No long term capital gains tax is due if your taxable income puts you in the 10 or 15 percent tax bracket. The law changed in 2008 and expires at the end of 2012 when long term gains tax rates go back to 20%.  This will increase your “basis” in the holding and allow for fewer taxes on future gains than if you just continued holding these securities (assets).  This does suppose they continue to go up in value.

At this time of year we advisers are looking to “harvest” long term gains and offsetting losses to increase the “basis” of holdings. This is good tax planning in most years.  It may not be that good this year, but for reasons not germane to this missive. Call or write to ask about this.

For the past couple of years and for the next year (2012), those taxpayers finding themselves in lower brackets should take advantage of this incentive to sell long term holdings that have increased in value.  If prudent, they can buy them back immediately without a waiting period which involves selling long term capital losses (wash-sale rule).

Your tax advisor or financial planner should always be consulted before implementing this kind of strategy. Why? Just selling for tax reasons, may not be the best strategic move for your portfolio. That’s why this discussion is for education and not actual advice. “Your mileage may vary” YMMV as they say in the text world.

A special thank you to Michael Kitces, author of the Kitces Report, www.kitces.com for reminding us planners to highlight this issue again this year.

Our Predictions for 2012

It’s that time of year again - prediction time.

What’s going to happen next year?  As usual, I don’t know.  How about you?  I just finished reading Forbes Magazine’s end of year Investment Issue and it didn’t help me come to any new conclusions. Rats.

Now for some breaking news. For the first time this year, I’ll be sending out a separate survey to those that frequently open my emails to see what you (they) say to some speculative questions I intend to offer for their response.  Of course, I’ll publish the results.

As we finish up this year going over many of our clients investment portfolios for the second or more frequent times, we have come to the conclusion, as we often do, that less is better -  less changes, less explanation, less understanding, and less acknowledgement that we can predict the future. Less is better. How unique?

So how are our clients, collectively doing?  Not bad.  Our clients are putting away more money since the two great dips of 2001-2 and 2008-early 2009.  They are also lamenting the continued softness of the stock and bond markets and the continued sinking of housing values. I feel the same emotions. 

By the way, our current favorite economic guru, Anirban Basu of the Sage Group, says that housing deleveraging will take a decade, until 2017.  (Sigh)

On the other hand, as a group our clients remain optimistic for the long run.  They are optimistic that we can do it – whatever “it” might be. (Mr. Minick, my 8^th grade English teacher, please forgive the dangling participle.)

This is the point that I should now report that our clients who retired during 2008-2010 have stated that they are doing “OK”.  That surpassed our expectations.  But the way, we can’t recall one client having told us it was mistake to retire when they did these past three years. (However, we acknowledge if they do regret it they may not have told us.)

It’s an election year coming up – surprise! You think 2011 was an up and down year?  You just wait.  The media loves a horse race and we will be having lots of them.  We have some international horse races going on too.  We predict the markets will over react in both directions. Don’t pay much attention.

What can a long term saver and investor do?  As I said in my first ever (August 2011) urgent email, “turn off the TV”.  You might recall this was the first time in 9 years I felt compelled to send out an “all hands on deck” email.

If you do want to ponder some thoughtful ideas and research on the subject of why we do what we do and why we make so many mistakes, I’d recommend Jason Zwieg’s “Your Money and Your Brain”, and Meir Statman’s “What Investors Really Want”.  Both of these books have to do with our behavior as investors.  

Many of you will recall, I’ve been recommending Charles Ellis’ “Winning the Loser’s Game” 5^th edition, for the past year or so. If you buy, borrow or beg one of these books and don’t think it’s of value after reading it, I’ll reimburse you whatever it cost. No time limit on this offer to regular readers of this blog.

So that brings me to my list of concepts I’d like you to consider exploring as we enter 2012:

·        The illusion of control

·        Confirmation

·        Hind sightedness

·        Patterns

·        Availability

You’ll find these concepts and more in the three books we’ve just recommended.

So for 2012, we suggest you follow Warren Buffet’s advice to just invest in index funds as much as you can.  I think John Bogle, founder of Vanguard, said that too.  If you must invest in a limited number of active funds in your work retirement plan, then try to find low cost and diversity.

My wish for this holiday season is for both you and me to have more family time and count our blessings each day. Thanksgiving was a good start. Keep it up. I predict it will improve our year 2012.

Time to introduce a little change, for the better

Helping people make informed financial decisions can be tough.  Now don’t fret, this isn’t a pity party kind of blog coming up.  These are just some thoughts on how to get people to act in their own best interest.  I think my doctor might have the same kind of thoughts sometimes, but not about me.

Being a financial advisor that only gives advice and doesn’t sell or manage stuff, has its advantages.  We don’t get a lot of phone calls or emails asking why we screwed up.  Now, both my partner Anna and I screw up plenty, but we try to catch each other’s mistakes before we foist them on the public.  However, when we do give advice whether in person, on the phone, on Skype or via email, we are never really sure what’s going to happen.  We usually find out later.

In our business model, we also don’t have to do quarterly reports or publish newsletters to explain what’s going right or wrong.  Who reads those?  I’m sure some folks do, but in past lives we hoped 5% took a look.  Only engineers, who found every addition error or typo, seemed willing to communicate about our offerings.

How late we hear from someone usually relates directly whether they are following our advice.  If we get phone or email soon after the delivery, then we know the client is doing something with our recommendations – thinking about them and, or trying to implement them and needs our assistance or further explanation.

