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C.H. Robinson

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Annuities Are Not Likely the Answer

Written by Summit Wealth on .

I was reading an article this morning about how the Financial Industry Regulatory Authority (FINRA) has levied a $25 million fine (the largest ever) against MetLife for misleading investors and steering them into high-fee annuities that don't deliver the benefits they promised. It is the largest fine charged against a firm for misconduct involving variable annuities, and the second largest fine FINRA has imposed against a company in any matter.

"Variable annuities are complex and expensive products that are routinely pitched to vulnerable investors as a key component of their retirement planning," Brad Bennett, FINRA's chief of enforcement said in a statement. "Firms engaging in this business must ensure that the information on the costs and benefits of these products provided to customers is accurate and that their registered representatives are sufficiently trained to understand and explain the risks and complex features of what they are selling."

Of course, MetLife settled the case without admitting or denying any wrongdoing.
What I have outlined above is pretty compelling evidence that annuities are not likely the answer to most retirement planning conundrums.

  • They typically carry high annual expenses;
  • Many have long-term surrender charges;
  • They turn capital gain income into higher-taxed, ordinary income; and
  • Those that sell them often times do not represent the best interests of those they are selling them to (i.e. not a Fiduciary)

If you have questions about annuities and the potential role they may play in your retirement planning, please contact us. We are glad to help.

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Is Life Insurance Really an "Investment?"

Written by Summit Wealth on .

When analyzing life insurance for our clients, the first question we like to ask is "What is the purpose of the insurance?" Life insurance certainly is an important tool in protecting your family if the unthinkable happens. We recommend life insurance for such purposes of paying off your home, funding college education for your children, funding part or all of your surviving spouse's retirement in the event of your untimely death.

However, many permanent life insurance (e.g. variable universal life) policies are sold as an investment, which in our opinion should be a secondary consideration, in most cases. The way you really "win" is if you die prematurely (before your life expectancy) That is a pretty high price to pay. Insurance companies, as you would expect, price (i.e. your premium) their life insurance so they make a profit and sales people make a commission. The insurance company bases the premium, in part, on your life expectancy. The internal costs of life insurance products can be expensive (2.5% to 4% per year in fees) which materially discounts your investment return potential.

We have seen many life insurance illustrations, provided by life insurance agents, that show a (non-guaranteed) cash value growing in variable life polices leaving large windfalls to the beneficiaries at your death, tax free. If you look a little closer, you will see the problem with many illustrations is the hypothetical rate of return is greater than you should expect to receive from an investment portfolio. For example, we have seen illustrations with returns of 10% or greater. This means (assuming 2.5% to 4% per year in fees) you actually have to get a return, year-after-year, of 12.5% to 14%. You should know that while life insurance proceeds are passed income-tax free to your heirs; they are not necessarily passed estate tax free.

As odd as this sounds, if you don't have a life insurance need for life insurance think twice about buying life insurance. Many times investing what would be life insurance premium dollars into low cost mutual funds would be a more efficient investment option. If you do have a need for life insurance, consider using level term policies, which tend to have lower internal costs, and there is no penalty if you terminate the policy if there is no further need. There are, of course, situations where you would want to consider permanent life insurance, for example: estate tax (especially with illiquid assets, such as a business or real estate), and business continuation (e.g. partnerships).

If you would like help determining what is best in your situation, we are happy to help. We are not licensed to sell insurance, but we can provide an unbiased analysis of your life insurance need. Should you have a need for life insurance we can work with you and your current agent, or we can refer you to a life insurance broker who can place you with life insurance appropriate to your needs.

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Retirement Reality Check

Written by Summit Wealth on .

According to Franklin Templeton's 2016 Retirement Income Strategies and Expectations survey, 41% of the 2,019 adults surveyed indicated that they are not saving for retirement (compared to 35% in 2014). And while the amount of people saving is down, their concerns for retirement are up because 70% of all respondents indicated they have stress about their retirement savings / investments (versus 67% in 2015). Unfortunately, both of these questions are trending in the wrong direction the last three years.

This second response seems to be logical to us. If you aren't saving for retirement, then, of course, your stress level about retirement should be higher.

Of those surveyed, 65% indicated that they do not have a good understanding of how much they need to accumulate to retire or how much they should expect to spend on an annual basis. Similarly, according to the survey, 60% are concerned about how they will pay their medical expenses during retirement.

Does this hit home? If it does, now is the time to design your strategic financial plan and begin making tactical decisions to help you achieve financial success.

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Negative Market Headlines

Written by Summit Wealth on .

It's different this time. How many times have you heard that phrase during market downturns or volatility? It's easy to get sucked into the attention grabbing headlines. Although declining oil prices, issues in China, and the Federal Reserve increasing interest rates are real factors in the recent extreme volatility in the stock market, on the flip side, improved unemployment rates, cheaper gas, and stronger U.S. Consumers are factors that aren't grabbing the headlines. Why would that be? Unfortunately, those kind of headlines don't grab the same attention and ratings that the media is looking for.

That being said, we don't presume to know how the markets will perform for any certain time period. We can't predict how far the markets will go down and when they will recover, nor can anyone else. What we do know and can predict is the markets are volatile and they will go down, and they will go up. It is our job to plan for what we know.

We believe with a disciplined globally diversified investment plan, you will see long term growth in your investments over time. Taking advantage of market volatility by rebalancing, selling the stronger performing asset classes and buying the asset classes that are selling at a discount, is one strategy we use to try to enhance performance, without predicting its direction.

Below is a reminder of the past 45 years of attention grabbing headlines:

As you can see, even with negative events happening regularly over the past 45 years, over time there is growth for us to capture. The key is to have an investment plan and don't react to today's headlines and stay disciplined. If you would like to discuss your personal investment strategy in more detail, we are happy to do that with you.

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How Low Can They Go?

Written by Summit Wealth on .

As difficult as it is to stomach the rough ride the global equity markets are on lately, the silver lining is that mortgage interest rates are once again at historically low levels. What this potentially means for you is another golden opportunity to capitalize on. Here are approximate rates we are seeing for no cost / zero cost mortgages:

  • 30-Year Fixed Rate Mortgage: 4.00%
  • 20-Year Fixed Rate Mortgage: 3.75%
  • 15-Year Fixed Rate Mortgage: 3.50%
  • 5- or 7-Year Adjustable Rate Mortgages (ARM): 2.75% to 3.00%

Note that if you are okay with paying closing costs your rates could be about 0.50% lower than those stated above.

Here are some strategies for you could consider with these lower rates:

  • Refinancing Your Home: Look to drop your monthly principal and interest payment without increasing how long you have left to pay on your current mortgage. This puts extra dollars in your pocket now that you can put towards your retirement goals.
  • Cabin / 2nd Home: If you are looking to add a second home, now could be a great time to consider doing so.
  • Retirement Home: Even if you aren't ready to downsize quite yet, it could prove to be a great time to look at purchasing your retirement home and using it as a rental property until you are ready to transition to it.
  • Rental Property: If you are looking to diversify yourself from the equity markets and create a cash flow stream for yourself in retirement, now might be a good time to start. That said, you need to be pretty comfortable being a landlord!

If any of these opportunities sound interesting to you, please contact your SWA advisor and we can discuss how one (or more) of the above may fit into your Financial Game Plan. We can also connect you with our mortgage broker contacts (if you don't already have one) that can make this process as quick and painless as possible.

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