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Category: Family Legacy

Outliers And Retirement Income

[ 0 ] April 23, 2014

Spectrum Financial Solutions, FL, Retirement PlanningYou are age 65 and it’s your first day of retirement. You are about to tap a putt into the ninth hole. Based on your experience, you believe you will sink the putt.

Just to make it interesting, let’s make a little bet. If you sink the putt, you are guaranteed that you can take out an ever-increasing amount of money from your retirement assets and you’ll never run out of money in retirement—even if you live past age 100. However, if you miss the putt and the ball winds up on a completely different fairway, your money runs out before you’re age 80. Do you take the bet?

Wall Street makes a lot of investment projections calculating sustainable rates of withdrawal in retirement. Depending on the mix of stocks and bonds—and the initial withdrawal rate used—these predict that the invested money will last at least 30 years 90, 94 or 98 percent of the time. In golf terms what the projections are saying is you can move your ball closer or farther from the pin to wherever you think you’re pretty sure you could sink it, and the farther you go back from the hole, the larger the withdrawals promised. Essentially you are controlling the risk and the game because it is your decision on how much to withdraw and how to invest guided by the Wall Street model.

Let’s go back to the golf course and consider this: Unbeknownst to you, a hawk has mistaken the ball for prey and will swoop it up before it hits the hole, or a miss-hit ball from the adjacent fairway is arcing toward your green, smashes into your ball and sends it ricocheting onto the next fairway. In both cases you have lost your bet, and instead of enjoying a long and prospering retirement you will experience one with financial hardships.

We have all heard of black swans—disruptive events that cannot be predicted—but the situations mentioned above are not black swans because they could be predicted. The hawk and the ricochet are outliers in that they were possible, but extremely unlikely. Unfortunately, almost all retirement income models simply ignore outliers—therefore, retirees should not.

The 4 percent inflation-adjusted portfolio withdrawal rate assumed a 50/50 mix of stocks and bonds and provided a 94 percent confidence level that it would last at least 30 years; however, it also assumes that the long term returns of stocks and bonds continues into the future. Instead, if we assume that this current low-bond yield environment hangs on for a decade before rates return to their historic “norm,” our confidence in the retirement money lasting 30 years drops to 68 percent, and if bond yields never recover, our confidence in producing that 4 percent payout rate drops to 43 percent.1

The previous example looked at an outlier of very low bond rates. Sequence of returns risk means starting withdrawals during a period of losses. This risk is not an extreme outlier, because the bear markets of the 1970s showed what could happen. Yet it wasn’t until after we had two severe bear markets within eight years of each other that Wall Street considered reducing the suggested levels of sustainable withdrawals below 4 percent.

Another outlier is if a medical breakthrough in longevity results, where living to age 100 or 105 becomes commonplace; to get retirement income confidence levels over 90 percent would require investment portfolio withdrawals to drop below 2 percent.

If any of these three outliers occur, the options are to save much, much more for retirement (impossible for one already at retirement age); to withdraw much, much less; or to die early.

Another way is to transfer the risk of these outliers to a third party—an annuity carrier.

A guaranteed lifetime income—whether it comes from an income annuity, a deferred income annuity or a lifetime withdrawal benefit—provides protection from retiring at the wrong time, living too long or earning too little. It assures that whether you sink your putt or not, you can go on with your game.

A guaranteed annuity income won’t help if the world gets destroyed by an asteroid, nor will it stop someone who chooses playing slot machines as their new retirement activity. However, when it comes to retirement income, fixed annuities lower the risk from many outliers and eliminate others. Perhaps the biggest risk with fixed annuities is that retirees won’t learn about them until it is too late.

Footnote:

 1. “The 4 Percent Rule is Not Safe in a Low-Yield World,” Finke, Wade and Blanchett, January 2013,  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2201323.

Content provided by http://www.brokerworldmag.com/articles/articles.php?articleid=3486

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Life policies offer valuable options

[ 0 ] April 2, 2014

Spectrum Financial Solutions, NJ, Life InsuranceWith the wide array of Life insurance products on the market, how can you be sure that you’re getting the best deal for your premium dollar? Although buying Life coverage is a critical financial decision, all too many people choose coverage without taking advantage of the variety of features that can add significant value to their purchase.

