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A Financial Success Story

Earlier this year, I began working with a new client, a 61-year-old male who just lost his wife to a long battle with cancer. He was emotionally distraught in addition to confused and frustrated with thinking through what to do financially. He spent weeks sorting through documents, updating records, and speaking with pension and retirement […]

Earlier this year, I began working with a new client, a 61-year-old male who just lost his wife to a long battle with cancer. He was emotionally distraught in addition to confused and frustrated with thinking through what to do financially. He spent weeks sorting through documents, updating records, and speaking with pension and retirement plan specialists at her former employer, her life insurance provider, and bank representatives, all while planning a funeral. We finally had the opportunity to get together three months after her passing, and he came prepared with the following information: bank and credit union statements, his IRA statement, her lump-sum pension quote, and retirement plan statement, and his permanent life insurance policy statement.

His request was simple and common, “I want to be sure I have enough to live on in retirement, and I want to leave a legacy for the children.” They were adults now; he had two kids of his own, and she had one. He wanted her child to inherit most of her retirement plan and pension, however, he also knew he needed to use these assets when he retired in a few years. He already had taken care of his children by making them 50/50 beneficiaries on his life insurance and IRA. The two issues he wanted me to help with were his retirement income and taking care of her son financially.

This client is very conservative with no desire of account values decreasing, outside of pulling income, so investing into a growth-oriented portfolio was out of the question. My recommendation for the client began with shifting some of the inherited retirement assets into an annuity that guarantees him a minimum $1,200 per month income when he retires. The remainder we invested into a very conservative bond portfolio with half in government-backed bonds. I also recommended applying for a permanent life insurance policy because if he can get approved, we fund the premium using the bond portfolio and name her son as the beneficiary. He did get approved, and we put a permanent death benefit in place which grows each year as premiums are paid. Meanwhile, we are only putting about 4.5% of the bond portfolio toward the premium each year. The premium is low enough as to not deplete the bond portfolio, yet the tax-free death benefit is enough that it will be worth almost as much as the wife’s inherited retirement assets. From the cash in the bank and credit union accounts, we used half to purchase a fixed annuity which matures just before retirement and guarantees a steady interest rate each year. We also added a portion of his IRA to the annuity we bought with part of the wife’s retirement assets, which guarantees at least another $2,800 per month to the client.

The client has now secured $48,000 annually of guaranteed1 retirement income in addition to Social Security and a pension. He also has secured a death benefit to pass to her child upon his death, while his kids are already taken care of. Lastly, he will have significant liquid assets to use in retirement as needed, not including what he is still able to save over the next few years while working. I share this story for two reasons; the first being to encourage everyone to always prepare for the unexpected. Life always brings challenges and throws us curve balls; the best we can do is be as prepared as possible. Second, create a financial plan early and review often. Work with a financial professional to establish goals and to guide you through changes in life, the ups and downs, and the financial impact of losing loved ones.

This client I wrote about now has clarity of his financial plan and is very confident moving forward. It has been extremely rewarding to assist him and see the weight being lifted off his shoulders. Working with clients every day to improve their situation is my “why” and if I can help a few people take some initiatives or seek a second opinion on what they are currently doing, then I consider that a big win.

1 Guarantees are based on the claims-paying ability of the issuing insurance company.
References to specific securities, asset classes, or portfolio models are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries, and such opinions are subject to change without notice.

All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Past performance is not a guarantee of future results.

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Ring in the New Year with College Planning Cheer

With costs of college continuing to rise, a carefully crafted college planning strategy can help your children have a memorable experience while keeping your family financially comfortable. In today’s digital age, there are a plethora of resources available on the internet to help navigate college funding. Additionally, working with a financial advisor will enable you […]

With costs of college continuing to rise, a carefully crafted college planning strategy can help your children have a memorable experience while keeping your family financially comfortable. In today’s digital age, there are a plethora of resources available on the internet to help navigate college funding. Additionally, working with a financial advisor will enable you to explore finance options you may not have considered before.  Some of the solutions are:

  1. Take the free money
  2. Analyze savings options
  3. Look at college planning as part of an overall plan, not a separate, independent decision

First, we need to understand the difference between scholarships and grants; then we must apply for them. Both of these are free money that is never paid back. The difference lies in who is giving the free money for education.

Scholarships are a form of financial aid issued by non-profit organizations, corporations, or individuals. They may ask the student applying to write some sort of essay on a creative topic or some other requirement. One great resource to help students locate scholarships is a company called Scholly (www.myscholly.com). Scholly was created by a Drexel University student who, through hard work and determination, was awarded $1.3 million in scholarships. He was featured on the hit show, Shark Tank, and since then, his business has helped students earn more than $50 million in scholarships!