It’s not unusual to see clients a year later and find that most of the work we recommended is yet to be completed. How were we to know? That’s where my doctor comes in.  He makes a follow on appointment right then when I’m sitting there.  Funny how the prescription runs out just about the time our next meeting is to take place.

OK, so Doctor of Financial Advice Ludwick is going to change his ways and book follow up appointments right away and also have the office staff follow up a week later to see how things are going. Yes nurse, I’m taking my pills and exercising.  I get the sense their interested in my welfare.  I can take a hint.

So after nine years of operating in a certain way, Doctors Ludwick and Sergunina will alter their practice and help their clients move forward in their financial lives. Yes it means more phone calls for us, but we expect to see more accomplishments because of our efforts.  Yes, it might mean we have to switch more appointments that need to be altered, but I think we can handle it.

So if you’re a client of ours, what do you think?  If you’re a colleague, what do you think? And if you’re a prospective client, what do you think?

10 things not to do on your overseas vacation

10 things not to do on your vacation overseas

1.       Don’t fret about leaving something at home.  If it’s important enough, they’ll have one for you to buy at the airport. If it’s clothes, then all the better reason for shopping. (Does not count for passport or driver’s license)

2.       Don’t take work folders with you. Electronic might work if you need something, but these days you can get someone to transmit it to you.

3.       Don’t expect everything to work on schedule. Plan for alternative transportation in case your plans are disrupted. Think strike or reservation failure.

4.       Don’t forget to turn off your smartphone data plan. By the time to realize it’s on in a foreign country your bill make already be in the stratosphere.

5.       Don’t expect your bank or credit card companies to approve all your withdrawals and purchases. Call your bank and credit card companies and let them know your departure and return dates.

6.       Don’t think you won’t lose your wallet or purse. Make a scan of all your credit cards, passports, driver’s license and email it to yourself. That way you can bring them up at the hotel or police station in case of loss or other emergency.

7.       Don’t think there’s no risk getting money out of any ATM you find. Get your money out of ATMs located in or next to a bank branch or in the airport secure area. Less opportunity for someone altering the machine and grabbing your information.

8.       Don’t think your US phone will work in another country without planning ahead. Get a local sim card for an international capable phone so you can make and receive local country calls.

9.       Don’t just use the hotel telephone system to call home. Use a Skype account to talk to others around the world at no cost, or very little cost if they don’t have a Skype account.

10.   Don’t help others and assume it’s every man or woman for themselves. Pass these suggestions onward to others and add your own recommendations. Send me a copy.  Jim at AdviceOnly Dot Net

Important Message to Clients and Other Correspondents

Saturday morning August 20, 2011

Starbucks, Monroeville, PA

I don’t want to be sending out “Important Messages” very often. However, our 24/7 media, which most of us access to some extent or other, leaves me no choice. Volatility in the markets (stock, bond and housing) leads to angst. I feel your pain and my pain.

Thursday was another bad day in the stock market. What did yours truly do? Most of you know the answer. I was a buyer. Sold nothing and bought more index funds. Put excess cash to work. If it was a good by at X, then it’s a better buy at X minus 9 percent.

Remember the three buckets of money? (If you don’t, email me for my chart and explanation)

I have more than three years cash in bucket one. How about you? I have another 2-3 years of expenses in bond index funds and a balanced index fund for mid-range bucket two. The asset allocation for my wife and I is 75/25 in bucket three. This is long term money, at least five years away from need.

Am I concerned about our economy and our country? You bet.  Rumors in Washington are forecasting draconian budget cuts beginning Oct. 1^st.  Could a recession in the DC metro area be in the offing for the first time since the end of the Vietnam War? One missive I got yesterday played up that outcome.

For those of you in CA, NV, and FL, it looks like housing and affiliated industries will keep economies there in a longer recession that I ever figured.

So what can we do? 1. Live beneath your means and prepare for cuts in social security, medicare, and other federal and state government services. 2. Don’t take on more debt. 3. Pay down current debt. 4. Understand the big picture from several viewpoints (not just your favorite outlet) 5. Communicate with your elected representatives and/or help new ones get elected.

Thanks for listening. Jim at advice only dot net.

Important Message from Jim Ludwick

Wednesday evening, July 27, 2011

Dear clients, prospective clients, colleagues, friends and relatives:

My friend and fellow advisor Rob Oliver said I could pass along his advice to his clients today since it mirrors our feelings and recommendations:

"You may be wondering what all the debt ceiling hubbub is all about. I've heard from some of you with questions about its implications for your planning and investments.

I hate to sound like broken record, but I encourage you to keep your sights set on the long-term and ignore the short-term buzz. In my opinion, the debt ceiling issue will get resolved and any fluctuations in the market due to the debate surrounding it will be short-lived. My advice is to stand pat with your portfolio and turn off your television.

Having said that, I believe that the debt ceiling debate represents deeper rooted budget issues that the US needs to resolve. Some form of higher taxes and lower spending is coming. What should you do about it? Continue down the prudent path:

- Rebalance your portfolio at least semi-annually.
- Pay yourself first through automatic savings.
- Avoid unnecessary debt.
- Mitigate risk with insurance and estate planning.

If you would like to learn about the debt ceiling, I suggest you check out
the US Dept of Treasury's description and Vanguard's analysis:

http://www.treasury.gov/initiatives/Pages/debtlimit.aspx

https://personal.vanguard.com/us/insights/article/debt-ceiling-07192011


-- Jim Ludwick  jim@adviceonly dot net  (740) LUDWICK