Financial Abuse of Seniors Isn't Really a Problem

I want to remind you again, especially with this title, that the titles of these posts are myths.

A recent article in Financial Planning Magazine detailed the red flags that regulators look for to catch and prevent financial abuse of seniors.  Here they are, summarized by me:

• Taking too much risk with the senior client's money & income.
• "Churning" the account, that is, excessive trading for the purpose of generating fees and commissions.
• Exaggerating benefits and/or falsely minimizing risks
• Failure to disclose fees.  I would also add, failure to justify them.
• Offering "forbidden" inappropriately risky, expensive or complex products to older clients.  Elder law attorney Carolyn Rosenblatt mentions non-traded Real Estate Investment Trusts (REITs) and variable annuities.
• Failure to include- or even consider -family members in recommendations

In my experience, the worst offenses I've come across with new clients are all of the above.

Your Constructive Comments are Welcome!

Seniors Don't Need Help With or Protection From Fraud & Abuse

It seems necessary to again remind you that these blog titles are myths, they are not true.  This one is especially not true.  Which is why I just love this new website:
http://www.justice.gov/elderjustice/

If you plug in your zip code, up pops a table of local resources for getting help and turning in crooks and abusers.  Elder abuse ranks way up there in the top sickest of crimes.  I don't understand it.  With the same amount of effort one could earn an honest living . . . and get to keep the income and stay out of jail as well.  I welcome any and all available tools to foil these awful people.  Please help by propagating this website.



Your Constructive Comments are Welcome!

Christian Financial Planning

The title of this post asserts nothing so it is more of a contradiction than a myth.

I know. I'm tugging on the tail of a hungry & rather grouchy lion. But this blog is intended to be controversial and challenging.  What could be more controversial and challenging than religion and money?  Case in point is "Christian" financial planning.

What is  "Christian" financial planning?  Oddly, none of the "Christian" financial planning websites I visited even mentioned Jesus.  Perhaps it was because Jesus' financial plan was quite clear:  Sell everything and give it to the poor (Matthew 19:21).  And then there's Jesus' metaphor of a camel trying to go through the eye of a needle having better odds than a rich man attempting to enter Heaven (Matt. 19:24). Not being a Biblical literalist- since I can't read Hebrew, Aramaic or Greek -from everything else I've read about him, I think Jesus was referring to attachment to or obsession with or love of money (or any other ego attachments for that matter) not just the mere possession of wealth. 

Here is the key point:  without emotional attachment to material wealth, you would indeed gain more happiness by relieving suffering, by giving, than from amassing and clinging to wealth.  (How contrary to the sadistic, stingy behavior so common in some supposedly religious circles today, no?)  Hence the camel metaphor. [Some scholars suspect a mistranslation- remember, this was an oral history -that instead of "camel" (kamilos) the Greek word was "kamelos" or rope. The metaphor still gets the idea across as neither rope nor camel will fit through the eye of a needle.  BTW, there is no scholarly basis for interpreting "needle" to mean "doorway", as the tour guides may tell you.] So is it unreasonable to ask this?:  Why would a "Christian" financial planner do his clients the massive disservice of encouraging attachment to wealth, thereby preventing their entry into Heaven?  (To be fair, several of the websites did emphasize the tax advantages of charitable giving.)

Here is where the grand contradiction occurs:  Self-labeling as "Christian financial planner" is meant to imply "Hey, you can trust me without knowing anything else about me!". But then, every Christian financial planning website I've reviewed reverts to mostly Old Testament "Biblical financial principles". That way they don't have to deal with Christ's rather simple wealth redistribution plan for which their services would be unnecessary.

Anyway, even if you use a "Biblical" financial adviser, insist on these basics:

1. A holistic approach.  A good planner will ask lots of questions and deal with you as a whole person, not just as an investor or product consumer.  
2. Unbiased advice, meaning driven by evidence and reason rather than production quotas.  Please base your trust on evidence and understanding, not warm & fuzzy buzzwords.
3. A legal fiduciary who must put your best interests first, ahead of his own and his firm's.  Ask a lot of questions too, and assume nothing.

Your Constructive Comments are Welcome!

Corporate Sovereignty is Under Attack!

