Driving Blind!

Take a look at this picture:

I know this will sound rhetorical, but does this make any sense?

Given what I have read and what I have published in this blog and elsewhere, driving with a blind fold makes as much sense to me as the old, tired out, down right misleading mantra: "Buy Term and Invest the Rest."  I have said it and thought it for more than a decade, but now I have an academic to back me up.

Professor David Babbel of the Wharton School at the University of Pennsylvania has published a study declaring that the strategy categorically does not work. Listen to what he says, and I quote:

“They rent the term, lapse it and spend the difference.”

This study is academic. Professor Babbel  uses rigorous economic modeling and completely disputes "buy term and invest the difference" and shares how the values of his own life insurance cash value have outpaced inflation.

The article and study provide many additional reasons why cash value life insurance is a truly
wonderful way to save for retirement. It explains all the peripheral benefits you receive on the
way to retirement. (If you do not have a clue what some of those reasons and benefits are you have either not read what I have published or just forgotten. Time for a refresher)

Dr. Babbel previously worked for Goldman Sachs. He is a highly honored and
credentialed person who believes in and owns cash value life insurance and annuities.

http://www.investmentnews.com/article/20150728/BLOG05/150729897/new-life-insurance-study-debunks-buy-term-invest-the-difference

Time to take the blindfold off and give me a call or text (435) 764-1451

 

81 questions for you to consider

These are arranged into some categories to help you organize your thoughts.

Social Security

1) Will it be there for me when I retire?

2) What is the best age to take Social Security to maximize my benefits?

3) Will Social Security be taxable?

4)  Is there a way to prevent that?

 

Medicare

5)  Should I buy a Medicare supplement or Medicare Advantage coverage?

6) Will the starting age for Medicare be raised to age 67 and what impact will that have on me financially?

7) Do I have to take Part D prescription drug coverage if I don‟t take any medication?

 

Medicaid

8) How will the states afford Medicaid when the federal government stops fully funding the new

Medicaid recipients?

9) Will those extra costs be passed onto me even if I am not on Medicaid?

10) Do I have to completely spend down all my assets to become eligible for Medicaid if I go into a nursing home?

11) Will the Medicaid program continue to grow and where will we get the money to fund it?

 

Interest on the debt

12) Do you realize that interest on the debt that our country owes is the fifth largest expenditure?

13) Do you know that the Congressional Budget Office predicts that the debt will rise to $57 trillion by 2035?

14) If the interest rate is the historical 5 percent number, how will we afford to pay all the

interest on that debt?

15) Do you also realize that by 2030 we will only take in enough tax revenue to

pay for Social Security, Medicare and interest on the debt?

16) Should you reduce or eliminate your dependence on the government under these circumstances?

 

Deficit

17) If the government spends $3.8 trillion and it only takes in $3.1 trillion in 2016, won‟t that

dramatically add to the debt?

18) What programs and benefits will be reduced or eliminated if the deficit increases?

19) Will deficits at the same county, city and municipality level also cause loss of benefits, tax increases or combinations of both and could it even cause those entities to “borrow”

more money to continue to provide services. What impact would those decisions have on your

financial future?

 

War, defense and terrorism costs

20) These costs are the second or third biggest expense in our national budget. If you include the

costs for Homeland Security and the Transportation Security Administration they are easily

second; if you don't, they are third.

21) With the possibility of terrorism on our soil, will these costs increase or decrease?

22) With the world experiencing serious financial issues could a war or serious military event be almost expected?

23) How will we defend our borders and our interest and the interests of our allies without continuing to spend more and more?

24) Will military and defense spending offset some domestic spending?

25) Will that increase my taxes and lower my benefits?

 

Healthcare reform

26) Will Obamacare increase or decrease my healthcare costs?

27) Will it increase or decrease my access to care?

28) Does the Affordable Care Act “shift” costs from one group of payers to another group of payers?

29) Will I be penalized because I have really good coverage or if I decide not to cover myself?

30) Could this legislation be repealed if there was a change in the party that is in power?

31) What effect would that have on my healthcare coverage?

 

Unemployment

32) Is the unemployment number accurate or has the government manipulated it?

33) Does the unemployment rate include you any more if you have received all the unemployment benefits you are entitled to and you are still unemployed?

