Monthly Archives: March 2015

Cash is King

This is part four in a series on the Six Circles of Wealth. The first three circles are income, investments and guaranteed income. The next is cash, also known as liquidity.

Cash is an essential part of a solid financial fortress. Even the sound of the word evokes an all-over body tingling to most people. The adage that “cash is king” is true, and this is especially true if that cash is used to buy distressed assets at a huge discount. The longer the sales cycle for an asset, the more valuable cash becomes. When you sell stocks, the money usually clears the next day. There is no costly waiting time, as there is when you sell a property or even a business.

When you sell long-saMoney runles-cycle assets, then cash can become an invaluable negotiating tool, depending on the sales situation of the seller. Many people will tell you not to keep much money in cash because you will make no money on the cash (or at least very little). This is a shortsighted view. Having cash in a bank, in cash-value life insurance and even a safe deposit box is invaluable because you can access the money immediately without having to sell an asset at a loss.

A $200,000 House for $100,000 — Today Only

Let’s say you receive a call from your neighbor, who must sell his house immediately. You are familiar with the house and are very confident that it would sell for $200,000 on the open market given time. Your neighbor is pressed for time, due a new job, a new life or whatever. He tells you that he needs to close in three days, and if you can make that happen, he will sell the property to you for $100,000, which represents a 50 percent discount. (I have bought many properties at 20 to 50 percent discounts — as have many people all over the country.) Could you make that happen if you received that call today? If you had the cash, you could write up a purchase agreement and send it to a title company with a rush close. You then wire your funds to the title company and sign some documents and presto you own a $200,000 house for $100,000, which means you have a $100,000 equity profit. Equity profit is not cash profit, but it is real wealth that you can convert back to cash if you so choose.

That money in the bank or your insurance policy — earning .05 percent to 5 percent — has the chance to close to double in 60 to 90 days when you resell the property. Any real estate investor will tell you that to convert that house back to cash will require some holding expenses, a little fix up and selling expenses. When the home resells, you might net $80,000 of profit. The original $100,000 of seed capital goes back into the bank or your cash value life insurance policy along with some interest that you should pay yourself for the loan. Now you are free to do as you wish with the $80,000. Depending on what funds you used to close on the property, you will probably owe short-term capital gains taxes. You could also choose to hold the property and possibly obtain a mortgage from a bank or private lender to pull back out much of your cash. Then you could rent, rent to own, or equity share that property and sell out later for hopefully more money and at a more beneficial tax rate.

Fast access to cash — combined with some education on how to buy distressed assets — can pay off handsomely. If you had all your money tied up in the market or fixed-income assets, then you could not take advantage of that unique opportunity that came knocking on your door.

Waiting for the Opportunity

That $100,000 of cash will buy every $100,000 or less asset on the market (property or business for sale) and it will buy most $110,000 assets, some $125,000 assets, a few $150,000 assets and the occasional $200,000 asset because you can solve problems quickly with that fast cash. Rates of return are not always figured out inside of the product you are in but rather what can you do with that cash when the right opportunity presents itself.

What if it took two years for that opportunity to present itself? Would it still be OK to keep that safe money parked and available at a low rate of return? Of course it would! Never make the mistake of thinking that all your money needs to be invested or in fixed-income assets such as bonds or annuities. Maybe you could educate yourself on how the distressed real estate and note markets work and spend a little time and effort on taking advantage of that market.

Cash parked in a safe, easy-access place would also allow you to take advantage of the next stock market downturn. If you had cash and guts in 2007 and ’08 and decided to take that cash and invest in great companies that are way down due to more of the market than anything internal to the company, you would have made a killing. So when is the next market downturn? Nobody knows, but it is just a matter of time and those with cash and those who are willing to buy when blood is in the streets always create fortunes.

John Jamieson is the best selling author of “The Perpetual Wealth System.” Follow him on Twitter and Facebook.