It is Good Friday indeed.  I am glad to say that the title of this post is true.  And none too soon.  When corporate sovereignty exceeds human integrity, then it is grossly out of balance.  Since when should paper fabrications have more influence than living things?  Shall we hazard a guess and say , "Never"?

This week the Securities and Exchange Commission fined KBR Inc. $130,000 for violation of an important provision of Dodd-Frank, Rule 21F-17:

"According to the SEC, KBR required witnesses in certain internal investigations and interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department."

Such a ridiculously piddling fine no doubt got a yawn from KBR, which was the number one recipient of mostly no-bid contracts in the illegal "war" in Iraq, to the tune of $39.5 billion.   However, the more important effect will be less suppression by all companies of whistleblowers nationwide.  These out-of-control behemoths would not survive without pillaging the Treasury, trampling competitors (through illegal restraint of trade & collusion, to name two of hundreds of ways).  So they should at the very least be forced to comply with federal & local regulations.

Is your employer breaking the law?  Or trying to make you do so?  Then turn 'em in to the appropriate regulatory and/or law enforcement agencies.  Help level the playing field for the rest of us who manage to make a living honestly.  The SEC just opened their doors a little wider for you.


Your Constructive Comments are Welcome!

Top Financial Frauds for 2014 to avoid in 2015

I wish this were a myth, but there will always be misguided people who prey on the hopes and fears of the gullible, not realizing that with the same or less effort they could make an honest living!  On the State level here are the most pernicious frauds being perpetrated here in Oregon:
http://www.doj.state.or.us/releases/pdf/2014_top_ten_complaint_list.pdf

The list includes, unfortunately, 95 investment related complaints.  Which is fewer complaints than cable TV companies received.  Which I suppose is a good sign.
The most common of these frauds are Pyramid Schemes, which peter out when there are finally too many existing participants to support by ripping off new participants:

Pyramid Schemes* 

Illegal pyramids typically involve a few people at the top who get their friends and relatives to give them money in return for the chance to recruit more participants. These scams are called "pyramids" because they depend on an ever-increasing supply of willing participants. Pyramids inevitably collapse because it is impossible to recruit enough people to support the scam. 

*Courtesy of the Oregon Dept. of Justice.

Your Constructive Comments are Welcome!

For the Most Important Issues, IRS Will Call You Directly To Preserve Your Privacy

Once again, the title of this post is a MYTH.  IRS doesn't call you or email you, they send letters.  Or, agents!  Email and phone scams are the primary focus of IRS's 2015 "Dirty Dozen" scams list.  Here they are verbatim.  Each scam is followed by a link to even more details.  If you do get contacted like this, check with somebody before you do or say anything!  Call me.  Call your CPA.  Call the Consumer Protection Section of the Oregon Dept. of Justice:  877-877-9392.  Crooks use these strategies because they work.

• Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season. (IR-2015-5)
  
  
• Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information. (IR-2015-6)
  
  
• Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7)
  
  
• Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns. (IR-2015-8)
  
  
• Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09)
  

• Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims. (IR-2015-12)
  
  
• Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16)
  
  
• Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns. (IR-2015-18)
  
  
• Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19)
  
  
• Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. (IR-2015-20)

• Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. (IR-2015-21)
  
  
• Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2015-23)

Additional information about tax scams is available on IRS social media sites, including YouTube http://www.youtube.com/irsvideos and Tumblr http://internalrevenueservice.tumblr.com, where people can search “scam” to find all the scam-related posts.

Your Constructive Comments are Welcome!

Does "The Hand We're Dealt" Matter?

In a long but worthwhile interview of sociologist Dalton Conley (by Ariane Conrad) in The Sun magazine it becomes clear that Conley is Ayn Randian in only one aspect:  he questions his assumptions (unlike Ayn Rand herself and the disciples she admonished to do so).
Having spent his childhood as a (white) minority in a New York housing project Conley has the creds to postulate "why some people get ahead and others fall behind".  His conclusion:

"Only two measurable socioeconomic aspects of the parents really matter in predicting who succeeds: the parents’ education, which is the most important, and the family’s wealth, which is the second most important. By “wealth” I don’t mean how much the parents make a year. I mean net worth, including savings, property, and other financial resources."