34) Is the unemployment number closer to 11 percent and would that increase if we had another economic disaster?

35) What impact would that have on all the retirement and savings accounts of all those people if they lose their jobs?

36) Would we have to take care of them in retirement if they have no money and reduced Social Security because they didn't work?

37) Do you realize that we have less people employed than we did in the year 2000 and we have added over 20 million people to the population since then?

 

Inflation and Deflation

38) Which will happen first: deflation or inflation?

39) Which is more dangerous?

40 If prices of commodities, (stocks, bonds, real estate, gold, silver, copper, etc.) first deflate or decrease in price will the government take steps to artificially re-inflate those prices causing both real danger and opportunity?

41) If even moderate inflation results, how do we take advantage of it to maintain our purchasing power?

42) Are there ways to protect ourselves from deflation and inflation and even better are there strategies I can employ to take advantage of deflation and inflation?

 

Healthcare costs including nursing homes

43) Do you realize a recent study says an American family of four pays $24,671 per year for health care?

44) If a conservative growth rate of 6 percent is used do you realize you will pay $50,000 per

year by 2025 and $75,000 per year by 2030?

45) How many Americans will be able to afford that?

46) What will happen to healthcare in America?

47) Could healthcare costs be America‟s neutron, hydrogen, atomic bomb that destroys our economy?

48) What about Nursing home costs?

49) If they are predicted to be $250,000 annually by 2025 and 75 percent of Americans have less than $28,000 in assets, who will take care of the 75 percent of people over 65 who are predicted to require long term health care?

50) Won't most of the caregivers in America have to be family members? What kind of financial, physical, emotional, intellectual and spiritual damage will having to be caregiver cause to families?

51) Is there a better, more efficient way to prepare for these costs?

52) Do you think most Americans realize that 75 percent of their lifetime healthcare costs are usually incurred in the last years of their life?

53) Ask how they feel about that and what do they think should be done?

 

Infrastructure

54) Do you realize most of the bridges in this country are in disrepair?

55) Should we fix them?

56) Can our highways handle all the additional traffic without upgrades?

57) Do our airports, train stations, bus depots need modernization or at a minimum repair?

58) Are we certain that our electrical grid can handle the increasing load being put on it and is it protected from terrorist acts?

59) Can out ports handle all the additional shipping and do we have the infrastructure to protect our borders?

60) What does that cost?

61) Should we spend the money?

62) Where or from whom do we get the money?

63) If you have money will they take your money to pay for these things?

64) Will these things have an impact on the success or failure of your financial future?

 

Natural disasters

65)Do you believe another disaster like hurricane Katrina could occur in our country?

66) Do you realize it is more than a decade since Katrina and New Orleans has still not repaired or replaced all the damage?

67) Will droughts and tornadoes and snowstorms and floods continue to become more powerful and create more destruction because of ever changing weather patterns?

68) Where will we get the money to replace the forests and the homes and the businesses destroyed by fires, floods, tornadoes and hurricanes, etc.?

69) What will happen when we finally have another even more serious earthquake, not in a place we expect like California, but in the middle of the country, in Chicago or St. Louis?

70) Who pays those clean-up costs?

71) Will people who don't have any money pay these costs or will people who have money pay these costs?

72) How can you, your family and your business stay in control of how much will be taken by the government for these costs?

 

Fannie Mae, Freddie Mac, FHA

73) Do you realize that these entities have begun to make the same kinds of loans again that caused the housing crisis of 2007 and 2008?

74) Do you realize that the FHA has only about one percent of the assets they would need to protect against defaults?

75) Doesn't that mean if two percent of these loans default that they are bankrupt?

76) If that happens again, doesn't that mean that the taxpayer has to bail them out again?

77) Aren't these programs used by the government to artificially stimulate the economy?

78) Aren't they back to giving home loans to people who really can't afford them?

79) Won't the government become more and more dependent on people who have money?

79) Are you okay with that or do you want to exert some control while you still can?

 

80)  Do you want to protect yourself or keep going the way you are?

81)  Do you want more answers?

 

Medicare - Can it Last?

Tom Hegna, an economist, always says that longevity is not just a risk, it is a risk multiplier. Nothing could be truer for the Medicare program. In 1965 When the Medicare program began, life expectancy was age 70. (In case you missed the first part of this story: go here.) In 2015 life expectancy is in the mid 80's. Medicare was not designed to pay benefits for 20, 30 and now even 40 years.

