Are You Recession Ready?

If you’re wondering why the stock market dropped suddenly today think about a time you were driving and saw a police car at the next intersection. You hit the brakes right?

Well the stock market did the same exact thing today. Investors were reacting to several warning signs that a recession may pull the economy over and ruin the fun we’ve had so far. But as we all know if we see that police car up ahead we can act to prevent being given a ticket. For all of us now is that time.

Without going into details (yet…), here are five things you need to do to be prepared:

  1. Have a six-month emergency fund. You should be able to pay all your living expenses for six months with cash or cash equivalents. Above all this is the most important factor in coming out of a recession with your head above water.
  2. Be aware of your retirement time frame. Are you retiring in the next year or in the next thirty years? If your time frame is sooner, then you may want to consider safeguarding your retirement assets in something that will be largely immune to stock market fluctuations.
  3. Think about your risk tolerance. Are you the kind of person who will obsess over the ups and downs of the stock market for the next few years or can you calmly ride it out? If you find yourself constantly checking your investments then maybe it’s time you realized that you may be making emotionally driven decisions that do not help you achieve your financial goals in the long run. There are other options.
  4. Do you have excess cash available to invest? Imagine walking into a Nordstrom and everything is 20% off – that’s the way savvy investors see a recession. Not as a threat but an opportunity – as long as they have the assets to invest. Is there something you can be doing today to ensure that you will have something to invest when a recession does hit?
  5. Evaluate your employment situation. Are you employed in an economically sensitive sector? Would a global recession affect your company to the point that they may lay off staff? What are your alternatives? Are you investing in yourself so that you can easily transition to a new opportunity? Now is the time to think about having a side-hustle.

Right now, the best investors in the world believe that a recession is coming soon. It’s time to start getting your financial house in order. If you have any questions/comments/concerns we would love to talk to you!


The Stock Market is in a Correction and Volatility Has Returned – But Why?

Basically this:
Low unemployment rate -> wage growth -> increased inflation -> Fed raises interest rate -> businesses pay more to borrow money -> market freak out.

So on Friday, February 2nd the DOL jobs report was released and showed a 2.9% growth in wages – this was largely due to the increase in economic activity and the low unemployment rate. You can’t mess with supply and demand – try and remember that because most people aren’t able to. Anyways, a 2.9% growth in wages really means that the supply of money in the economy increases – people have more money to spend, thus increasing the supply of cash relative to things to actually spend it on.

This has the effect of decreasing the actual value of money (supply of $ > demand i.e “stuff to buy” = lower $ value). This is called inflation. Now a reasonable amount of inflation can actually be a good thing – it shows that the economy is growing.

However, the Federal Reserve likes to ensure that inflation grows at a reasonable rate. To make this happen they will raise interest rates. This basically means that banks will pay a higher amount of interest to people saving money. More people will save money and thus reduce the supply of money in the economy – keeping inflation in check. This also has the downside of making money more expensive for everyone to borrow.

Businesses generally need to borrow money to grow and expand – and the possible rate increase fueled fears of a slowdown in economic activity due to the increased cost of borrowing money.

While this was the background to the correction there were two other factors in play:

1. Everyone was expecting a correction. Psychology plays a huge part in the market. Everyone knew that an extended bull run couldn’t happen forever, so when investors got an excuse to take profits, they did (by selling).

2. The prevalence of automated trading made it all happen a lot faster than usual. Only about 10% of trades nowadays are done by actual active people. Algorithms and automated programs make up the rest. Boeing dropped about 11% in a matter of minutes – something entirely unrealistic to happen if actual humans were doing most of the trades.

So what does this mean for the market? Essentially volatility has returned, so expect some days of swings rather than just day after day of rising prices. Just keep cool, find some cheap stocks that you’ve been eyeing and don’t be afraid to buy and hold.

Two interesting things also happened:
– Bitcoin didn’t rise inverse to the market drop. Gold did. Bitcoin is not the untouchable safe haven the fanboys make it out to be.
– An unknown trader nicknamed the “Whale” made $200 million by betting that volatility would return, proving that there are always opportunities to make money while others are running for cover.
#braindump #investing #money #stocks #correction #finance #entrepreneur #financialfreedom


Is an Annuity Right for Me?

When planning your retirement it is important to remember that you have a lot of options available inside your financial toolbox – and annuities play an important part. Some people may feel very comfortable directing their own investments inside a 401k, 403b, or IRA and some people may not due to the fact that they may have any experience with investing or financial products. There are products out there for each person and one isn’t necessarily better than the other – it depends on each person’s unique situation.

Your Risk Appetite

Whether you are just beginning your retirement planning or are going to retire in the near future, its important to take some time to self-reflect and determine your own investing ability as well as your appetite for risk. The risk portion of this self-reflection assessment is the most important because any investment decision that you make is driven by your emotional ability to tolerate the risk of having a market fluctuation dictate your returns. Everyone is different – while some people would enthusiastically tie a bungee cord onto their leg and jump off a bridge, others would never even consider it. Keeping this psychological distinction in mind, we need to realize that any tool we pull out of our financial toolbox has a risk/reward component to it.