My takeaway is that a healthy society would want all of its members to get ahead socially, financially, and physically because the beneficial effects are pervasive and compounded.    A sick society thinks life is a zero sum game with the already powerful lavishing rewards upon rewards upon rewards upon themselves at the expense of the rest of the society & The Commons.  The resulting negative effects of which are also pervasive and compounded.

This is why I support the following macroeconomic policies:

1. Universal single payer healthcare
2. Free education for anyone with the ability and work ethic, all the way through graduate school, including law and medicine
3. Elimination of for-profit home financing.  If banks can borrow money at near zero interest then homeowners should be able to as well
4. Reversal of the legal precedents granting personhood to corporations and equating money with speech

Your Constructive Comments are Welcome!

Investors Should Only Read Materials That Give Them Happy Thoughts

This happy-thought rule unfortunately is an indicator of a Ponzi scheme or cult, this admonition to only be "positive" and avoid "negative" thoughts.

To tell you the truth, I don't even know what that means.  Who determines what's "positive" or "negative"?  As real estate mogul & guru John T. Reed has said, (if I may paraphrase) "I don't care if information is pessimistic or optimistic.  I only care that it's accurate."  I agree.  Do you really want to filter out all displeasing information?  At your peril.

Suppose I'm driving down the highway and you are my passenger.  Up ahead, you see a large wooden box that has fallen off a truck into our lane.  Is it "negative" for you to point that out to me?  Certainly.  But not nearly as negative as crashing into the box.  It would be accurate for you to say, "Look out!  There's a box in the road!".  It would also be accurate for me to decide that it would be better to avoid that box than to smash into it.  It would be no time for smarmy value judgments or magical thinking like "Think positive and the box will disappear!".

Which is why you should write your Congressional representatives and insist they support FINRA's** "CARDS" program.  CARDS stands for "Comprehensive Automated Risk Data System", the main purpose of which is to catch crooks in the act, in real time, instead of years later.  Naturally, the financial industry says CARDS would be "burdensome" (it wouldn't) and jeopardize investor privacy (wrong again).  What it would actually jeopardize is Wall Street's insider profiteering at investor expense.
It is good enough for me that the Consumer Federation of America* supports the CARDS proposal.  Don't believe the fear mongering from the brokerage community.  CARDS will level the playing field back in the direction of you and me.  After all, if we're going to spy on people, why not spy on those who handle other people's money?







** Financial Industry Regulatory Authority
*An association of hundreds of pro-consumer groups

My Classes are just like "Rich Dad" Superstar Robert Kiyosaki's.

ALERT:  The title of this post is a MYTH.

My Retirement Planning Success classes are nothing like the infamous Rich Dad, Poor Dad author and entrepeneur's.  In addition to my never having declared bankruptcy  (twice)-or in any other way stiffed anyone on a debt- here are the differences between my Richness of Life classes and Rich Dad Education:

1. My classes are not hook, line and sinker come-ons to sell you on ever more expensive classes and materials, preying on that greatest (and most exploited) of human tendencies:  hope.  My class materials are based on academic research.  As Helaine Olen wrote in Forbes, Rich Dad "tips ran the gamut from ridiculous to illegal and downright hurtful and included advocating for insider trading, . . . purchase of multiple real estate properties with little or no money down and telling followers they could purchase stocks on margin via unfunded brokerage accounts"
2. My net worth doesn't come from the money you pay for my classes.  In fact, your tuition doesn't even cover my costs.  In contrast, most of Kiyosaki's $80 mil. net worth came right out of the pockets of his now much poorer students.
3. The information and strategies I teach are not secret, magical, exclusive or exciting.  They are tried and true, boring, and methodical.  They are widely available online and in print.  So why come to a class?  Because I've sorted through all the chaff for you.  Because when you're done with my class and our one-hour strategy session, you will have a clear picture of where you are and where you're going.  And where you can go in retirement.
4. Again, from Forbes "No one has ever proven that Rich Dad, the man who supposedly gave Kiyosaki all his advice for wealthy living, ever existed".  The researchers and academics I use all exist.  I give you their names and websites.  
5. I give you everything I have upfront in the 6 hour course.  No need to enroll in progressively more expensive "workshops" which have cost up to $45,000 with Rich Dad.  If you need individual work and a customized plan, we execute a professional contract on an hourly basis with definite costs and benefits spelled out.
6. I am a legal fiduciary.  I have to demonstrate that my recommendations are in your best interests without regard to mine.