BYOB – Become Your Own Bank

Life is not just about knowledge but requires action as well. Please complete this life changing exercise before you read any further. Add up all the payments you have ever made in your life to a bank or finance company on every debt you have ever had during your life. This is on cars, real estate, business loans, business equipment, student loans, boats; anything motorized, etc. Now whatever that figure is for you (it will be largely a figure of age and income) double that number. So if your figure is $1,000,000 in total payments your number would be $2,000,000. Why do we double that figure? By giving up control of all your money in the form of monthly payments for all those years you turned over the growing power of that money to the bank. Depending on your age, even if you had kept that money and received even a modest interest rate of 4% to 6% your money would have easily doubled once and for many of you doubled a couple of times. Now that we have your “money lost” figure you need to add up your “money kept and invested”. To get that figure simply add up all the money you have saved up in your IRA’s, 401k and other retirement accounts. Grab your most recent statements and add them up quickly.

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This entire exercise can be done in 10 minutes and I challenge you to do it before you read one more word or at least immediately after you’re done. How much have you saved and invested for retirement? Now which of those two totals is bigger, the money paid to the bank figure or the money for your retirement figure?   Now ask yourself who is getting rich with that personal finance model. The answer is very apparent and that is the banks and Wall Street who love this business model. You borrow money your whole life and don’t care as long as the interest is low. This keeps you in financial bondage to the banks. Then whatever money you are able to put away is put inside of qualified plans and then given to Wall Street. Wall Street is flat out drunk with money and has been for many decades.

When I do this exercise in front of a room it produces laughter from the crowd because they are realizing that the monthly payments have deprived us of most of the wealth in our lives. My average participant might tell me $2,000,000 given in payments and lost growth and $70,000 saved for retirement.   Which figure would you prefer to have for yourself? This is math that any fifth grader can do and makes sense to anyone who has an open mind.

Now to be fair very few people could afford to self finance their first car or house so the numbers get skewed because you most likely would not have the option of self financing those early items. However, that is not an excuse for not moving toward that goal of being self financed. Think of your life as a giant income wheel. Income comes into the wheel and most of it gets spit right back out the other side of the wheel. Your goal is to keep as much money as possible coming in on the wheel for your accounts and to stop the 4 massive wealth drains we all have during our lives. Yes, there are more than 4 wealth drains but these 4 are the biggest and must be stopped so you can grow wealth regardless of what happens to any market. We will be discussing these wealth drains in depth in future articles.

It’s important to understand that I am not advocating just paying cash for items like many gurus incessantly preach.   I am talking about using your capital just like a major bank would use their capital. If you took out a loan from the bank would they be alright with you borrowing the money and not paying it back? Would they be happy with no interest paid to them? (Don’t get fooled by those 0% loan pitches because there is always a cost of money but sometimes it is hidden in the actual price and not the finance charges) The answer to both of those is, of course it wouldn’t be acceptable to not pay them back or not give them interest. Then it stands to reason that if you are acting as your own bank, why would it be acceptable to not pay yourself back or without interest? It is never acceptable just to pay cash (especially for anything over $10,000) and not pay the bank back even if you own the bank.

Guaranteed Income (Part 3)

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Last week, we talked about investing, the second circle of wealth in my series of “Six Absolute Necessities for Acquiring Long-Term Wealth.” The third is guaranteed income. When I study people with successful retirements, filled with abundance and options, almost all have things in common:

  • They carry very little, if any, personal debt.
  • They have stable, secure income from multiple sources that they can set their watch by every month
  • Starting about 10 years before they retire, they begin shifting their assets from riskier investments to low- or no-risk income assets.

A mortgage is generally the biggest debt most of us have. Many argue that you should never pay off your house because the equity you put into it is tied up and not making you money. They might recommend borrowing as much as you can now because interest rates are low.

I say you can have the best of both worlds. First, pay off your mortgage before you retire. By adding small amounts directed to your principle every month, you will take months, even years off your payoff date. When your house is paid off, get the biggest equity line of credit you can. This way, if you see an attractive investment opportunity, you can put your equity to use, and if you don’t, you have removed the pressure of a big mortgage payment in retirement.