So how do non-variable annuities play into all this?

While frequently lampooned online by self-styled financial “experts”, annuities fill in the important role of being able to guarantee payouts over the course of many decades. Other financial products simply do not provide that guarantee. While an annuity will not earn the same amount of returns that other products may offer, the interest that an annuity does provide comes risk free. When there is a market downturn like in 2000 or 2009 – there is no risk to the amount that you have saved. Thus, your risk tolerance will largely determine the suitability of an annuity for your retirement goals.

Here are a few questions to ask yourself to determine if an annuity is right for you:
  • How many years away from retirement am I?
    • Annuity products are meant for the long-term. Some have surrender charges that may take place if you decide to withdraw all of your money too soon.
    • If you are within 10 years of retirement you may want to consider moving some of your money into an annuity to diversify your investment risk. While it will still earn income (how much depends on the product) it may not be as much as other investments, but is far safer.
  • Am I OK with losing 10% or more of my investment if the market takes a downturn?
    • Are you comfortable looking at your 401k or IRA statement and seeing a loss? Over the course of our investing timeline we will experience times when the market takes a turn for the worse. Are you OK with losing money? If so – then maybe the 401k/IRA strategy works for you, but if you cannot accept any loss then an annuity may be a better product.
  • Do I need guaranteed and predictable income so that I can budget my retirement expenses?
    • Annuities are specifically designed to make regular payments out of an invested lump sum and are great for the budget conscious who need to plan on how to pay their regular expenses during retirement or for those who are more comfortable with treating the annuity payout as they would a normal paycheck.
  • Will I need early access to my retirement funds for adverse events such as a disability, terminal illness, or long-term care?
    • Do you already have long term care and disability plans? If so – great! LTC and disability are major factors that everyone needs to consider before retiring. However if you do not, you may want to look closer at an annuity as they have options for dealing with these situations.
  • Do I need to know exactly how much interest I will be earning on my investments?
    • Are you more comfortable with earning a fixed rate of interest or with earning returns that are based on some of the market upside but with none of the downside? Annuity products today can offer a fixed rate or a rate tied to the performance of an index that offers total protection against a market downturn. If you feel that you need to calculate your performance down to a dime, then a fixed annuity may be right for you. However, if you are more accepting of a dynamic rate of return with no risk, then an index-based annuity may be right for you. If you have a healthy appetite for risk and do not need any sort of guarantee about performance, then an annuity would probably not be right for you.
Annuities, like any other financial product, are a specific tool for the right person.

While they offer the benefits of having a very low risk and regular, predictable payments; they may not earn the returns that a riskier tool such as mutual fund, stock, or ETF may offer. But this in itself does not make them a lesser product – it all depends on your specific needs.

For an intro into the kind of products that we work with, click here or feel free to give us a call!


How Much Life Insurance Do I Need?

Life Insurance

Its a common question: “How much life insurance do I need?”

But before we even get into the answer, lets address the fact that even asking the question says a lot. Asking that question means that you’re thinking about the important things in your financial life and that you are willing to drill into the details to make sure your bases are covered. Those are the people that we love to work with – you’re proactive and involved and willing to take action and not procrastinate. So let’s take some action and dive into how much life insurance you really need.

To answer this we use something called the D.I.M.E method. This simple acronym is a map for us to discover what your real needs are – both for your living benefits (yes – you can use life insurance while you’re still alive) and for what your family might need after you’re gone. So lets walk through our four letter acronym and calculate your needs.


The first and most immediate concern is to figure out your total debts and how much it will actually cost to bury you, cremate you, or shoot you into space if that’s your last wish. The debt portion means any credit card, student loans, car notes, lines of credit, IOUs, or any other person, bank, government institution, or loan shark that you happen to owe money to (we’ll leave out your mortgage here and come to that later). Nowadays the average funeral costs around $10,000 – so add that onto your debt numbers.


The majority of American families today rely on more than one earner to make ends meet. Its a far cry from the image of the 50’s when Dad was the primary earner and Mom stayed home. Nowadays our families rely on both spouses/partners to help make ends meet and plan for the future. If you were to pass away you need to include a certain number of years to replace your own income so that your loved ones can continue living the lifestyle that they deserve and to ensure that they have adequate time and resources to be able to move on emotionally after you’re gone. Typically we aim for at least 5 years of your gross income – so if you’re making $60,000 a year you want to make sure your family has at least $300,000 allocated here.


The largest amount of “good” debt a family will have is their mortgage and its not something that you want to leave outstanding. Make sure that your life insurance AT LEAST covers your mortgage so that your loved ones do not have to worry about keeping a roof over their heads. Of anything here – this is the most important one.