According to industry experts, frequently overlooked policy add-ons include:

  • Guaranteed purchase option. This feature permits you to buy coverage starting at a specific life event (such as retirement) or on a set date without showing proof of good health.
  • Term rider for a spouse or child. You can add coverage for a spouse or dependent child, under the age of 26. In many cases, this option offers significant discounts, compared with the cost of purchasing separate policies.
  • Premium waiver. If disability or serious injury leaves you unable to work, the insurance company will pick up your premium.
  • Accelerated death benefit. Should you face a terminal illness, you can borrow cash advances against the policy’s death benefit. Policyholders often use these advances to pick up the tab for palliative services or hospice care during their final days, relieving the financial pressures on their family or caregivers.
  • Long-Term Care rider. Some policies allow you to use policy benefits for long-term medical care in return for reducing the death benefit.

You might also be eligible to benefit from other Life policy options.

Our insurance professionals would be happy to provide a review of your needs and tailor coverage that offers the best value at an affordable price. Just give me a call.

Content provided by Transformer Marketing.

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Privately Financed Graded Premium Universal Life

[ 0 ] February 5, 2014

Spectrum Financial Solutions, NJ, Life InsuranceCurrently, an arbitrage opportunity presents itself to sophisticated investors whereby interest bearing loans (interest paid currently and loans retired in less than ten years) made to a trust for the benefit of family members can create guaranteed Internal Rates of Return (IRR) that far exceed those available from most portfolio assets.  As the accompanying study illustrates, if trust assets grow at a modest 6% annual rate, the underlying trust will have grown terminal value to in excess of $16,145,000 in year 27 (the joint life expectancy of the hypothetical couple used in the study).

That equates to a 12.5% tax-free IRR for the trust assets (19.3% pre-tax).

This program is not a risk-less arbitrage.  Risk may be associated only with the trust’s ability to achieve annual growth of 6% during the loan period and longevity of the investors.  To the degree that growth rates fall below 6%, loans may be extended beyond 9 years and, correspondingly, IRR’s will not be as high as illustrated.  Additionally, because the trust matures upon the death of the investors, if the trust outlasts actuarial assumptions, IRR’s may be less than indicated above (see accompanying schedules).

This program is Internal Revenue Code (IRC) compliant.  Rates of interest charged to and paid by trusts using program are based on the Applicable Federal Rate (AFR) for mid-term loans and are published monthly.  Once established, loans will bear that AFR for the term of the loan.

Perhaps a successful individual is not interested in further estate planning. This approach understands that position and posits that the Privately Financed Guaranteed UL Program, aside from offering a superior investment experience, may enable investors’ unique opportunities to expand both charitable and non-charitable goals that previously weren’t possible or were deferred.

To Summarize:

Privately Financed Graded Premium Universal Life may be a solution to issues facing many successful investors and families today.  Through the use of a minimal risk arbitrage technique, estates can be secured, charitable gifts accelerated and a variety of other planning and/or investment goals satisfied very efficiently.

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Creating assets for your grandchildren

[ 0 ] December 4, 2013

Spectrum Financial Solutions, New Jersey, Florida, Assets for grandchildren

Did you know that when you leave your children an inheritance the federal government taxes them?  And then the same thing happens when your children leave your grandchildren an inheritance.

If you were thinking about leaving your grandchildren the inheritance, the Generation Skipping Transfer (GST) tax has closed any tax loopholes for that.

With a couple of exceptions.

Gift Tax Exclusions

This exclusion allows you to gift up to $13,000 a year ($26,000 for married couples) to each grandchild, or another individual, without incurring a gift tax.

This path reduces the amount of your taxable estate and gives you the joy you create when giving these gifts to your loved ones.

Pay for Education and Healthcare

You can also pay all or part of your grandchild’s tuition or medical expenses.  There is no GST when opting for this route.