So that's enough.  Though, it still astounds me how people pursue the appearance of advisors' financial stability (fancy offices, $1000 suits, expensive cars, Vogue-ish secretaries) without asking, "Who is really paying for all that?"  You are.

Best Wishes for a successful New Year.

Gary

Myth: "Socialism" curtails our freedoms

Do I even dare go here? Can't resist.
First, let's set the stage for the recent revival and use of the terms "socialist" and "socialism". Here are the elements:
1. An American population whose every shifting thought, feeling, belief and behavior has been analyzed and cataloged by a gargantuan corporate marketing machine.
2. Since the 50's this information has been exploited to inject into all of us a deep sense of inadequacy, longing and discontent paired with artificial external "solutions" (aka mindless consumption of goods and services).
3. Because government is and has been the only referee in this game, corporate marketers have every motivation to bribe or sabotage the referees.
4. So they portray government agencies as the source of the very discontent which they themselves have sown upon us!
5. Hence their propagation of that incendiary but obtusely overused word, "socialism", in talking about "government".

What percent of folks who use the socialism label do you think have actually looked up the definition? I would guess close to zero, based on the facile arguments that include it. I'm not going to get into it in this blog. Please see the excellent discussion at: http://en.wikipedia.org/wiki/Socialism
Can we agree on just one thing?: That it makes sense to maximize the efficiency and effectiveness of our means of production and allocation of resources.  How could anyone argue against that guideline?  Am I being unreasonable?

No single system will be the best at doing this in all cases at all times. As Blackwater (the mercenaries in the Middle East who massively botched the job) has demonstrated, a private sector military just does not work.  Self-regulation by the financial sector does not work.  Corporate prisons do not work.  Self-management of pollution by the polluters does not work (might as well have prison inmates managing their incarceration).  The private sector also gets a D- grade for its dismal investment in essential infrastructure like roads, bridges, communications networks, schools, water quality, air quality, soil & food quality, research & development.  We should be using an evidence-based approach to decide which type of system works in each situation.

Maximizing the efficiency and effectiveness of our means of production and allocation of resources requires a broad view, adherence to scientific principles, consensus on paths of action, and discipline to be sure everyone does his part and is rewarded for doing so.  Call it what you like- mass co-operative ventures, government, socialism, etc. -these types of large scale long-term collaboration are essential to a free and civilized society.  Which may be why we don't have one.

Civilized societies don't wage perpetual war.  Civilized societies don't let their members die or go bankrupt for lack of health care.  Civilized societies don't prey on their children to satisfy prurient urges and corporate bottom lines.  Civilized societies don't allow some of their members to poison others in the name of profits.  Civilized societies don't revel in imposing ignorance and deception upon their citizens.

So let's keep the debate at the level where it belongs- efficiency and effectiveness of public policy -and abandon the tossing about of uselessly labeled stereotypes like "socialist" or "free-market".

I Understand Mass Media

The truth is, I surely don't understand mass media.
  
For example, in all the years since I've been publishing this blog, the only post that generated hate mail- and also the highest number of page views -was my post "Myth- Studded Snow Tires Are the Safest".  Based on personal experience as well as lots of research, my opinion hasn't changed.  The preponderance of the evidence tells me the safest Winter tire for Oregon weather is the studless tire, such as Blizzak or Ice-x.   I drove up to Timberline lodge on fresh unsanded black ice with a Subaru & Blizzaks.  It was like driving on dry pavement.  I was actually disappointed at the lack of Winter driving skill required.  I have no idea why this post would generate the most interest and vitriol.

The next most frequently read posts involved Wall Street "guru" Ken Fisher, most notably "Ken Fisher Part II, Debunking 'Debunkery'"  a critique of his massive tome by that name.  I suspect most of the readers work for- or are considering working for -Fisher Investments.  The upshot is that the book is a dangerous blend of truth and falsehood (and I'm not saying the former is accidental nor that the latter is intentional).

Fisher's most glaring error is his claim that the subaccounts in Variable Annuities are only as sound as the financial strength of the annuity company.  Not true.  That's why those accounts are called "subaccounts" or "separate accounts".  This is not the only case of conflation of expensive, risky variable annuities with other safer varieties.

