How to Determine How Much Life Insurance You Need

How to Determine How Much Life Insurance You Need

Many people I work with realize that they need some kind of life insurance once they start having kids.  The purpose of life insurance, of course, is to ensure that everyone in your household can maintain their standard of living if you die prematurely.  And as soon as other people start relying on income you haven’t earned yet to live, it’s probably time to consider some coverage.

The problem seems straight forward, but the options are confusing.  First, there’s more than one type of life insurance.  Whole, variable, universal, and term are the predominant options available.  While insurance agents love to sell the first three (because they’re the most profitable to the insurance company, and therefore pay the greatest commissions) term is the least expensive and usually the best fit.

I’ve written in the past about why most people seeking life insurance should steer clear of permanent insurance policies.  But what about the second part of the equation: how much do you really need?

There are two predominant ways to figure this out: human life value and a life insurance needs analysis.  Today’s post will explore both methods.

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Value vs. Growth Investing: Will Value Ever Come Back?

Value vs. Growth: Will Value Ever Come Back?

Returns from growth investing have substantially greater than those from value investing over the last decade.  Looking back over the last 100 years or so, this isn’t the norm.  Will value ever come back, or is growth here to stay?  This post will examine the history, along with both sides of the argument.

 

So What Is a Value or Growth Stock, Exactly?

The investing world likes to categorize stocks in a number of different ways.  Geography and size are two of the most popular methods.  Another way is value vs. growth.  Value stocks tend to be older, more established companies with “cash cow” type businesses.  They don’t typically create exciting new technologies that might set the world on fire, but they have stable revenue and profit streams, and often distribute a portion of their earnings back to shareholders through a dividend.  Think of companies like GE, Exxon Mobile, or Home Depot.

Growth companies operate a little differently.  They typically reinvest 100% of their earnings back into the company to fuel future growth, rather than pay dividends to shareholders.  They often have new products, services, or technologies that are spreading around the world like wildfire.  Your FANG stocks are great examples of typical growth companies: Facebook, Amazon, Netflix, and Google.  All have new technologies, services, or models that are taking the world by storm.

From an investment point of view, the reason you might buy a value stock is completely different than why you might buy a growth stock.  In a value investment, you’re purchasing company shares because you think they’re worth more than the current market price.  “Undervalued” is a common term you’ll hear in a value investment strategy.  Metrics you might track to make this determination are price to earnings ratio, price to book ratio, or dividend yield.

Current share prices don’t matter as much in growth investments.  In a growth investment you’re not buying a stock because you think it’s cheap; you’re buying it because you think the company will continue growing at an above average rate.  Look at companies like Amazon.  They’re terribly expensive on a valuation basis, but that doesn’t deter investors in the least.  The company is growing so rapidly that the expensive valuation simply doesn’t matter to those buying shares.  Metrics you might track here are earnings growth rate, EBITDA (earnings before interest, taxes, depreciation & amortization), or momentum.

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A Review of the CalSavers Retirement Savings Program

A Review of the CalSavers Retirement Savings Program

If you’ve been following the California legislative process at all, or if you own a business that employs people in California, you may have heard of the CalSavers Retirement Savings Program.  In 2016, Governor Jerry Brown signed Bill 1234, requiring development of a workplace retirement savings program for private sector workers without access to one.  The resulting program is known as CalSavers.

Basically, the program forces employers with more than 5 employees to defer a portion of their employees’ paychecks into a state run Roth IRA.  These contributions are invested in default target date retirement funds, unless the employee directs their investments otherwise.  Employees may also opt out entirely, if they choose.

The benefit of such a program is easy access to a retirement savings account.  Employees could contribute to one on their own, of course, but that would require opening an account at a brokerage firm & making investment decisions.  CalSavers greases the wheels by providing a “done for you” program that employees are defaulted into.