GST Gift Trust

You can create a GST gift trust for each of your grandchildren.   When  your grandchildren receive the trusts; the value may have grown dramatically thanks to the accumulation of interest and dividends. Your grandchildren will inherit the assets entirely free of estate tax and GST tax.

Dynasty life insurance trusts

This option is a much more sophisticated strategy involving insuring the lives of you and your spouse, placing the insurance policy in a trust, listing your grandkids as the beneficiaries and contributing money to the trust to pay the premium.

Contact us today to determine which way will work best for you.

Spectrum Financial Solutions, New Jersey, Florida

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years.  Do you need to know about Privately Financed Universal Life Insurance located in FL? Call us today. Family Legacy Unitrust Edge located in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. Applicable Federal Rates located in FL affect many of your planning tools.

George Klahre
10110 SE Osprey Pointe Dr.
Hobe Sound, FL 33455
732-450-9530
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FAMILY LEGACY UNITRUST EDGE

[ 0 ] October 23, 2013

Spectrum Financial Solutions, LLC Family LegacyWhat is a legacy?  To many people, it is the estate that they leave their heirs after their deaths.  It is the culmination of prudence, wisdom and intelligent financial planning and may provide one a great feeling of satisfaction.  However, a legacy does not necessarily need to start after our deaths nor does it need to be confined solely to providing assets and income for our heirs.

Summary:

The Family Legacy Unitrust Edge is a straightforward combination of three time tested financial planning tools joined together into one program in order to achieve optimum success for our clients who are concerned about charitable giving and income tax and estate planning issues. The designers of theFLUTE program have combined three basic, IRS codified concepts to avoid potential pitfalls associated with risky, “over the top” planning techniques that may be offered to wealthy individuals today.  Our opinion letter from PricewaterhouseCoopers, LLP bears testimony to this.  The cornerstones of theFLUTE are:  substantial ongoing gifts to charity, Internal Revenue Code based income tax deductions, traditional estate transfer techniques and organizations like Spectrum Financial Solutions, LLC to make them a reality.

Spectrum Financial LLC, Florida

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years.  With an emphasis on partnering with the right professional, we offer technical help and  specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.

732-450-9530

George Klahre

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How to give assets to your grandchildren (but keep control)

[ 0 ] September 18, 2013

Spectrum Financial Solutions, LLC, New Jersey, Florida, Creating assets for grandkidsMany older people would like to make significant gifts to their grandchildren, in order to help them and in order to reduce the size of their own estate for tax purposes. But they also worry that the grandchildren won’t be able to handle large sums of money.

The good news is that you can give each of your grandchildren up to $13,000 a year without incurring any gift tax. If you’re married, your spouse can also give each grandchild up to $13,000 a year.

The bad news is that young people are notoriously immature with money, and simply handing a young adult up to $26,000 a year won’t necessarily result in the wisest and most cautious financial decisions.

However, there are ways that you can “give” money to grandchildren for tax purposes, but retain control over it at the same time.

If your grandchildren are minors, then you can’t transfer assets to them directly. In most cases, you’d need to transfer assets to a custodial account, where an adult custodian manages the account for the child’s benefit.

That’s great – but the problem with a custodial account is that the moment the minor reaches adulthood (usually at age 18 or 21), he or she will own the account completely. The brand-new adult can immediately withdraw all the money and spend it on anything he or she feels like.

A better solution is to put the money into a trust. With a trust, you can specify that your grandchildren won’t have access to the assets until they are old enough to handle them responsibly. For instance, a trust might end when a grandchild turns 28. Or a grandchild might get a third of the assets at age 25, a third at 30, and the rest at 35.

Setting up a trust for a grandchild is a little tricky, though. While you (and your spouse) can directly give an adult grandchild $13,000 a year without paying gift tax, the same rule doesn’t apply if you put the money in a trust. That’s because you’re not really “giving” the grandchild the money; you’re just giving him or her a future interest in the money. The law says that to avoid the gift tax, you have to give a “present interest” in the money.