"Ten Things Life Insurance Agents Won't Say"- Thing #10: "Our Long Term Care Coverage Isn't So Great (for you or us)"

#10:   "Our Long Term Care Coverage Isn't So Great (for you or us)"  IS LAST IN MY SERIES OF RESPONSES TO "10 THINGS LIFE INSURANCE AGENTS WON'T SAY" BY DANIEL GOLDSTEIN "PERSONAL FINANCE REPORTER" FOR MARKETWATCH.

I guess Mr. Goldstein ran out of fabrications for life insurance agents & is shifting to long term care insurance (LTCi) agents.  And "shifting" is the key word:  remember thing #1, Americans are buying too much life insurance?  Now we shift to the exact opposite criticism, the supposed rotten thing about LTCi is that Americans aren't buying enough of it.  Why would that be?

I suspect it is not being properly structured by the agent.  In the old days I always recommended lifetime coverage because of the utterly financially devastating possibility of being on claim for 20 years.  Now, lifetime coverage is literally unaffordable in most budgets.  Plus, the average nursing home stay has fallen dramatically from 3.5 years to 13 months.  (Key caveat:  "Average" applies to no one.)  Here are the most important pieces to build an adequate, affordable LTCi plan:

• Compliance with your State's Partnership Program, the two main features of which are:
• Inflation protection is required (depending on age group)
• Enhanced asset protection- in a nutshell, to the extent you collect benefits from private LTCi, your asset thresholds to qualify for Medicaid, and for exemption from Medicaid recovery after you die, are increased.
• Partner or Spousal discounts.  Companies recognize that insureds who don't live alone will need less care.
• No more than a 5 year benefit period.  This will cover the Medicaid look-back period for transfer of assets.
• At least a 90-day Elimination period, the length of time you must wait- after going on claim -for benefits to begin.  If you can't afford to fund your first 90 days of expenses then you probably can't afford LTCi.
• A Cash benefit.  Most LTCi policies are indemnity plans;  they reimburse you for expenses incurred.  Cash benefits, on the other hand, are triggered by your poor health, whether you've incurred expenses or not.  This is a welcome benefit to help you through the 90-day elimination and to pay for excluded expenses.
• Finally, if you can afford it, a "limited pay" policy, which is paid up in 10 years or less.  An endangered species, limited pay LTCi is really expensive.  But it's bulletproof protection from future rate increases.  Because of the cost, hardly anyone does this outside of an executive benefits package.

If LTCi still has no room in your budget, there are great asset-based alternatives that don't impact your budget at all. 

"Ten Things Life Insurance Agents Won't Say"- Thing #9, "If you die we'll pay your boss".

#9:  "If you die we'll pay your boss" is next in my series of responses to "10 Things Life Insurance Agents Won't Say" by Daniel Goldstein "Personal Finance Reporter" for MarketWatch.

I know it's probably difficult to come up with ten facts that life insurance agents try to hide from their clients because most of us go to great lengths to disclose everything.  So this one is totally ridiculous:  If you are paying for a life insurance policy on yourself it is virtually impossible that the beneficiary designations would be a surprise to you.

The so-called "dead peasant policy" practices of large companies- being both distasteful and morally decrepit -nevertheless are evidence of life insurance's tremendous leverage.  Insuring key employees still makes sense as long as it is protection against the loss of their irreplaceable financial value to a company.  It should not be used simply as a way to boost the bottom line.  Most insurers no longer issue such policies.  Good.

In addition to Key Person insurance, there may be contractual reasons for a company to insure an employee or partner (depending on legal structure).  For example, if upon her death a partnership agreement gives a partner's family ownership and control of her shares, the remaining partners may prefer to buy out the heirs without having to borrow money or come up with a bundle of cash all at once.  A life insurance policy can provide those funds.

The takeaway:  "If you die we'll pay your boss" is less likely than being struck by lightening.  

"Ten Things Life Insurance Agents Won't Say": Thing #8

8.  "Someone could fake your death and collect on your benefits" is next in my series of responses to "10 Things Life Insurance Agents Won't Say" by Daniel Goldstein "Personal Finance Reporter" for MarketWatch.

