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Confidence Wealth & Insurance Solutions February 26, 2015 No Comments

The Rule of 100 — How It Really Works

Many people are familiar with the Rule of 100 as a guide for determining general guidelines for a proper balance of your financial assets.

The Rule of 100 works like this: you take your age and subtract it from 100, so 100 minus your age gives you some number. Let’s say you’re 48 years old. If you take 100 minus 48, what do you get? You get 52.

So, how do you use that in your financial strategies? Well, the 52 as a general rule will represent the maximum percentage of your financial assets that you would want to allocate to financial vehicles exposed to any form of market risk. This would typically include stocks, bonds, mutual funds. These products provide the potential for both unlimited upside and unlimited downside.

The portion that represents your age, 48 is the percentage of your assets that you may want to allocate to those financial vehicles generally considered more secure.

And this is the area that sometimes trips people up with regard to the Rule of 100. The concept of balancing your assets between risk and more secure financial products is pretty simple, but sometimes people are unsure which products are considered to be more secure. As a result, they may end up with a poor balance between riskier and more secure products, even though they believe they have adhered to the Rule of 100.

So, here are the financial vehicles that can be considered to offer a level of protection from market losses – CDs, many government-issued securities, fixed annuities and fixed index annuities. What each of these have in common is that you are not subject losses due to market fluctuations.

So, when using the Rule of 100, these are the vehicles you may, with the help of your financial professional, want to consider, to help balance the assets you have allocated to risk.

This is provided for informational purposes only and should not be used as the basis for any financial decisions.

Confidence Wealth & Insurance Solutions February 11, 2015 No Comments

10 Financial Terms Everyone Should Know

Understanding financial matters can be difficult if you don’t understand the jargon. Becoming familiar with these 10 financial terms may help make things clearer.

1. Time value of money

The time value of money is the concept that money on hand today is worth more than the same amount of money in the future, because the money you have today could be invested to earn interest and increase in value.

Why is it important? Understanding that money today is worth more than the same amount in the future can help you evaluate investments that offer different potential rates of return.

2. Inflation

Inflation reflects any overall upward movement in the price of consumer goods and services and is usually associated with the loss of purchasing power over time.

Why is it important? Because inflation generally pushes the cost of goods and services higher, any estimate of how much you’ll need in the future–for example, how much you’ll need to save for retirement–should take into account the potential impact of inflation.

3. Volatility

Volatility is a measure of the rate at which the price of a security moves up and down. If the price of a security historically changes rapidly over a short period of time, its volatility is high. Conversely, if the price rarely changes, its volatility is low.

Why is it important? Understanding volatility can help you evaluate whether a particular investment is suited to your investing style and risk tolerance.

4. Asset allocation

Asset allocation means spreading investments over a variety of asset categories, such as equities, cash, bonds, etc.

Why is it important? How you allocate your assets depends on a number of factors, including your risk tolerance and your desired return. Diversifying your investments among a variety of asset classes can help you manage volatility and investment risk. Asset allocation and diversification do not guarantee a profit or protect against investment loss.

5. Net worth

Net worth is what your total holdings are worth after subtracting all of your financial obligations.

Why is it important? Your net worth may fund most of your retirement years. So the faster and higher your net worth grows, the more it may help you in retirement. For retirees, a typical goal is to preserve net worth to last through the retirement years.

6. Five C’s of credit

These are character, capacity, capital, collateral, and conditions. They’re the primary elements lenders evaluate to determine whether to make you a loan.

Why is it important? With a better understanding of how your banker is going to view and assess your creditworthiness, you will be better prepared to qualify for the loan you want and obtain a better interest rate.

Source: http://blog.lendingclub.com/survey-says-americans-not-making-the-most-of-hard-learned-credit-lessons/

7. Sustainable withdrawal rate

Sustainable withdrawal rate is the maximum percentage that you can withdraw from an investment portfolio each year to provide income that will last, with reasonable certainty, as long as you need it.

Why is it important? Your retirement lifestyle will depend not only on your assets and investment choices, but also on how quickly you draw down your retirement portfolio.

8. Tax deferral

Tax deferral refers to the opportunity to defer current taxes until sometime in the future.

Why is it important? Contributions and any earnings produced in tax-deferred vehicles like 401(k)s and IRAs are not taxed until withdrawn. This allows those earnings to compound, further adding to potential investment growth.