Unless you’ve been living under a rock for the past few years, you’ve probably heard about the rising cost of college education. The average in-state, public university costs approximately $9,400 per year in tuition – not including room and board. If you have children or if you have a spouse/partner who is considering going to college you have the option to ensure that they can do it without having to struggle with paying the bills. Especially since your spouse/partner is set to lose your financial income – they may want to make a career change that necessitates having further education. For many people, this category is the least important only because it is the least immediate cause of concern. However, it is set to be a much larger expense than most mortgages in the coming years. There is an excellent college cost calculator here to help you figure out this number.

Adding It All Up

Once you have those numbers, lets add it all up and see where you’re at.

Debt/Death: $19,000 (Average Family Debt of $9,000 + $10,000 Funeral Costs)

Income: $300,000 ($60,000 for 5 Years)

Mortgage:$200,000 (Average Mortgage Debt)

Education: $40,000 (4-Year In-State, Public University for one person)

Total: $559,000

Its probably more than you thought you needed – but most people make the mistake of never diving into how much they actually need and just rely on the $150,000 or so that they may have through their employer. You may also think that this amount is just not affordable – but in reality for a healthy, non-tobacco using 33 year old this amount of coverage will only cost approximately $50 a month for a 20-year term policy. For what is the price of one night-out per month your family can have all of the protection that they need. You’ve already asked the question and now that you have the answer are you ready to take action to ensure that your life, your lifestyle, and your family’s lifestyle is protected? Remember that procrastination costs money – and if you procrastinate with life insurance it will cost you. Take action today!


Your 401k/IRA is Costing You. Do You Know How Much?

It’s Not Free

I’m going to go ahead and get this out of the way…your 401k./403b/IRA ( I will be using the 401k here as an example for the sake of brevity) is not free. Its not. Not Free. Got it? Good. Let’s move on.

Your retirement fund costs you money to administer, invest, and disburse, but do you know how much? Chances are you really don’t – these costs aren’t always published in clear language on your quarterly and annual statements. They aren’t because your broker would rather you not know.

The Fees

Your 401k has two main layers of costs: those imposed by the company managing the 401k and those imposed by the managers of the funds you invest in. You may have a Nationwide 401k, but your 401k is composed of funds by John Hancock or Prudential. Each of these has their own costs, as it costs money to manage both the investment account and those funds.

The company managing your 401k is going to impose charges because it costs them money to manage your account, send you statements, handle your disbursements, conduct trades…etc.

The company that owns the mutual funds or ETFs that you invest in will also charge you as they have to pay for the managers run those funds, their employees, their trading costs…etc.

Where Do I Find These Fees?

Excellent question – you can start with your quarterly or annual statement. Buried inside there, usually in small print will first be the amount that the company managing your 401k charges you for that privilege. I happen to have a 401k with Nationwide and I’ll provide an example from one of their statements:

401k fine print

Were you able to find it? The fee in question isn’t that Administrative Expense section. That may have gotten your attention first because it was the easiest to read. Look closer at the paragraphs prior to that and you will find a statement with the following:

"Fund performance is calculated by Nationwide Financial Services, Inc. The fund performance calculates changes in net assets assuming
the reinvestment of capital gains and income dividends, and reflects the underlying fund expenses and the deduction of Nationwide’s asset
fee of 0.69% for optional(O), for the mutual funds listed above. Nationwide’s asset fee for Self−directed Brokerage is 0.44%."

These are the actual fees for the 401k in question and are usually referred to as “Asset Fees”.  In this case there are actually two different types of fees for the 40k management:

  1. 0.69% for optional funds or stocks
  2. 0.44% for the Self-directed Brokerage.

When your company hands you a stack of paperwork for your 401k, among it will be a listing of preferred funds or ETFs chosen by the 401k provider. See this example below:

401k plan provider

Notice the sentence “Below is the past investment performance for each of the fund alternatives selected by your Plan Representative”. Your plan representative chose the core basket of funds for you to choose to invest in – and since these were chosen by the rep for Nationwide they will be charged the lower amount of 0.44% for “Self-directed Brokerage”.

However, Nationwide (but not all providers) offers the investor the option to choose their own funds or stocks outside of those chosen by the Plan Representative:

For these funds, Nationwide will charge you 0.69%, 0.25% higher than the standard option.

What Does the Percentage Mean?

Before we go any further, lets figure out what that percentage actually means. Lets assume that we had a good quarter and your funds made a 10% return. The managers of your funds and the company managing your 401k will take a cut off that return. So if we had a Vanguard S&P 500 Index Admiral Shares fund, Nationwide would take 0.69% of the 10% – giving you a 9.31% actual return.

It is important to remember that we are investing over the long term here, typically decades. 0.69% or 0.44% may seem like insignificant numbers by themselves but when taken over the course of 35 years, it really adds up. This example from the Department of Labor does a nice job of explaining it:

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

So over the long run those small percentages do take a significant chunk out of your investments. Onto the second round of fees.