If you can pay off your mortgage while you are working, why not now shift that payment over to a solid savings or income product? This could work out to tens of thousands of extra dollars producing monthly income for when you retire.

An abundant retirement is about strong positive cash flow that you can count on for years to come. Do you have any idea how much money you need to retire every month? Do you know where you can get that income from? Do you have enough money for home health care or long-term care? Are you protected from big market downturns during your retirement years? How much will inflation eat into that monthly income needed?

Can You Answer These Questions?question mark

All these questions must be part of an income plan. We calculate these for clients all over the country. First, know how much income you and your spouse will receive from Social Security when you retire. You can get an estimate from the Social Security Administration. If you believe that number is at risk because of issues with Social Security, you better start putting more away and growing it safely.

If you need $5,000 per month to retire and the Social Security for you and your spouse is only $3,500, then you have a $1,500 shortfall. Do you have a pension? How much will that be when you begin to draw it? Do you have a 401(k) or Individual Retirement Account? How long could that account last if you need to draw $1,500 a month — $18,000 in a year? Will you have to pay taxes on what you take out? If you have a 401(k) or traditional IRA, the answer is yes. If you lose 50 percent of your capital to a bear market, how long will you be able to get $18,000 per year?

As you get to be in what we call the “retirement danger zone,” which is 10 years before your projected retirement, you need to start shifting assets away from market risk and over to guaranteed products. A solid fixed indexed annuity with a long-term income rider might be a very good call. I wrote an article about the different types of annuities and how to purchase one that fits your needs.

A lifetime income rider (state and product variations exist) will guarantee that you have a certain amount of income (depending on how much you have in your annuity and at what age you start withdrawing) for you and your spouse’s life. If you live to be very old, your normal retirement funds might run out, but a lifetime income rider guarantees that income stream regardless of what happens to the underlying cash in the account. Also if you have five to 10 years, you have time for that income rider to grow. Many income riders offer 6 percent and more guaranteed growth every year.

When you purchase a $200,000 annuity, many companies might offer a 10 percent bonus on your initial purchase price so your starting amount would be $220,000. When you add compound growth at 6 percent over 10 years, your income rider would top $400,000. Then you would start to draw your lifetime income at 6 percent of the $400,000, giving you $24,000 a year income for you and your spouse’s life. Presto! You have filled your income gap. If you have the resources to purchase another annuity, you might get one with a cost of living clause to hedge against inflation.

John Jamieson is the best-selling author of “The Perpetual Wealth System.” Check out this week’s featured video.

The Myth of “Average Rate of Return”

We are told that stocks are the way to wealth and that the market has averaged (pick a figure) over the last (pick a time frame) and so it will continue to do the same. It is important for you to understand that “average rates of return” can be easily manipulated and that whatever figure you get from Wall Street does not mean that your money will average that growth rate. (Dow Jones Industrial Average Stock Market Historical Graph)

Remember this example well: over 4 years, how is it possible to invest $100,000 on year one and average a 25% rate of return for four years and have less than $100,000 after year four and have never taken a dime out of the account during that time? The answer is so easy once you understand how this works. Invest $100,000 into the account and it grows at 100% (doubles) in year one so now it is worth $200,000. Year two, the account falls by 50% (half) putting the value back down at $100,000. Year three, the account grows by another 100% and the money is back up to $200,000. Year four, the account dips back down another 50% and our money is now back to $100,000. Now you take out taxes you made on the good years (the way mutual fund taxes work is you can owe tax even though you have not sold the asset) and fees, and time value of money and your account is worth quite a bit less than the $100,000 you started your investment plan out with four years before.