Grants are another type of financial aid with disbursements usually given by the government. There are many grants available to the public to help with different needs. To determine eligibility for these grants, you must fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA is a government form filed before each college school year which determines how much, if any, government aid the student is eligible for. The FAFSA accumulates all assets owned by the parents, and by the student. Money in savings accounts and money markets, retirement accounts, businesses, investments, real estate (other than the home you live in), and college savings accounts are all taken into consideration. The more assets owned, the less government aid given, all the way down to no assistance at all. So where else do you go for help?

Next, we need to analyze where we are saving all of our finances. As mentioned above, the amount of assets owned is looked at for grant eligibility. Actually, a family can reduce the amount they claim on the FAFSA by making a few small financial adjustments.

  • A common unknown fact is that the cash value within a permanent life insurance policy is not included in the FAFSA calculation. The entire cost of college could literally be wrapped up within the life insurance policy while earning tax-free interest, and use the cash value on a tax-free basis to pay for college. At the same time, the student may qualify for additional aid, reducing the overall cost of college. You could use a life insurance policy on yourself or take out a policy on your child while they are young.
  • If a college savings plan, such as a 529 plan, is being funded, you could make someone besides a parent the owner, i.e. a grandparent. If this small change is made, the assets will not be included in the family FAFSA statement.

Starting early to save for college is an excellent idea, and something a family should definitely consider. Even if you start your college planning late, there are still ways to go about this planning in a strategic manner which allots for retirement savings, ensures your assets are protected, and reduces the overall cost of college. With every family situation being unique, the approach for accomplishing goals should be customized to each individual family. Utilizing the wealth of knowledge on the internet, and working with a savvy financial planner can ensure your goals are accomplished.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 1767 Sentry Parkway West, Suite 200, Blue Bell, PA 19422. (267) 468-0822. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Independence Planning Group is not an affiliate or subsidiary of PAS or Guardian. 2016-32391 Exp 12/18

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Life Insurance as an Asset

Many people do not think about using life insurance as an asset. The industry pushes clients to buy term insurance and invest the difference; however this strategy is not followed consistently. Often times, Americans manage cash flow backwards; income comes in, lifestyle is chosen, debt is incurred, and taxes are paid. By the time all […]

Many people do not think about using life insurance as an asset. The industry pushes clients to buy term insurance and invest the difference; however this strategy is not followed consistently. Often times, Americans manage cash flow backwards; income comes in, lifestyle is chosen, debt is incurred, and taxes are paid. By the time all of the current cash flow expenditures are dished out, and the term insurance is paid for, there is far too little left to save toward retirement or for any significant unexpected expenses. Sometimes, a more efficient, more effective way of achieving the proper death benefit protection and wealth accumulation is not necessarily by maxing your contributions to the company 401(k) plan or Roth IRA; however, in conjunction with a complete financial plan, it can be accomplished through a permanent form of life insurance called Whole Life. The most important difference from term insurance is that it<Whole Life Insurance> is permanent; it is “when you die” insurance rather than “if you die”.  It will pay a death benefit at an unknown time period in your life and the cost per year remains level. In addition to a guaranteed death benefit,1 permanent life insurance builds cash value within the policy and provides a competitive rate of return when compared to other fixed products.  At this point in our economy, safety and consistency in a financial product is very important, especially with the current volatility and mystery that exists in other markets and products.

The death benefit and cash value in a whole life policy grows at both a guaranteed and non-guaranteed2 rate If let to accumulate over a period of time, the cash value can be borrowed against or withdrawn3 to help pay for countless expenditures throughout life such as college tuition, purchasing real estate, financing business opportunities, funding business succession planning and providing supplemental retirement income. In addition, and most importantly, if these policies’ cash values are not borrowed against or withdrawn, the death benefit may increase over time to an amount far greater than was originally purchased. There are plenty of great investment opportunities in variable securities and some of these should be incorporated into one’s financial plan. Permanent life insurance is one piece of the puzzle and plays an integral part of an overall plan, covering various areas of a complete financial picture on a more secure, guaranteed basis. I am not saying it is right for everyone, however it is something to consider when ensuring your family, your business, and your wealth are protected.

1All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values. 2Dividends are not guaranteed. They are declared annually by the issuing company’s board of directors. 3Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.2015-10346 Exp. 9/17

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