Expense Ratio

The fees that are charged by your fund or ETF providers are generally called the “Expense Ratio”. These are charged in addition to the ones charged by the company managing your 401k and are on a fund by fund basis.

401k expense ratio

Note that column that says “Gross Expense Ratio” (charged by the funds themselves) and how it is different for each fund, versus the “Net Asset Fee” (charged by Nationwide). They can vary quite drastically – from a low of 0.49% for the Vanguard Explorer (line 3) all the way up to 1.3% for the Nuveen Real Estate Securities (line 1). Typically funds that specialize in specific areas such as real estate, natural resources, or technology have greater expense ratios versus those that reflect the general market such as an Index Fund (see Nationwide S&P 500 Index Fund Service Class, line 11 @ 0.57%).

So if we invested in that Real Estate fund at the top – our total cost for that investment would be 1.30% + 0.29% = 1.59%. This means that we would lose 1.59% every year from our returns from that fund. If you add in the standard rate of inflation at ~ 1.37% (in 2016), the fund would have to return least 2.96% before we saw any actual profit.

Compare this with the Vanguard S&P 500 Index Admiral Shares fund from our optional funds, which has an expense ratio of the rock bottom price of 0.05%, but a net asset fee of 0.69% for a total of 0.74% – more than half the cost of the real estate fund. This option is also cheaper than the Nationwide S&P 500 Index Fund Service Class which has a total cost of 0.57% (for the same exact product!) + 0.29% = 0.86%. They are really the exact same product – both of these funds are invested in the same basket of stocks that compose the S&P 500, one just happens to be cheaper than the other.

As a note, it is generally better to go with the low cost index funds. This is a hot topic in itself, but over the long term these will almost always outperform the other funds with a much lower cost and legendary investor Warren Buffett happens to agree with me. However, having a diversified portfolio is always the best course of action, but watch those fees! They may not be worth the returns that you are seeing.

What to Watch Our For

Its important to take these fees into consideration when choosing funds. As a rule, those specialized funds will cost more than index funds – and if you choose index funds be sure to choose the cheapest option you can find. One S&P 500 Index fund is going to be 99.9% similar to another, but chances are the costs will be different.

Watch out for any fund that has an expense ratio greater than 1.00%. Most likely that in the long run you’ll lose out on more returns for these expensive funds versus a lower cost option. Our real estate fund was hot up until 2008, but then had some pretty disastrous returns compared to the S&P 500 index. They may be useful in the short run, but stick with the cheaper indexes in the long run.


You Have Life Insurance Through Work – Great! But Are You Really Protected?

Having a life insurance policy through your employer is a great side benefit.

You get a guaranteed amount of protection with almost no hassle and little relative cost. Unfortunately this tends to lull people into the mindset of “I already have life insurance, so I’m protected” when in reality its just the first step towards protecting yourself and your family.

Getting a life insurance policy is like going to the gym for most people.

Everyone knows that working out is something that should be a part of our daily routine. It helps keep the weight off, reduces stress, and generally makes us feel like we accomplished something. But many times in reality, we didn’t go to the gym that day, didn’t work out long or hard enough, or may have ruined our workout with a pint of Häagen-Dazs later that night. Its easy to procrastinate and delay or only put in a minimal amount of effort for something that could really benefit us.

Life insurance is the same way for a lot of people. Its easy to think that we can put something like buying a life insurance policy off until tomorrow, or that just having life insurance through our employer is enough. We may not even understand that there are living benefits that we can take advantage of. Procrastination can set in and in many cases it may be too late before we can really take action. Buying a life insurance policy depends on taking action early while you are still young and healthy enough to get affordable rates. Doing so can grant you a lifetime of true protection from financial adversity. Having a group life policy through your employer is a great first step, but don’t let in lull you into assuming that its all that you’ll need. In many cases it will not be.

After you sign up for that group life policy through your employer think of a few things:

Is the face value (i.e. death benefit) really enough?

To be blunt – its probably not. Most group life policies issued through an employer have a face value of less than $75,000 and the average is about $50,000. In some cases you are able to add on an additional supplemental policy, but the vast majority of the time these are limited to a maximum of $250,000. It may sound like a lot now, but let’s take a moment to figure out how much your family (or you, remember – living benefits) actually needs.

To get a baseline of how much you’ll need, add up the following:
  1. Do you have a mortgage? If so – start with the amount you owe for your mortgage.
  2. Any other outstanding debt (credit cards, car notes, medical..etc)?
  3. Do you have children? If you want them to be free of having to worry about the costs of college, then you’ll need to factor those costs in. This calculator does a great job of figuring out what college will cost in the future.
  4. The amount of years your income needs to be replaced. This can vary, but I usually recommend at least 5 years for couples without children or for those who have teenage children. For those with younger children its best to use 10 years of income replacement. It may sound like a lot, but remember that there is still going to be someone else who has to depend on replacing your lost income just to maintain your family’s current standard of living.
    • We also need to take inflation into account. If you have figured out how many years of income you will need to replace, you can use this table to figure out the actual amount you will need to adjust for inflation. 
    • To figure out the total amount simply multiply your annual income by the income factor in the above chart. Its best to assume a 3% inflation rate. For example, if I have a $100,000 income and want to have 5 years of protection, I will need $547,000 ($100,000 * 5.47).
So let’s walk through a sample scenario.