9. Risk/return trade-off

This concept holds that you must be willing to accept greater risk in order to achieve a higher potential return.

Why is it important? When considering your investments, the goal is to get the greatest return for the level of risk you’re willing to take, or to minimize the risk involved in trying for a given return. All investing involves risk, including the loss of principal, and there can be no assurance that any investing strategy will be successful.

http://en.wikipedia.org/wiki/Federal_Reserve_System

10. The Fed

The Federal Reserve, or “the Fed” as it’s commonly called for short, is the central bank of the United States.

Why is it important? The Fed has three main objectives: maximum employment, stable prices, and moderate long-term interest rates. The Fed sets U.S. monetary policy to further these objectives, and over the years its duties have expanded to include maintaining the stability of the entire U.S. financial system.

Confidence Wealth & Insurance Solutions February 5, 2015 No Comments

Beneficiary Arrangements

As you prepare your financial strategies, it’s important to spend some time considering beneficiary arrangements. Whether it’s through an IRA, life insurance, wills or trusts, anytime you want to leave money to others, you want make sure that you have in your mind a good understanding of how you want to designate the beneficiary.

For example, let’s say you’re a husband and a father and you have money in a retirement account — an IRA. Typically, your primary beneficiary will be your wife. What does that mean? It means that if you die and your wife is still alive, your wife will receive all the proceeds of that account. The wife in this scenario is considered a primary beneficiary. But what if your wife dies before you?

Or what if you and your wife die at the same time? In this scenario you may want what are called secondary or contingent beneficiaries. Let’s say you and your wife have three children: child one, two and three. These children can be named as a second line of beneficiaries, or contingent beneficiaries, so just in case your wife dies before you do, or you and your wife die at the same time, you’ve got the second line of beneficiaries, the three children. You may choose to divide the proceeds of your retirement account evenly between the three children — a third/a third/and a third.

But here’s something else to consider. What if your children have children of their own, your grandchildren? Let’s say child No. 1 has 3 children child No. 2 has no children at all and child No. 3 has two children — meaning you have a total of five grandchildren. Now, you may want to start asking some additional questions about designating beneficiaries.

Let’s assume your wife dies before you. Now there is only you. Therefore, when you die, the proceeds are designated to go to your three children who you have named as contingent beneficiaries. Well, what if one of your children dies before you? Let’s say your third child, the one with two children, dies before you .Then what happens? Well, if you haven’t set up your beneficiaries appropriately, you could end up disinheriting those two grandchildren. All of the proceeds could end up going to child one and child two, cutting out your third child’s surviving children.

That’s generally not what people want. Instead, they may say, “We want this child’s share to go to his/her two children.” This is generally referred to as a per stripes distribution, meaning that each branch of the family is to receive an equal share. If that is your objective, you would want to incorporate that term into your beneficiary designations. Then, should both your wife and one of your contingent beneficiaries die before you, the beneficiary designation would direct that contingent beneficiary’s share of the proceeds to go to his/her heirs.

This content is provided for informational purposes only and should not be construed as advice designed to meet the particular needs of an individual’s situation. No statement contained herein shall constitute legal advice. Consult with your attorney about your personal situation.

Confidence Wealth & Insurance Solutions January 7, 2015 No Comments

Healthy Resolutions Can Pay Off (Literally)

If you made a New Year’s Resolution to get healthy, you may get more bang for your resolution buck than you bargained for. That’s because healthy habits can benefit your wallet as well as your body.

The link between health and money

According to the Centers for Disease Control and Prevention (CDC), chronic conditions–including diabetes, heart disease, and cancer–account for more than 75% of all health-care costs nationwide. Nearly half of all Americans have a chronic disease, which can lead to other problems that are devastating not just to health but also to a family’s finances. People with a chronic condition pay five times more for health care each year, on average, as those without a chronic disease.*

Many chronic diseases can be linked to four behaviors: tobacco use, excessive alcohol consumption, poor eating habits, and inactivity.* A closer look at each of these behaviors demonstrates the health-money connection.

http://www.forbes.com/sites/danmunro/2013/09/06/the-big-disruption-that-isnt-happening-in-healthcare/

Eating habits and activity level

Proper nutrition and regular exercise are vital to staying healthy, but they can also save you money. For example, reducing the amount of high-in-saturated-fat products, processed foods, and red meat in your diet can result in benefits to your heart and wallet. Replacing high-fat ingredients in some recipes with healthier, low-cost options–such as using beans instead of ground beef–can help trim your grocery bills. And replacing high-calorie meals eaten at restaurants with meals made at home using fresh, in-season ingredients can benefit both body and bank account.