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Now take a look at your “average rate of return” and you will notice that if you add up 100% return years twice and subtract out your 50% years twice, that leaves you with 100%. You must divide that by the 4-year cycle and what do you get? Of course, I am a high school failure and college dropout but it looks like a 25% “average rate of return.” Did your money grow by 25% a year? Not hardly! If your money would have grown at 25% a year compounded annually your $100,000 would now be over $269,000. This is a far cry from the $80,000 your probably have left in your account when you “averaged” 25% per year for four years. Most of your 401k’s are earning an average rate of return.

Be very careful to focus on growth, not rates of return. If I am selling some kind of financial product and don’t like the last 4 year average I might try to show you the 8 year average. If that still stinks maybe the 15 year average will work? I have seen people in this day and age pull out 100 year averages to attempt to prove their point. The only problem is the economy of today doesn’t even vaguely resemble the economy of last century. This means that a 100 year average is probably a lousy way to try and predict the growth for the next 10 or 20 years of any particular product.

Instead of average rate of return focus on cash flow in and cash flow out of your accounts. Don’t get sucked into the age-old trap of just thinking about rates of return. Many times they are put in place so you will take your eye off the ball of what’s really happening. What’s really happening is that while we are all focusing on rates of return and the rise and fall of the stock market, we are happily pouring our wealth out month after month to the banks and other places with no real plan to stop the insanity. Wealth without Stocks will give you that plan.

Visit us at Perpetual Wealth Systems to learn more.

Why Only Investing Is A Suckers Bet

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Last week, I introduced my concept of the six circles of wealth, and discussed the first circle, cash flow. The second circle is investing. Simply defined, an investment is an asset whose value can grow or shrink. Some of the most common investments are:

  • Stocks and bonds.
  • Mutual funds from many different asset classes, including stocks and bonds.
  • Gold and other precious metals.
  • Real estate.
  • Commodities, such as oil, frozen orange juice and wheat.
  • Annuities.

Some are less commonly used:

  • Businesses.
  • Private placements (money is pooled and invested in properties, venture capital, inventions or other assets).
  • Limited partnerships (money is pooled to invest in something a general partner usually has expertise in).
  • Notes and income streams (this includes payments on a note, private contract or annuity).
  • Tax deeds and tax liens (a form of real estate with different rules).

Passive Investments

In passive investments, you have no say in what is done with your money once you invest it. You are relying on other people’s expertise. Examples from above would be:

  • Stocks held for long term (stock trading is more of a business venture).
  • Mutual funds.
  • Gold
  • Annuities.
  • Private placements (assuming you are just a cash investor and not the principle).
  • Limited partnerships

Active Investments

Active investments require more of your time and expertise to make them successful. As a rule, the more effort and specialized knowledge required to make an investment successful, the bigger its potential returns. Examples from the above:

  • Real estate will require you to study values, rents, acquisition techniques, liquidation strategies and other factors. To be a successful real estate investor, you must think build a team of professionals.
  • Business investing will require you to understand the business and the industry and to have a team of professionals and maybe even joint venture partners. There is potential for huge returns and a loss of your entire investment.
  • As the general partner in a limited partnership investment, you are the one with the expertise and time. Many times you will not invest money (although every arrangement is different). You will need a power team and the ability to raise private capital.
  • Discounted notes and income streams will require knowledge of collateral, cash flow, figuring rates of return on discounts and the ability to find private notes for sale.
  • Tax deeds and liens cover parcels (mostly unimproved land) that are auctioned off for back taxes. Great deals are possible, but you need to know the rules (every state and most counties in the state are different), the values, possibilities for land and guarantees offered by the local government.

Maybe splitting your investments between hands-off and hands-on programs makes the most sense. You might need to spend some time educating yourself to make hands-on investments succeed. Simply book time in your schedule to read, listen to CD’s, and attend workshops that will help your eventual goal of solid hands on investing returns.

More Than Just Investing

Many people might think I have left out certificates of deposit, savings accounts and life policies as investments. These are important parts of your wealth plan, but since they are guaranteed, risk-free products — you can’t lose money in them — they fall into other circles.