The positive spin here is that the program will certainly result in more retirement savings for many thousands of employees.  The negative side of the story comes from the business community.  Businesses without retirement plans will be forced to take the time to open a plan, enroll their employees, and deposit their contributions.

CalSavers isn’t at all unprecedented.  At this point 21 states have enacted similar legislation.  The law is taking a good amount of “heat” though.  Several industry groups are suing the state treasurer in an attempt to derail the rule.  Some plaintiffs don’t care for the state government telling them what to do, while others in the financial industry probably see the program as a competitive threat.

Whatever your take on the matter, businesses will be required to comply beginning in June of 2020 as the law stands today.  This post will provide a quick overview of the program, including its benefits and shortcomings.

 

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What I Learned at XYPN Live 2019

What I Learned at XYPN Live 2019

Today’s post is a follow up to last week’s post.  There are a few conferences I try to fit into my travel schedule every year.  XYPN Live is one of them.  XYPN is an acronym for the “XY Planning Network” – it’s a professional organization for financial planners who work with generations X and Y.  (Unlike much of the industry).

This year the conference was held in St. Louis for the second year in a row.  Attendees are mostly all financial planners, with a few reporters, CPAs, and tech providers sprinkled in.  I make it a point to attend this conference for a few different reasons:

  • This is the only time throughout the year that my study group meets in person (I have a weekly study group)
  • Many of the XYPN members who attend have firms similar to mine
  • Many of the attendees are exploring new, innovative service models and ways to provide value to their clients.

For me, XYPN Live is an opportunity to connect with my study group, reconnect with friends I don’t otherwise see or talk to, and pick up bits of wisdom from other professionals in the industry.

Attending these conferences takes some time away from my family, my clients, and the firm.  But because the learnings ultimately benefit all three, I find a lot of value in going.

Here’s what I learned at XYPN Live this year.

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What I Learned at FinCon2019

What I Learned at Fincon19

Like most jobs, my work requires a little bit of travel every year.  Since we moved down to Sacramento from Portland, I head back up to Oregon 2-3 times per year to see clients.  I also attend 2-3 conferences each year, to keep abreast of what’s going on in the industry and to make sure I’m consistently able to deliver the best advice to my clients.

This year I had two conferences on the agenda.  The first conference I had penciled in was one I’ve been trying to attend for several years: FinCon.  FinCon is a gathering of bloggers, podcasters, YouTubers, reporters, financial planners, and others who produce or promote financial content.  FinCon was held in Washington D.C. this year, directly before the second conference on my agenda: XYPN Live, which I just returned from this week.

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How to Evaluate Real Estate Investments

How to Evaluate a Real Estate Investment

The concept of acquiring rental properties as a means to build passive income has become exceptionally popular recently.  In fact, it’s difficult to peruse the internet for content on personal finance without bumping into videos/podcasts/blogs/courses on how to build passive income through real estate investing.

My take on real estate investing is that it can indeed be a wonderful complement to your investment portfolio.  But the conditions need to be just right.  And given how quickly housing prices have risen since the depths of the financial crisis in 2009, the circumstances today are rarely compelling.

As you can imagine, this is a conversation I have with clients frequently.  Some have an existing property we need to evaluate.  Others fall in love with the idea of putting in sweat equity now & building an empire of properties that kick off income over time.  This sounds nice in theory, but in my experience rarely pencils out.  (At least of the opportunities I’ve seen recently in California & Oregon).

This post will explore how to evaluate real estate investing opportunities.  We’ll cover cash flow, return on investment, and go through a real life scenario of a property I pulled from Zillow.com.

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72(t) Distributions: The Ultimate Guide to Early Retirement

72t Distributions: The Ultimate Guide to Early Retirement

What’s the most common piece of retirement advice you’ve ever heard?  I bet it has something to do with tax advantaged retirement savings.  Most people are inundated with voices telling them to start saving early and take advantage of tax deferrals.  It’s solid advice.  Saving tax deferred money through IRAs, 401(k) plans, and other retirement vehicles is a wonderful way to grow your wealth over time.