Goldstein quotes Henry Bagdasarian (Pres. Identity Management Institute) that life insurance fraud costs the industry about $70 bil. per year.  It's closer to $100 bil. these days.  But that includes people directly ripping off insurance companies with fake claims and money laundering schemes.  I could find no reliable statistics on the dollar amount of stolen death benefits.  I suspect it is a very small portion of the total.

Assuming someone could fake your death and collect your benefits right out from under your nose, how can you prevent that from happening?  On his website Bagdasarian has built an exhausting list of cautions and steps.  Goldstein has a few.  But they both miss the most important gate keeper between your life insurance policies and fraudsters:  your agent.

An experienced, local independent agent is your best advocate.  Have doubts about a phone call or correspondence?  Call your agent.  Do you really believe that you or some columnist is going to be more versed in the industry than your agent, who has dealt with thousands of real people in real situations?  You agent will periodically review your situation, usually with you present.  If the company gets a death claim (or any change request for that matter) your agent will be notified.  And he or she will check with you, don't you think?

So, I guess Goldstein is correct with Thing #8.  Even though it's remotely possible, I've never said, "Someone could fake your death and collect on your benefits".

"Ten Things Life Insurance Agents Won't Say": Thing #7

THING #7:  "Our regulators can be toothless" is next in my series of responses to "10 Things Life Insurance Agents Won't Say" by Daniel Goldstein "Personal Finance Reporter" for MarketWatch.

In a continuation of his evidence-free article, Mr. Goldstein opines, "Unlike banks and big investment firms, which are largely regulated at the federal level, insurance companies are largely regulated by states . . .State insurance commissioners . . .don't have as much power to affect the practices of nationwide companies."

My first reaction is not printable.  We've seen exactly how well federal regulation has worked, allowing the very bankers who tanked our economy to walk away with record bonuses while stiffing their investors for the fines that were levied against them.  This is why many insurance companies want a "unified" regulatory system.  So it's easier to corrupt in their favor.

Reality is the converse of Mr. Goldstein's assertion.  State regulators can put an insurance company or agent out of business, in effect a corporate death penalty.  Oregon, though, is quite a bit more progressive than that by not allowing inferior companies and products to do business here in the first place.

Yes, regulation by the states creates a "patchwork" of inconsistent regulations and enforcement.  But the states that do it right become great places to live, work and do business in because of the economic stability and level playing field good regulation creates.

IRS Doesn't Like You

Hey, c'mon.  Even IRS has a heart.  Look at all the inflation adjusted goodies they're giving us.  This is directly cut and pasted so any errors are not mine.
- Gary

In 2015, Various Tax Benefits Increase Due to Inflation Adjustments

IR-2014-104, Oct. 30, 2014

WASHINGTON — For tax year 2015, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2014-61 provides details about these annual adjustments.

The tax items for tax year 2015 of greatest interest to most taxpayers include the following dollar amounts -

• The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
• The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
• The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
• The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
• For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
• For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.
• The annual exclusion for gifts remains at $14,000 for 2015.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA)  rises to $2,550, up $50 dollars from the amount for 2014.
• Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2014-61, which will be published in Internal Revenue Bulletin 2014-47 on Nov. 17, 2013. The pension limitations for 2015 were announced on Oct. 23, 2014.

Social Security Won't Be There For Us

I sound like a broken record to myself but just to be sure, this blog title is a MYTH.

As long as we can keep the crazy people from privatizing it, Social Security- by any measure -will be solvent for decades.  And with minor tweaking that solvency could approach permanence (as much as anything is "permanent").  There is absolutely no need to decrease benefits nor increase retirement ages.

It is upon that evidence-based foundation that Social Security Optimization is essential.  In my retirement classes I drive home the need for long-term, holistic retirement planning.  Most clients I meet with have not realized Social Security is their single most valuable retirement asset.  Based on the clients I've met with so far this year, their average lifetime benefit is:

• $950,458.   

Fortunately, with individually crafted benefit timing, I increased the average benefit to

• $1,149,341 a 17% increase, or, 
• $198,883 average per client/couple.

 

That's definitely worth a few hundred dollars in planning fees and a couple of meetings, isn't it?  But sadly, without a formal planning process 45% of men and 50% of women select the strategy that pays the lower amount!  They're leaving $198,000 on the table.