A few sobering facts:

1)  A 65 year old male currently pays in around $70,000 in Medicare taxes over his lifetime.
2)  A female pays in the same amount.
3) That male receives $197,000 in lifetime Medicare benefits.
4) The woman receives $230,000.

Conclusion: Medicare takes in a lot less revenue than it is paying in benefits. With current zero

percent interest rates it is impossible to make up the difference.

Another problem is that healthcare costs are rising dramatically faster than inflation. If the healthcare inflation rate is 6 percent and the inflation rate is 2 percent, healthcare costs are increasing three time faster than anything else. (How much did your health care premiums go up this last year?  By how much are they going up this year?)  In seven years Medicare will cost this country $1 trillion per year and the costs are rising.

What is the annual budget of the U.S. government? Answer:  $3.8 trillion. The unfunded

liabilities for Social Security and Medicare are $96 trillion.

Please tell me, where we will the government get that money. Higher taxes? Lower benefits? How about just create the money out of thin air, i.e. just print the money? If the program is going to last, something will happen.

Now it is time for you to make a choice:
A) Wait until the government harms you.
B) Build financial independence?

Let's talk.

Articles: http://news.investors.com/ibd-editorials-perspective/072815-763828-medicare-medicaid-anniversary-reminds-us-of-programs-failures.htm?mc_cid=99d0060fea&mc_eid=22cfe9edbc

http://www.fool.com/retirement/general/2015/08/02/it-could-be-time-to-say-bye-bye-to-medicare.aspx?source=isesitlnk0000001&mrr=1.00

The Truth About Social Security

The Social Security and Medicare Trustees just issued their annual report. In it, they claim Social Security will go bankrupt in 2034. One year later than last year. Medicare will go bankrupt in 2030, also one year later than last year's report. (Medicare is a much more serious economic problem which I will discuss in another post.)

There are many reasons that the Trustee's report about these programs is inaccurate and they

downright approach the characterization of absolute lies. I will highlight only three.

First, a side bar to put your mind at ease for a moment.... Before explaining why Social Security will go bankrupt far sooner than is being predicted, it is important to explain what is meant by “going bankrupt”. Social Security and Medicare are both “pay-as-you-go” programs. Everyone's paychecks has FICA tax or Social Security tax and Medicare tax withdrawn every pay period. If you are self-employed, you pay both the employer and employee portion of Social Security tax. If all the reserves are depleted the money that is withdrawn from our paychecks for Social Security is enough to provide 77 percent of the promised benefits. The difference has always been made up by the trust fund.

The reason you should not worry about the Social Security shortfall is that the difference will be made up out of the general revenues of the government. There are currently 100 million Americans over age 50 who will demand that to be done. By 2030, there will be 130 million people over age 50 who will require their elected officials the preserve their Social Security benefits at all cost.

Ok back to the reasons:

Probably the biggest reason why the Trustees are severely inaccurate is life expectancy. The Trustees use 75 years as the life expectancy in their calculations. Currently a male's life expectancy is 86 years. A female's is 89 years. As an estimate an additional two TRILLION dollars is added to the shortfall for every year difference between what is being used and reality. WOW!

The second reason is  the Trustees use a much higher growth rate than almost anyone thinks is achievable. The Congressional Budget Office believes two percent average is a stretch. Many even believe deflation or no growth is possible; yet, the Trustees use 3.1 percent as an average. Reality check? We haven't had 3 percent growth in a decade. Please remember, we are in one of the longest bull markets in history. Where will this growth come from?

The third reason is the subsidy structure of Obamacare.  This structure is causing people to work less hours. Less hours means less pay.  Less pay mean less paid in FICA taxes.  Less FICA taxes collected, less going into social security.

There are other reasons, but why beat a dead horse over and over?

Don't you think we should talk?

Here are a few articles to back up this article: http://news.investors.com/blogs-capital-hill/072815-763757-social-security-trustees-report-relies-on-dubious-assumption.htm?p=2

http://www.newsmax.com/Finance/DavidStockman/David-Stockman-Social-Security-entitlement-bankrupt/2015/07/31/id/664828/

 

 

Where will States get the money for their pensions?