Current guidelines from the U.S. Department of Health and Human Services recommend at least 2½ hours of moderate physical activity per week. Many opportunities exist in everyday life to both accumulate active minutes and save money. Instead of driving to your destination, walk or ride a bike. Do your own yard work or house cleaning instead of hiring help. Go for a hike or play ball with your kids rather than going to the movies or visiting an amusement park.

Long-term considerations

Chronic disease also has indirect long-term costs. Leaving the workforce for extended periods–or having to retire early–means fewer paychecks, less chance to benefit from workplace-provided retirement plans and health-care benefits, and lower earnings to apply toward Social Security benefits. In addition, chronic diseases often necessitate home renovations, the hiring of specialized care providers, or even permanent nursing care. When viewed over the long term, taking steps today to reduce your risks of getting sick down the road may make good health and financial sense.

*Sources: Centers for Disease Control and Prevention, the Department of Health and Human Services, and the Partnership to Fight Chronic Disease

Important Disclosure

Confidence Wealth & Insurance Solutions September 9, 2014 No Comments

Ask the Expert: Can I Retire Early?

Question: Can I retire early? Is it possible? What do I need to do?

-Barbara from Los Angeles

Answer: Yes Barbara, there are ways that will allow you to consider early retirement, but there are some things you must consider. Retiring early means:

fewer earning years
less accumulated savings
freedom to do more activities that could add to your living expenses – activities that you couldn’t do when you were working – such as traveling, social events, dining out, etc.

Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. Depending on how early you actually retire, you may find that you’re going through those retirement accounts more quickly than you had originally intended. This could pose a problem both for your later retirement years when you need income the most.

The first thing I want you to do is to project your retirement expenses

know when your retirement will likely start
how long it may last, the type of retirement lifestyle you want
estimate the amount of money you’ll need to make it all happen

One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll need to save by the time you retire. Focus on your actual expenses today and think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire. While some expenses may disappear, like a mortgage or costs for commuting to and from work, other expenses, such as health care and insurance, may increase as you age. If travel or hobby activities are going to be part of your retirement, be sure to factor in these costs as well.

Don’t forget to take into account the potential impact of inflation.

Remember, what you spend today will not be the same from what you spend 15 years down the line, even if you purchase the same items.

A longer retirement also means inflation will have more time to eat away at your purchasing power. If inflation is 3% a year (its historical average since 1914) it will cut the purchasing power of a fixed annual income in half in roughly 23 years. Factoring inflation into the retirement equation, you’ll probably need your retirement income to increase each year just to cover the same expenses.

Source: jemstep.com

Second, identify what sources of retirement income will be available to you to meet those needs.

When you compare your projected expenses to your anticipated sources of retirement income, you may find that you won’t have enough income to meet your needs and goals. Closing this difference, or “gap,” is an important part of your retirement income plan. In general, if you face a shortfall, you’ll have five options:

save more now
delay retirement or work during retirement
try to increase the earnings on your retirement assets
find new sources of retirement income
or plan to spend less during retirement

Third, you must take longevity into consideration.

How long will you need your retirement savings to last? We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. The problem is particularly acute for women, who generally live longer than men. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago. To guard against the risk of outliving your savings, you’ll need to estimate your life expectancy.

Remember;

The longer you delay retirement, the longer you can build up your retirement savings.
Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early?
If you work part-time during retirement, you’ll be earning money and relying less on your retirement savings, leaving more of your savings to potentially grow for the future (and you may also have access to affordable health care)
If you’re married, and you and your spouse are both employed and nearing retirement age, think about staggering your retirements. If one spouse is earning significantly more than the other, then it usually makes sense for that spouse to continue to work in order to maximize current income and ease the financial transition into retirement.
If you’re going to be using the money from your IRA or retirement plan to fund your retirement, remember that in addition to income taxes, there may be penalties if you withdraw the funds prematurely. Or, there may be a limit on what you can withdraw without penalties.

Retirement is also a state of mind. Don’t underestimate the psychological issues involved in deciding when to retire. Many people welcome the opportunity to reinvent themselves. Others postpone retirement or return to some form of work so they can continue to feel connected and productive.

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