Let’s pretend I’m a married father of one, making $100,000 year and I have both a $65,000 group life as well as a $100,000 supplemental policy through my employer.

  • $200,000 Mortgage Balance
  • $10,000 in Credit Card Debt and Car Notes.
  • 1 10 Year Old Child – Including Cost of College: $204,426 (seriously – at UIUC):College Cost
  • 5 years of income replacement at $100,000/year: $547,000.

Total Without College: $757,000

Total With College: $961,426 

Total After Employer Policy (Without College): $592,000

Total After Employer Policy (With College): $796,426

So even after my employer policy, I would still need another policy to cover the $592,000 that my family will need even assuming that my child will have to figure out a way to cover their own college costs. See where the danger lies in thinking that you’re totally protected just because you have group life through your employer?

Do I have access to any living benefits?

Don’t think that this is something you’re going to spend money on and never personally reap the benefits from. Life insurance is really about you. Modern policies have a wide variety of benefits that you can take advantage of while you are still living. Many group life polices will have only have an accelerated death benefit that will pay out a certain percentage if you are diagnosed to be terminally ill. That is really the only living benefit you’ll see out of your group life policy. However, an individual policy has many, many more benefits than that including:

  • Cash payments for:
    • Short & Long Term Disability
    • Chronic Illness (i.e. arthritis, Alzheimer’s, Parkinson’s, COPD)
    • Critical Illness (i.e. kidney failure, cancer, heart attack, stroke)
    • Terminal Illnesses ( non-correctable illness or physical condition which is reasonably expected to result in death within 12 months of diagnosis)
    • Long Term Care
  • Guaranteed Income For Life During Retirement
  • Cash Value Growth
  • Orphan Benefits & Scholarships
  • Legal Assistance

What happens to my policy if I switch employers?

In most cases you will have a very limited amount of time to convert your employer provided policy into an individual policy. Your rates will go up and you will not have access to any of the supplemental benefits that other individual policies will have.

If you do not convert your policy within that time period you will lose your policy.

Will this protect me throughout my entire life?

Life insurance really is meant for YOUR life, throughout your ENTIRE life! By starting young and purchasing a whole or universal life policy, you will have a lifetime of lasting protection without the increased rates that you would find with a term (group or individual) life policy. Whole and Universal life policies are meant to provide protection for your entire life with a stable premium. Although you can stage term policies to protect you throughout your life, your premiums will go up as you age – they will not with a whole/universal policy. Term polices will also not provide any sort of income during retirement or build a cash value for you to access as a whole/universal policy will. For more information check out our Types of Life Insurance page.

Don’t Procrastinate!

If you find that you need more protection than your employer is currently providing you with reach out to us – TODAY. Don’t procrastinate and let yourself think that you can keep putting this off. It really is going to cost you more as time goes on. Don’t let the size of the face value scare you into thinking that you can’t afford it either. We have a lot of options and can work with almost any budget to make sure that you and your family are protected for years to come.


Health Care Costs & Bankruptcy – Are You Prepared?

In 2001, a Harvard Medical study found that at least 46.2% of all bankruptcies were due to medical problems and their associated costs. Naturally it should not surprise anyone that between 2001 and 2007 when the study was revisited that percentage increased. The amount itself was pretty shocking – it rose to 62.1%.

Even more shocking were the numbers behind that figure:

  • Most medical debtors were well educated, owned homes, and had middle-class occupations.
  • 75% had health insurance.


Compare this with 1981 when only 8% of families filed for bankruptcy due to medical issues.

Now that we are 6 years into “Obamacare” – has that number changed? And considering the uncertain future of that program what can we expect from health care costs?

The Effect of the Affordable Care Act on Medical Bankruptcy

Turns out, the Affordable Care Act hasn’t done much to reduce the rate of bankruptcies caused by medical issues. In 2013, NerdWallet studied the effects of the ACA and found that 57.1% of bankruptcies were because of medical costs.

Remember that in the 2007 study, most of those who filed for bankruptcy had health insurance. Its obvious that more people have health insurance now, only ~11.9% of Americans ages 18 – 64 are uninsured.

So what gives? More people are insured, yet medical bankruptcies still remain high. Are people really buying the insurance that they need and are they saving for the costs that they are responsible for?

We always assumed that having health insurance would protect us against financial hardship. However, it seems that those who are insured seem to have just as much difficulty paying for other costs as a result of medical bills:

Medical Bills

The interesting part here is that those who are insured had just about as hard a time paying for bills as the uninsured. This leads us to the conclusion that just because you are insured doesn’t mean that you can think that you will be spared having to prepare yourself to pay out of pocket and related medical costs.