The downside?  Those pesky withdrawal penalties.  The IRS will typically ding you 10% if you withdraw from these accounts before turning 59 1/2.  This can pose a problem if you’re considering an early retirement.  Fortunately there are a few loopholes.  eight of them, in fact:

  1. Roll withdrawals into another IRA or qualified account within 60 days
  2. Use withdrawals to pay qualified higher education expenses
  3. Take withdrawals due to disability
  4. Take withdrawals due to death
  5. Use withdrawals for a qualified first-time home purchase up to a lifetime max of $10,000
  6. Use withdrawals to pay medical expenses in excess of 7.5% of adjusted gross income
  7. As an unemployed person, take withdrawals for the payment of health insurance premiums
  8. Take substantially equal periodic payments pursuant to rule 72t

For those of you interested in an early retirement, the final loophole is likely the most interesting to you.

According to rule 72t, you may take withdrawals from your qualified retirement accounts and IRAs free of penalty, IF you take them in “substantially equal period payments”.

This post explores how.

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Case Study: Retiring With $1,000,000

Case Study: Retiring With $1,000,000

Those of you who know me know that I’m a massive baseball fan.  And when it comes to famous quotes from baseball players, one person comes to mind more than any other: Yogi Berra.

Yogi Berra was a long time catcher for the Yankees and had an incredible hall of fame career.  He was equally known for his head-scratching quotes, which the world has affectionately termed “Yogi-isms.”  Yogi didn’t comment often on financial topics, but he does have one quote that applies nicely to retirement planning:

“A nickel ain’t worth a dime anymore.”

When we think about retirement planning, many people consider $1,000,000 as kind of a “golden threshold.”  They think of a million dollars as the minimum nest egg they’ll need in order to retire comfortably.  But as Yogi pointed out, being a millionaire doesn’t amount to what it used to.

So is it even possible to retire with $1,000,000 these days?

Let’s find out.  In this post we’ll explore a hypothetical couple named John and Jane.  They’ve saved $1,000,000 and want to retire, which is a very common situation for many Americans.

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What Everyone Ought to Know About Long Term Care Insurance

What Everyone Ought to Know About Long Term Care Insurance

You’ve seen the stats.  Long term care is expensive, and we’re all likely to need it at some point in our lives.  The cost of spending time in a nursing home or assisted living facility adds up quickly, which is why many retirees choose to insure against it through a long term care insurance policy.

Problem is, since there’s a high likelihood of requiring long term care, insurance is an expensive proposition in its own right.  Plus, there’s no guarantee that the premium costs of a policy today don’t rise in the future.  Genworth, one of the biggest underwriters in the long term care insurance, received approval in the Q1 of 2019 to raise premiums an average of 58%.  (Insurance companies must receive approval on a state to state basis).  That’s also after the company raised costs an average of 45% in 2018, and 28% in both 2017 and 2016.  Ouch.

Are you better off crossing your fingers and hoping you don’t need expensive care for a long period of time?  Or is it better to cover this risk through an insurance policy that will cost you an arm and a leg anyway?

This post will cover the essentials of long term care insurance, including exactly how to decide whether picking up a policy is a good decision for you and your family.

 

Long Term Care: The Stats

So here’s the big question.  What are the chances you’ll ever need long term care?  According to longtermcare.gov, about 70% of people turning 65 will need long term care services at some point in their lives.  With the average annual cost of a nursing home totaling around $100,000 these days (depending on where you live), this can be a scary proposition.

The stats can be misleading, though.  Many people who need long term care services only need them for short periods of time.  And since most long term care policies have elimination periods (the waiting period before the policy starts paying out) of around 90 days, many people won’t even need care long enough for their coverage to kick in.

What Everyone Ought to Know About Long Term Care Insurance

What Everyone Ought to Know About Long Term Care Insurance

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