Here are the gross numbers for all new clients this year as shown in the graph:

1. Total pre-planning benefits:  $28,513,741
2. Total post-planning benefits: $34,480,241
3. Total Increased Lifetime Income:  $5,966,500

I can't express how good that feels to me.  Not bad for a year's work.  And I only charge 10% of the gain as a fee.  Just kidding.  I wish I could.  Here is the more important question:  What if you could derive similar or better enhancements for the rest of your retirement assets?  

The above statistics are a basic summary and do not reflect the complexity of coordinating Social Security with other income streams and assets such as pensions, personal and company retirement funds, and estate planning wishes.  Holistic planning must include health factors, spousal benefits,  longevity estimates, unique budget requirements, future lump sum expenses & income, taxes and fees.  A plan must at the very least answer all of the following questions:

1. What's the most I can lose in one year?
2. What's the most I can spend?
3. What's the most I can leave to my heirs?

Ten Things Life Insurance Agents Won't Say: Thing #6

THING #6:  " . . . and you’ll have to wait years to build cash value" is next in my series of responses to "10 Things Life Insurance Agents Won't Say" by Daniel Goldstein "Personal Finance Reporter" for MarketWatch.
If this is indeed true of the policy the agent is recommending it is almost impossible for him not to "say" this.  Unless you're in the habit of buying financial products without full disclosure.  Signs of non-compliant illustrations are:

• You see the words "For Agent Use Only", "Not For Use With Consumers" or any similar text printed anywhere
• If the pages aren't numbered this way:  "1 of 15, 2 of 15" and so on.
• If any of those pages are missing
• A summary is printed on agent letterhead rather than being identified as the insurance company's illustration, with company logo & office location

So let's be positive and assume you have your compliant illustration.  It will show you more than you'd ever like to know.  The worst case scenario will be referred to as "Guaranteed".  Be sure you understand, however, the two primary moving parts in the "Guaranteed" calculation, minimum interest earnings plus maximum mortality costs:

1. Interest Rates- The Guaranteed table will assume the minimum interest rate for the entire duration of the policy.
2. Mortality charges- "Guaranteed" ledgers also assume maximum guaranteed insurance costs.  The company can't simply raise these on a whim, they have to reflect actual mortality costs.  Unless Ebola takes over, I think we'll continue living longer and longer and these costs (and charges) will continue their downward trend.

If the Guaranteed part of the illustration is unacceptable to you, then you probably shouldn't buy the policy.  If all you want is a short term death benefit, term policies may be a better fit.  But if tax advantaged cash accumulation, income & estate planning are your goal, a maximum funded whole or universal life policy will rapidly accumulate cash. There are good reasons many attorneys and CPAs concur.

Next time we'll mull over Thing #7- Our Regulators Can Be Toothless.

10 Things Life Insurance Agents Won't Say: Thing #5

Thing #5- "This whole-life policy won't pay for itself"  is next in my series of responses to "10 Things Life Insurance Agents Won't Say" by Daniel Goldstein "Personal Finance Reporter" for MarketWatch.

Historically, this was a legitimate problem.  You'll notice Mr Goldstein's lawsuit examples are over ten years old.  There was a time when the industry routinely illustrated long term interest rates of 12%, which of course imploded.    Computing power and competition have dramatically changed the industry.  The key, though, is the assumptions the agent uses in your illustration.

First, there are still powerful disincentives for agents to properly quote and structure policies (unless they are legal fiduciaries, which is rare).  The highest commission rates are paid on premium expense.  I've seen as high as 110% of first year premiums.  The excess cash contributions pay as little as zero %.  If cash accumulation and/or paid up coverage are your main goals then it is irresponsible to quote anything other than maximum premiums (that is as much cash as possible with as little premium as possible), regardless of how that affects the commission.

Secondly, the best policies now have no-lapse guarantees, a response to those imploding years when we had to go back to our clients asking for more premium dollars to keep their policies in force, at a time when those premiums were expected to "vanish".  It is indeed now possible for us to say, "this policy will pay for itself".

Finally, virtually all states require illustrations to show worst case scenarios.  If the worst case doesn't work, then you are assuming some risk that things won't turn out as expected.