I also don’t include options on stocks or commodities in the investing circle. Most of the time, options are very short-term cash-flow plays. They require the stock or commodity you’ve bought options on to move a certain way fast if they’re going to pay off (up for call options, and down for put plays). They’re more a quick cash-flow generator rather than a longer-term investment strategy.

Far too many people make the mistake of just focusing on their investment circle while letting other circles fall into disrepair. Picture the six circles of wealth operating in a balanced way. When one circle gets too heavy or out of control, all the other circles suffer. When you understand this (and so few people ever do) you can take steps to balance out the circles and create a financial fortress.

John Jamieson is the best-selling author of “The Perpetual Wealth System.” Follow him on Twitter and Facebook.

Wealth Without Stocks! Why haven’t I heard of this before?

The indoctrination of the stock market is most powerful

Turn on your television, your phone, your computer, and any other device you care to name and you will almost certainly be greeted by the day’s stock averages such as the Dow Jones, NASDAQ, and S&P 500, among others. You will be instantly updated as to the direction of the market. There are entire television channels that are on 24 hours a day and 7 days a week that do nothing but report on the stock market; such as CNBC. How boring to have to follow those for hours every day.

When that kind of media blitz has been happening now for generations it is small wonder why people are unaware that they can, in fact, create much wealth even without stocks or mutual funds. This philosophy is NOT about being anti-stock market; there is certainly a place in every wealth plan for stocks or funds somewhere along an individual’s stages of wealth. The problem is that the vast majority of people have no idea of the many other ways that are available to grow and protect wealth. When me or my teammates and staff work with our clients from all over the country they are always fascinated when we start to discuss many of the alternative options to grow and protect wealth.

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Most of the topics we will cover in future posts are not only virtually unknown to most of the world but when used properly they can be extremely powerful. I am so excited to put all these wealth vehicles in one place that I can’t wait to begin to put this powerful information in your hands. We are going to cover debt reduction strategies, creative real estate strategies, private pension and self-directed IRA strategies, just to name a few.

We talked earlier a little bit about why the stock market is such a major force in almost every investor’s life but there is also the fact that you don’t need any knowledge to put your money into the market. Most Americans simply select what kind of investor they are; which will include aggressive, moderate, and conservative (Translation is how much money you can afford to lose). Just like that, they are signed up for their employers 401k, which will be their main retirement savings and investing plan for the rest of their lives. More than 80% admit to really having no clue what they signed up for to any great degree and certainly no knowledge of how their money was being invested. They just get their investing amount taken out of every check and let it ride!

The good news with that philosophy is that you don’t need any extra knowledge; the bad news is that you are making one of the biggest financial decisions in your life blind. You are investing (not saving, in most cases) money and just blowing all of your income. Although this is far from perfect, it is better than not doing anything at all. It’s fast, easy, and painless to get started funding your future. So you don’t have to be a financial expert to begin to accumulate wealth. That system is hands off from you and will allow you to focus on other things that are important in your life. The money is given to Wall Street (most of the time) and invested through mutual funds into many different kinds of stocks. However, that system also comes with enormous costs in the form of market losses and huge opportunity costs that we will talk about more in an upcoming articles.

The wealth without stocks philosophy is not that simple (it is pretty easy but not that simple) and will require you to obtain some niche knowledge to take advantage of the markets that are available to you in your quest to build wealth. If you are reading this than I am going to assume that you are the kind of person who is willing to shut off the television to further their own education for even one hour per night. You are willing to sacrifice time on Facebook® and every other social media time suck that are available to us. If that is a true statement than you will have the opportunity to grow and protect wealth at an accelerated rate that should far outpace your colleagues who have bought into the old financial plan described earlier. I want to congratulate you for being one of the few that actually will take the time to design their finances and secure an abundant future.

You are about to be launched into a secretive world (in comparison to the stock market and mutual fund world) that will make simple sense to you. Think of these articles like your own personal wealth buffet and you are free to choose whatever is to your liking and leave the other strategies on the table untouched. However, what will happen for many of you is that you will implement one of two of the strategies and then come back to the well of knowledge to see what else might be a fit for your goals. Just because it is not a fit for you today doesn’t mean it won’t be a fit for you tomorrow.