The Chicago Tribune recently made available a chart showing the unfunded pension liabilities of all the states. That number alone is almost one trillion dollars.

States like California, Illinois, Ohio, Pennsylvania and New Jersey have $50 billion or more shortfalls with California topping out at over $131 billion.

This kind of information has been floating around for several years.  It seems like back in 2008 that the pundits were saying that if the market comes back there would not be a problem. (Wait, I thought the markets were in record territory.) 

Why will this only get worse and NEVER get better? Because states can’t print money. They can only raise taxes or lower benefits or do a combination of both. Even if you get your entire pension, if they raise taxes and maybe even specifically raise taxes on the pension itself, you receive less benefit.  Yes, you read that correctly, a writer for the Chicago Tribune has proposed the solution to Illinois' $94.6 billion shortfall is to tax the pension itself. (See May 14th issue.  I would give you a link but the Tribune is in desperate need of subscriber money and makes it hard to view the article.)

So you tell me; should employees who work for government entities completely depend on their promised pensions? Probably not! The follow up question every government employee should be asking is; “Should I build some additional retirement income on my own to replace income that probably will not be paid as promised?”

I can only help people if they want help and ask for it ahead of time. If you wait until the promise is broken it will have a devastating effect on your quality of life.

The Medicare Trust Fund Myth!

Please understand:  we are not actually cutting Medicare, we are merely slowing the growth of Medicare, because if we don't it will bankrupt our country.

This is no longer a trust fund of Medicare.  Medicare had only $325 billion of assets in December 2011.  Medicare spent $542 billion in 2011.  In 1990, 62 percent of the revenue for Medicare came from payroll taxes.  That number has fallen to 38 percent.  If we do not rise income taxes immediately, the trustees¹ would have to deposit $27 trillion into the Medicare Trust Fund and $11 trillion into the Social Security Trust Fund.  If cost controls are not exercised for healthcare under the Affordable Care Act, and all indication say they will not be, the trustees would also have to add an additional $12 trillion to the Medicare Trust Fund. (What is the total so far? 27+11+12 = 50 TRILLION)

Oh, by the way, the trustees are only using a 75 year life expectancy so the numbers above are MUCH higher.

To add insult to injury a recent study done by the Institute of Medicine determined that 30 cents of every Medicare dollar is wasted.  How much is that annually? $750 billion.  What are we (collectively) doing?

If we do not find a way to deliver quality healthcare at an affordable price that encourages health care providers rather than driving them away in drove, we will bankrupt our country.  This will not occur by shuffling around how we pay for healthcare - Affordable Health Care Act.  The entire system needs to be re-examined and redone.  In the meantime, you are at risk of being hurt by the makeshift, stopgap methodologies being used by both parties to delay the inevitable.

Here are your options: a) pay higher taxes?  b) enjoy lower benefits?  c) allow inflation to destroy your financial future and all the wealth you have work so long to create?

Choice is yours; all of the above or explore the possibilities with me.

1.  Who are the trustees? http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/AboutTheBoard.html

Crystal Ball

Who do you know who knows what is going to happen in the next 30 days? 

No one and I mean NO ONE, from the President, to the Congress, to all the financial experts and the leaders of the world have any idea of what is about to happen in the world's economy.  Let me repeat that: NO ONE!  I am sincere when I say; they, and please add me to the list,  have no idea how to fix the problems we currently face.  This is all new territory with many challenges that have never been addressed.  There is real danger for everyone.

The world will face tax issues, healthcare issues, demographic issues, inflation, natural disasters, excessive volatility, and many challenges too numerous to list in this short email.

If you really think about it, I am sure you will admit that no one has the answers.  So tell me, has uncertainty served you well in the last decade?

If no one knows what will happen, should you be playing it safe or should you get aggressive with your money?  Do you have a strategy in place that will protect you from these unknown events.  Is it possible to develop strategies to take advantage of future events?

Simply put, having a relationship with a financial advisor could not be more, and never has been as, important to you as it is currently.  That advisor also will not have the answers to the problems discussed, but if they are worth hiring, they will have common sense, rock solid suggestions to help you weather the coming storms.

One thing I suggest is finding out where that advisor has their personal money.  Do not just take their word for it, ask to see some statements or some sort of proof.  You know the old saying - "Trust but verify."