So how do you protect yourself?  Insist on comparison among at least three of the top insurers in your state before choosing a policy.  Then ask, "What's the worst that could happen with this policy?"

10 Things Life Insurance Agents Won't Say: Thing #4

Unfortunately, "Personal Finance Reporter" Daniel Goldstein published 10 financial myths in a row, all at once.  This post moves on to Thing #4 that life insurance agents won't say:  "This variable annuity is like a really expensive mutual fund."  Well, they won't say that because they can't.

Variable annuities are securities.   Securities registration and licensing are required before an agent can even discuss them.  Most don't find it worth the trouble.
To his credit, Goldstein actually understates the downsides of variable annuities, to wit:

•   ". . . withdrawals from an annuity during the first 10 years of the contract can be assessed fees of as high as 8% . . ."  Actually, surrender charges of 10% aren't uncommon.
•    "their annual expense ratios can reach as high as 3%".  I've seen annual fees, including riders & subaccount fees, as high as 4.5%.

 Then he drags out the tired old "high commissions" and "too complex" criticisms.  A full understanding of any financial product- even CDs -is very complex.  But the upshot of variable annuities is that contributions are virtually unlimited (unless a "qualified" account), earnings are tax-deferred until taken, and you can participate in most of the underlying subaccount gains while enjoying principal and income guarantees (if you add the appropriate riders).  Which question matters most?:  Is it complex?  or, "Will it best accomplish my goals?"

Sadly, it is when the market is booming that people flock to variable annuities, dazzled by short term performance and oblivious to the fees.  I do agree with Goldstein that there are less risky, more economical options.    

Why I Hate Annuities . . . and Ken Fisher Too!

To forestall the libel lawsuits I remind you that the titles of these posts are Myths.  In general, I don't practice "hate".  And, as you probably already know, I don't "hate" most annuities (and Ken Fisher really doesn't either, by the way).  There are excellent ones, and bad ones as well.
I certainly don't hate multi-billionaire Ken Fisher.  I've never met him.  I admire his research on, and support of, California redwood forests.  But really?  Are you going to sign over all your retirement funds to a high pressure firm that performs worse than unmanaged money?  Here are my issues with his firm's borderline practices. 

First and foremost are the ubiquitous (not to mention, factually remiss and ethically questionable) full-page "I Hate Annuities  . . . And So Should You" advertisements.  I have a copy of the "free" report offered in the ad and it is, overall, a fairly evenhanded summary of annuities . . . with a few serious errors.  But serious, glaring errors they are, and I wonder if they are accidental, for example conflating fixed annuities with their risky cousins, variable annuities.  I'm not going to get into those details in this post.  Later.

Second, is his gargantuan push to lure investors into a very bubbly market with claims of consistent 11+% annual returns.  Didn't work out so well back in 2008 either.  I think this is unconscionable, this appeal to the irrational fear and greed of investors who cannot afford to lose any money, especially in this overvalued market.

Third, is the neglect of his fiduciary obligations to his clients.  Fisher Investments has its own propriety products which it almost exclusively recommends.  They have a history of inadequate evaluation of client needs.  And for this they charge fees of 1% or more.  They have been sued and fined.

Fourth, as a result, Fisher Investments appears to be glossing over a major retirement risk for small investors:  sequence of returns risk.  The table below shows how average returns work.  It doesn't matter in what order the years are calculated, the end result is the same, as long as no contributions or withdrawals are made.

But suppose you're retired and making withdrawals to meet your fixed budget.  All of a sudden, losing years make a huge difference.  Nobody seems to be able to consistently predict sequence of returns.  So avoiding losses is essential in retirement.  Here are the facts in the table:

• Initial principal balance is $500,000.
• $25k annual withdrawals are taken, increased with inflation.
• The average return for both portfolios is identical:  6%

Finally, Fisher is already a billionaire.  I encourage you to do business- instead -with local independent, fiduciary advisers who sell no proprietary investments & employ a holistic approach in evaluating and planning for your retirement.  And who don't resort to inflammatory mass marketing to add to an already gigantic empire.  If you're going to spend 1.25+% of your assets every year for planning and management you might as well at least get some guarantees in return.  Or at least outperform unmanaged index funds.