Just be open-minded and ready to learn!

All the best to you,
John Jamieson

6 Circles of Wealth: Positive Cash Flow (Part 1 of 6)

Six essentials that I call the Six Circles of Wealth operate in conjunction to provide long-term and rock-solid wealth. And an optional seventh provides a huge bonus.

The six are:
1. Positive cash flow
2. Investments
3. Guaranteed income
4. Liquidity
5. Long-term care
6. Your legacy.

The seventh is business ownership and the eventual sale of the business. We will break down each area for the next six Tuesdays.

The Flow of Cash

A positive cash flow simply means that you have more income than expenses month after month and year after year. It is not gross cash flow (although the more you bring in, the better off you generally are), but net cash flow.

Say you and your spouse have a gross household monthly income of $9,000. After taxes, Social Security and the other mandates, your combined adjusted gross income is $6,000 per month. From this adjusted gross come out all your expenses, such as housing, autos, utilities, saving for retirement, groceries and entertainment. This example yields $800 net positive cash flow.

Take 45 minutes and add up all your income and all your constant expenses and see how positive — or how negative — you are every month. Set aside 5 percent of your income (out of your checking account) for unforeseen expenses, such as the hot water tank blowing up or the roof leaking. It has been said that life is just one darn thing after the other, so plan to have a cash reserve for them.

If you determine your cash flow is negative, then the first thing you should do is anything that gets your cash flow positive. The best and fastest way to do that is to cut your expenses. My fellow DailyFinance contributor Brian O’Connor has written a series of articles on how to save $1,000 a month. I recommend you read these and pick out a few gems you could use.

Make More Money

The next step is to make more money. This is the greatest time in history to start a simple small business from your home. You could also plan for a new job and maybe even a new profession. Or you can make more money in your current job. Before you ask for a raise, spend the next 90 days and make yourself more valuable to your boss and to your team. Your pay is very much associated with how much value you really bring to the table for the employer.

Your boss and coworkers do not care that your cash flow is not good. They only care what you can do for them, so prove you can do more and should be paid accordingly. It has been said that most employees do just enough not to get fired, and most employers pay just enough so you won’t quit. Make a commitment to yourself that you will go the extra mile at work.

Start by checking your attitude and monitor self-talk at all points during the day. You hate your coworker? Find things you can like, focus on those points and build a bridge to your coworkers. If you do this for the next 30 days, you will change for the better — and your boss will notice. Follow through hard for another 60 days and really change people’s perception of you to an integral part of their operation. Track all the extras in your journal.

Now Is the Time to Ask for Your Raise

Set up a time to speak with your boss and come into the meeting and say how excited you are to be with the company and how much you like working on whatever you are doing. Now ask for your raise based on the last 90 days. Ask for more than you think you will get, but only you can know how much that figure is at your company. Many times you will walk out with that raise, and if you don’t, ask your boss if you could have another meeting in 60 days to review. During that 60 days, become more valuable and keep asking until you get your raise. If it does not happen, start a job search for another position with the company. This would also be a good time to start working on your own small business.

A strong positive cash flow is the first requirement for creating wealth and a fantastic future. So look hard at your expenses and your income and work at increasing your positive cash flow.

Visit us at Perpetual Wealth Systems for more information

The Big Myth of “Buy Term Insurance and Invest the Difference”

The thinking behind this strategy initially appears very sound. The cost of whole life insurance is more expensive than term in the early years of a policy. Therefore, you should buy the same coverage for much less premium using a term policy and invest the amount saved between the two premiums into mutual funds. This difference, over time, will create more wealth for you and your family, while at the same time giving you plenty of coverage should you die prematurely. When you get older and the term policy gets far more expensive due to your advancing age, drop all coverage because you will have accumulated enough wealth for your retirement and leave money behind for your estate.