Many people who have obtained health insurance under the ACA have found there to be high deductibles, co-pays, and out-of-network charges that can quickly add up and overwhelm a budget that was never prepared for it – chances are they signed up with the most affordable insurance plan regardless of those extra costs.

In either event, people need to be prepared for higher medical costs and the related costs to being sick including loss of employment income.

How are people paying for medical bills?

Those who are not prepared for these costs often resort to paying the bills in very undesirable ways according to a 2016 study done by the Kaiser Family Foundation:

paying for medical bills

Being unprepared in any event can have drastic consequences for your financial future. Turns our that those who were insured actually had to make greater sacrifices than the uninsured! Among the insured – 63% used up all of their savings, 37% borrowed money from friends and family, 15% went to a payday lenders, and 31% took money out of their retirement funds. Is this really a situation you want to find yourself in?

Those who do prepare themselves will have a much easier time paying medical bills:

medical bills saving

How do I prepare myself for medical costs?

Obtaining health insurance is only a start. Due to the ACA, most retail plans are affordable only due to the higher deductibles, co-pays, and lack of out-of-network coverage. You as the consumer therefore have the responsibility to be aware of these fees and prepare yourself for them.

There are ways to save on medical costs (negotiating fees, bulk-prescription refills..etc). But these suggestions don’t solve the underlying problem of having to pay excess fees in the first place. The only real remedy is to accept the fact that you will need to allocate part of your budget for both short and long-term health care issues that are not covered by insurance.

Preparing yourself for these costs means that you not only have to have that emergency savings in place for short term emergencies and bills, but also need to think long term about medical costs. Investing your money today can lead to protection against adversity tomorrow. There are a few things to look into:

Establishing a Health Savings Account (HSA)

An HSA can assist with paying direct medical costs IF you have a high-deductible health plan. Contributions into an HSA are not subject to federal income tax at the time of deposit, you can invest those funds as you see fit (mutual funds, stocks, bonds, etc.), and you can withdraw those funds tax-free if used for qualified medical expenses. There are some caveats:

  • If you do not have a high deductible health plan you will not qualify for an HSA.
  • HSA funds cannot be used to buy over-the-counter drugs.
  • An HSA can only be used for qualified medical costs – it cannot be used to replace any lost income from your employment as a result of medical issues. Any funds withdrawn for non-qualified medical costs are subject to income tax and a 20% penalty!
  • Your HSA will be in a self-directed account. You will be the one deciding how to invest and grow your HSA savings.  Any funds not held in savings accounts insured by the FDIC are subject to risk – you may lose a significant amount or all of your savings if you make poor investment decisions. The amount available to you depends largely on your own investing knowledge and ability.
Research your life insurance policies

Life insurance is exactly that – contrary to popular belief, you are able to use it while you are still alive. Beyond being able to safely and steadily build cash value, some policies include provisions that allow you to be advanced part of the face value in case of chronic (i.e. arthritis, Parkinsons, COPD, etc..) or critical (heart attack, cancer, stroke, burns, etc.) illnesses. You are also not required to spend them directly on medical costs, so they can be used to replace lost income. There is no restriction on to how these benefits can be used!

Consider your health care costs as a part of your retirement planning.

The cost of health care and especially long-term care is a major factor in retirement – most seniors will require long term care at some point in their lives and the cost of LTC is not covered by Medicare. Although there are LTC specific insurance plans, they are expensive and therefore not an option for some. Another option is to leverage your life insurance policy to pay for LTC – many policies include the option for a rider that will allow you to advance the face value to pay for LTC.

What does the future hold?

Well – no one really knows. At this point we can safely assume that the ACA will be modified in some form, but to what extent we don’t really know. It would be ignorant of us to think that health care costs will somehow decrease after several decades on the rise. We can only take the above into account, plan for our own health care costs, and not assume that having health insurance alone will solve our health care costs issues.


Life Insurance: It’s Actually About You

That’s right, life insurance is really about benefiting you. Unless you really know a thing or two about life insurance you’re probably inclined to think that you buy it and will personally never see any of the proceeds. But we want to clear up that misconception and quickly show a few of the living benefits that life insurance can provide.

Living Benefits

There are a lot of benefits that you can take advantage of when you are still living. Although the face value of a life insurance policy is often referred to as the “death benefit”, there are a lot of ways that this amount can be used while you’re still around.