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When I was 22 and wet behind the ears I thought the above paragraph was gospel and preached it to anyone who would listen. As with most great myths, there is always some truth and this is no different. The costs of whole life premiums are more expensive in the early years for the same amount of death benefit when compared to term rates for the same coverage.

Now here is the other side of the coin on the rest of the myth. Nobody (or very close) actually invests the difference in their premiums into an investment vehicle. So if their whole life annual premium is $3,600 and their annual term coverage is $600.00 the theory is they are saving $3,000 annually or $250.00 per month. If they put that amount every month inside a mutual fund then in 30 years they will have loads of money. The biggest hurdle is putting away that $250.00. If you are still a “buy term and invest the difference” kind of person, have you done what is described above? If you have, congratulations you are part of the ½%. Almost nobody is actually implementing this strategy but plenty are talking about the theory.

Financial success is not about theory but about actual results. If almost nobody is using the strategy, than it’s great for sound bites, but lousy for results. Let’s also examine the need for life insurance toward the end of your life. You need to look no further than the ads on television to see the huge market for life insurance at the end of your life. Big companies with celebrity spokespeople have been on the air every day for over a decade paying for advertising selling small, end of life, burial insurance. The advertising budget alone is staggering which asks the question, “How many policies do they have to be selling to pay for that advertising, their other expenses, and make their profits”? The non-scientific answer is a whole bunch! However, according to CSG actuarial in 2013 over $400,000,000 worth of these policies were sold spread out over 613,000 people just in that calendar year!

What does the information tell you about this nation’s financial model? Why would you buy one of those expensive policies in your later years? (Yes, they are expensive in relation to the amount of coverage you receive for your premium) The only reason is because you are not sure if you have enough liquid money saved to bury you and cover your final expenses! This is a great barometer of how, “buy term and invest the difference” has done servicing the American public.

In my own life, my mother passed away in 2010 just after the huge economic collapse of the previous couple years and before any real rebound in any of the financial or real estate markets. My mom had done well for herself and worked hard starting at the age of 17 years old. She certainly had acquired enough to cover her final expenses and leave behind a nest egg for her three children. However, she happened to die at a very inopportune time in financial history. Her home had decreased in value by 35% as did most of her investments (my Mom was very independent and did not ask for my help until the damage was done). I found out she had most of her money inside market vehicles that had gotten pounded during the previous few years.

So when she passed away she left considerable less of an estate behind than she believed she was going to just a few years earlier. She was not unique in her circumstances because that same scenario happened to many millions of Americans who passed away during those years. I am very grateful for the money she did leave for me and my family and we are fortunate that we did not “need” her money to survive. However, she really had no business being in mutual funds or stocks at that point in her life.

Had she been shown how a properly designed permanent life insurance program worked she could have long since stopped making any premium payments, had much tax free cash for her retirement years, and left behind hundreds of thousands of dollar more in her estate with a guaranteed death benefit. Many times it’s not what you don’t know that hurts you the most, but rather what you think you know that is false that’s the real killer.

If you are interested in learning more about a properly designed whole life policy to benefit you and your family please visit us at Perpetual Wealth Systems or call us at 586.944.0794.

Do you review your beneficiary forms?

The importance of an annual review of your beneficiary forms on your different accounts and/or policies is often overlooked. Think of your smoke alarm; most people have an annual schedule to change their battery. Your beneficiary forms on your IRA, 401k, annuity or life insurance policies, etc… are important too and should be added to your schedule. At a minimum they should be reviewed by you annually and/or after a life-changing event such as death of a loved one, divorce Calendar 300x301or birth of a child.

Just think how upset you would be if the government took more taxes on your monies because you didn’t name the beneficiary correctly on one of your accounts. Maybe you forgot to change the beneficiary from your ex-spouse to your new spouse on your life insurance policy. Or you just named your estate as the beneficiary and therefore your estate goes to Probate Court. The probate process could take a year or more to get finalized; delaying your beneficiaries from getting the monies. This could have large ramifications for your loved one’s after you have passed away when you wanted to bring them peace of mind.

Did you know that your beneficiary form will override your will on your IRA accounts? Say you remembered to update your will after you remarried but didn’t update your beneficiary form on your IRA account. This means the monies in that account might not be going to the person or persons you wanted.

There could be tax ramifications for those named as your beneficiary on your different accounts and/or policies. For example; naming a person or trust as a beneficiary will usually help those monies avoid going to probate court. This could also keep the monies away from your estate and available to creditors. We recommend you speak with your tax advisor to determine the best way to list your beneficiary to avoid the common pitfalls that beneficiaries deal with after the death of their loved one.

You’re Getting Ready to Retire… is Your Money Ready?

The baby boomers are retiring and preparing to retire by the millions: According to the AARP, 8,000 people turn 65 every day in America. But even if boomers are ready to retire physically, psychologically and chronologically, many are not ready financially.

I’m not talking about the usual question of whether or not you have enough money to retire. This discussion is about the proper use of that money. I work with clients from all over the country to map out their own financial strategies, and the first step is educating them about four phases of wealth.

Accumulation

The accumulation phase usually begins about age 25 or when you begin your full-time profession. This is when you start putting money away in retirement vehicles, such as 401(k) plans, Individual Retirement Accounts and other alternatives.

During this phase, you can take losses more easily since you have time to recover. Dollar cost averaging is your friend. You can take reasonable risks and might consider more aggressive funds, stocks and bonds. You should also consider solid real estate investments. You can use a self-directed IRA to own real estate and other non-traditional assets inside your retirement accounts. This phase will last until 10 years before your desired retirement age.

Pre-Retirement (aka Retirement Danger Zone)

Pre-retirement is when you begin to reassess your risk tolerance and start to realize that any losses you take now might dramatically affect your ability to retire at your scheduled age. It is when you begin to shift the bulk of your retirement money to very safe, stable, low-risk assets. No more than 30 percent of your portfolio should be left in the market, and that should be in low-risk, blue chip stocks. You also might consider selling off your real estate holdings or paying off mortgages and loans, giving you great cash flow and removing most of your downside risk. If real estate values drop dramatically, it hurts much more if you are leveraged with big mortgages. When you own properties free and clear, they are still great cash-flow machines even if the values drop. You should also consider using a portion of your cash to purchase a solid, low-fee, fixed-indexed annuity.

Retirement

Once you leave your profession — and your paycheck — risk and loss are your most dangerous enemy. At this point, most of your funds should be in guaranteed products. There is a myth that guarantees and low risk mean lousy rates of return. Seek out low- or no-risk alternatives to mutual funds. If you keep most of your money in mutual funds now, you are subject to the ravages of reverse dollar cost averaging, which that can gobble up retirement money in a hurry.

Retirement is all about hands-off income that you should be able to draw from several sources. These can include Social Security, pensions, 401(k)s, IRAs, cash value life insurance, free and clear real estate, fixed indexed annuities with lifetime income riders attached, certificates of deposit and standard savings. You could also be receiving payments from businesses or assets you sold when you retired. Creating income from these assets will make sure you can live in style for the next 30 years and beyond. During this time, you should also plan a long-term care or home health care strategy.

Legacy

The legacy phase represents what you would like to leave behind for family, charities, foundations and other causes near and dear to your heart. Ask yourself this question: What do I want to accomplish after I am gone? Then set up a legacy plan with an estate attorney to make sure your wishes are carried out with your money

People have widely varied opinions on this phase. Most want to leave a nice nest egg to their children and grandchildren to help with education and other expenses. But other people say they started with nothing and want to leave little to nothing behind after they are gone. One way to leave behind a fantastic legacy is to set up a properly designed life insurance policy while you’re still relatively young. It will be a tax-free retirement asset during your lifetime and leave behind tax-free cash for your heirs.

If you master these four wealth stages, you will be assured a life of financial abundance.