Most of these benefits center around medical and health related issues. It’s easy to think that a severe medical issue may never happen to us but in reality:

  • 1 out of 2 adults will have at least 1 chronic illness 
    • 2008 Census Bureau
  • 1 out of 2 men and 1 out of 3 women will develop cancer in their lifetime
    •  American Cancer Society. Lifetime Risk of Developing or Dying from Cancer, 2014.
  • 1 out of 2 households that have filed for bankruptcy were due to medical problems.
    • Health Affairs – Medical Bankruptcy: Myth versus Fact-February 2016

Life insurance can be used as a life raft when you need financial help the most. There are several situations in which you can access the face value of the policy to help you and your family financially:

Chronic Illness

Those who are diagnosed with a chronic illness such as Alzheimer’s or Parkinson’s can take advantage of their life insurance policy’s death benefit. Plans vary, but generally a policy holder can access up to 90% of the policy’s face value (i.e. death benefit) by being issued tax-free monthly payments to assist with the financial management of their condition. To qualify for chronic illness payments, you must be unable to perform 2 of the 6 Activities of Daily Living (eating, bathing, dressing, toileting, transferring (walking) and continence) or have severe cognitive impairment.

Critical Illness

Anyone with a short-term, critical illness can also take advantage of the policy’s face value. Situations such as a coma, severe burns, Cystic Fibrosis, cardiac arrest, cancer, organ-transplant, etc. can qualify for accelerated benefits in the same way as the chronic illness.


If you are disabled and are unable to perform the functions of your job, your life insurance policy can be used to provide a fixed monthly benefit for a period of time. This is generally subject to an age range, waiting period, and maximum payout amounts, but can provide financial assistance when you are unable to return to work.

Long-Term Care

At some point in their lives, most Americans will require long-term care. Paying for this care can be a significant financial burden and most people can’t afford a dedicated long-term care insurance plan. Long-term care is also not covered by Medicare so the expense is shouldered by you. Rather than relying on Medicaid or using Social Security payments or retirement funds, life insurance can be used to pay for a significant portion of LTC.

Cash Value Growth

This is a hugely overlooked and misunderstood area of life insurance. We’re going to go deep into this and explain the details in a later blog post, but we’ll give you some of the idea here.

Whole life, universal life, and variable life are all types of life insurance that are able to build up a cash value in addition to the face value. When you make a monthly payment, a portion of that is deducted to pay for the face value and administrative fees. The rest is deposited into a cash-value account. This account grows over time due to the additional payments as well as any interest and/or dividends paid by the life insurance company.

Plans differ depending on their type, but whole life and universal life policies will pay an interest rate on the amount of the cash value for the life of the policy. This will steadily and safely grow over time and you will have access to this cash component to use as you see fit.

This cash can be used for emergencies, vacations, college, and can even be accessed via a tax-free loan to provide supplemental income during retirement.

Don’t underestimate the power of compound interest – it can give your 401(k) or investment accounts a serious run for their money. The interest rates can also be very attractive – right now we have plans that are paying out 5.85% (and have never paid less than 5.7%). Try walking into your bank and asking for a CD with that rate – you’ll probably be escorted out of the building.

Other Perks

There are a huge variety of riders and options that can be added to a life insurance policy that provide living benefits. Some of our providers even offer complimentary perks such as:

  • Orphan Benefits: Monthly payments per child in the event of the death of you and your spouse.
  • Orphan Scholarships: Provides the children of the deceased with a renewable higher learning scholarship of up to $6,000 per year for up to four years.
  • Legal Assistance: Discounted costs on consulting with a local legal professional for a variety of issues including wills, estate planning, home ownership and family law.

Congratulations, You Own a Hedge Fund

“Congratulations, you now run a hedge fund” is what your HR rep should really say when they hand you that stack of paperwork for your 401(k) or 403(b). The comparison of running a hedge fund to having to plan your 401(k)/403(b) may sound absurd but in reality there doesn’t appear to be much of a difference.

You, much like the billionaire hedge fund managers out there are responsible for choosing a basket of investments that will maximize the returns on the principal amount invested.

However, instead of enriching investors – you will be financing your retirement and you only get one chance.

A brief introduction to the 401(k)

The 401(k) as we know it was originally designed as a provision in the tax code to address uncertainty surrounding the taxable status of profit-sharing plans. It was generally an afterthought and considered a minor item in the tax code as a whole. However in 1980 one man, Ted Benna, figured out that he could use that insignificant item to create a way to save for retirement in a tax-advantaged way and the modern 401(k) was born.

A staggering 94% of private companies now rely on the 401(k) rather than pensions to fund their employee’s retirement. For them the advantage was that the responsibility for retirement funding was now on the employee rather than the company. They would just contribute a matching percentage and let the employees manage their own money.

For those workers it now means that what used to be a simple guaranteed pension is now dependent on their own investing skill. Employees are expected to determine the correct amount of the salary to put into a 401(k)/403(b), which funds to invest in, how to balance those funds, when to access those funds in retirement, and how to avoid any tax-penalties for accessing them improperly. Rather than leaving that work to a professional pension fund manager, the average American is now expected to know things such as:

  • The net asset fee and gross expense ratio of their investments and how this affects their returns.
  • The proper ratio of stocks to bonds for their age.
  • How often to re-balance their portfolio and why selling everything during a recession is a bad idea.
  • Proper diversification – difference between large cap, small cap, international, natural resources…etc.
  • How to research stocks, funds, bonds, and ETFs (this goes beyond putting everything into a real estate fund just because the guy down the street makes good money flipping houses).
  • The penalties for withdrawing money from your 401(k) early and on the opposite side of the spectrum the penalty for not withdrawing the proper amount after age 70.

And so on. Does this seem reasonable? For what its worth, Ted now believes he created a “monster” that should be “blown up”.

In the words of Marge Simpson, “I guess one person can make a difference. But most of the time, they probably shouldn’t.”

So what is a hedge fund?   

In simple terms, a hedge fund operates similarly to a mutual fund with the exception that hedge funds can invest in practically anything – stocks, bonds, currencies, even real estate or venture capital. Mutual funds generally only invest in a mixture of stocks and bonds. So having access to a hedge fund gives you a wide variety of exposure to different investments and each utilizes a different strategy – whether they be event driven, investing in emerging markets, owning distressed securities, etc…

Hedge funds are especially beneficial during times of a bear market (i.e. when stocks are down – think 2008). Because they are exposed to investments besides stocks, their diversification allows them to weather the effects of a downtown better than mutual funds or ETFs. For example, in 2008 the S&P 500 ended up being down -38.49% for the year, while hedge funds as a whole were only down -21.63%. However, hedge funds that used a Managed Futures strategy ( investing in commodities and futures contracts) actually ended being up +18.33% for the year. Imagine seeing those kinds of returns while everyone else is panicking.

 The SEC thinks you’re too stupid to invest in a hedge fund, yet you’re supposed to run your own  401(k)/403(b).

So let’s suppose that we’ve realized that we have no business running our own hedge fund and want to entrust an actual professional to invest our money for us. In theory, the situation sounds great – an opportunity to invest in a fund with access to a diverse variety of investments, run full-time by a professional who also invests in the fund and therefore has the incentive to perform, and to earn returns that outpace the S&P 500 and Dow Indexes even during a recession. However, there is one big obstacle standing in your way: the SEC (Securities & Exchange Commission).

Hedge funds can by law only accept funds from institutions or “accredited investors” or per Rule 506, a very limited number of “sophisticated investors.”

An accredited investor is basically defined as someone who has a net worth (not including the value of the primary residence) of over $1 million or has earned income exceeding $200,000 ($300,000 for married couples) in each of the prior two years. So, in the SEC’s eyes you have to already be rich to get rich and the sole act of being rich makes you smart enough to make complex financial decisions. I find this humorous because I know a lot of people who make that much money and constantly make terrible financial decisions.

Here comes the fun part – the “sophisticated investor” is defined as such:

“In this context, a sophisticated person means the person must have, or the company or private fund offering the securities reasonably believes that this person has, sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment.”

This means that the SEC expects you to be a CFO, bank manager, CPA, or something of the like. So you have to be “smart” according to their standards of what smart is. If you don’t fit into one of those above categories, you are not considered “sophisticated” and would not be allowed to invest in a hedge fund.

The idea behind this line of reasoning is that since hedge funds have unique risks, only investors who are wealthy and therefore smart enough should be allowed to invest in them.

However the infuriating thing here is that the SEC is really thinking that the average American investor is too stupid to be allowed to invest in hedge funds yet should be allowed to choose their own stocks, mutual funds, ETFs, or bonds to make up their 401(k)/403(b) and therefore fund the bulk of their retirement.

Seriously, I wish I was making this up. They prohibit us from giving our money to financial professionals and then expect us to do EXACTLY what hedge fund managers do to finance our own retirement AND expect us to be good enough at it (despite most of us not having any experience doing so) to retire comfortably. Does this system make any sense?

Now I’m not saying that everyone should run out, dump their 401(k)/403(b), and invest everything in a hedge fund. Hedge funds are risky vehicles that require intense research and scrutiny before investing – they are not to be taken lightly. All I’m saying is that if the SEC believes we’re intelligent enough to go out and invest our money in such a way that we will have millions (yes millions – anyone in their 20s or 30s today will need to have at least $1 million when they retire) available for retirement, they should open up additional avenues for those investments.

But realistically what options do ordinary people have when planning for retirement? The real objective is to be able to plot out how much money you will be able to pay yourself with each year, for the X amount of years that you will be retired. It sounds simple enough, but in practice it isn’t.

It is extraordinarily difficult to determine how much you will need to retire with in your 401(k)/403(b) – many of the online calculators vary wildly as to how much you’ll need and there is no guarantee that your returns will be what you expect. What people really need is something that can give them the opportunity to plan out their retirement ahead of time, receive decent returns on their money, and be guaranteed to be able to support themselves with those funds when they do retire.

There are products out there that fit this purpose and we’ll be exploring those products in later blog posts. But for now I hope you’ve enjoyed this first article and that you take time to think about how your retirement plans stack up – your future you is counting on it!