So here’s the solution: The trust is set up so that whenever you make a contribution, the grandchild has the right to withdraw that contribution for the next 30 days. If the grandchild does nothing, the money stays in the trust and the grandchild can no longer access it directly. But the contribution still counts as a “gift” for tax purposes.

Of course, this creates the risk that the grandchild will withdraw the money during the 30 days. However, you can make it clear to the grandchild that if he or she does so, you won’t make any more contributions – which should be a very strong deterrent.

This type of trust is known as a “Crummey” trust. Despite the funny name, there’s nothing wrong with a Crummey trust. It was named for D. Clifford Crummey, the man who pioneered the idea back in the 1960s.

To make things easier, a single Crummey trust can be created to benefit multiple grandchildren.

Here are a few things to consider if you’re contemplating a Crummey trust:

  • You can be the trustee if you want. But if you (or your spouse) is the trustee, you’ll need to be careful in the way the trust is set up and administered, because if it’s not done properly, the assets in the trust may be included in your taxable estate if you pass away.
  • You’ll want to decide who should pay the tax on the trust’s income. You can set up the trust such that the income will be taxable to the trust, to the grandchild, or to you.
  • The trust’s assets will typically be considered as assets of the grandchild for purposes of calculating college financial aid awards.
  • Any time you make gifts to grandchildren, you need to plan around something called the “generation-skipping transfer tax.” This is a special tax designed to prevent people from avoiding gift and estate taxes by making gifts that skip generations. You may be able to plan around it and avoid it – depending on your circumstances – but you’ll need to take it into account.

Spectrum Financial Solutions, LLC, New Jersey, Florida, Assets for Grandchildren

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years.  With an emphasis on partnering with the right professional, we offer technical help and specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.

George Klahre

10110 SE Osprey Pointe Dr.

Hobe Sound, FL 33455

732-450-9530

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Information provided by:  http://www.beliveaulaw.net/2010/10/how-to-give-assets-to-your-grandchildren-but-keep-control/

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I am Rich!?

[ 0 ] September 4, 2013

Spectrum Financial Solutions, LLC I am rich?

Written by George Klahre

In a recent TIME Magazine article, it was reported that UBS had surveyed thousands of investors to come to the conclusion that if you own investible assets of $5,000,000 or more, you likely feel that you are wealthy.  Great news, right?

On closer inspection of the numbers, of those polled, fully 40% of the respondents felt that they weren’t rich with $5,000,000 of investible funds in their accounts.  And what about those with lesser balances in their accounts?

Clearly, wealth is a relative term and not only applies to financial assets, but also to other forms of wealth…health, family relationships, meaningful work or service, philanthropy, etc.  Today, let’s just focus on boring old money.

It has become staggeringly clear to this writer that most of us don’t feel nearly as financially comfortable as we would like to be.  Further, us baby boomers are approaching that time in our lives when, if we haven’t done so already, we start thinking about retirement years, life expectancies well into our 80’s and how are we going to afford us for the next 25-30 years…or longer.

And then there’s that thing called a legacy….

Don’t despair.  Planning now can alleviate fears and concerns.  I have worked with clients and their advisors over the years and the opportunities that the legal, investment and financial communities can access may work wonders in addressing the questions of the future.  Maybe time spent with your advisors now can enhance your “wealth”…both financial and otherwise.

 I would love to chat with you if you or your client thinks it makes sense.

George Klahre

Spectrum Financial Solutions, LLC

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years.  With an emphasis on partnering with the right professional, we offer technical help and  specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.

732-450-9530

George Klahre

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A Very Sad Day

[ 0 ] August 28, 2013

Spectrum Financial SolutionsEvery so often, life experiences provide perspective on what is truly important.  In our everyday lives, we sometimes forget the basics and focus on creativity, the next great opportunity, retirement and tax planning at the expense of the “here and now”.  Below is an email that I sent to a number of good friends after attending the funeral of a bright, vibrant young man…the son of very good friends.

Maybe we should all take a few minutes from time-to-time to assess the “what ifs” of life.  It’s not painful…it’s not costly…it’s back to basics.

A Very Sad Day

 

Yesterday, Cathy and I attended the funeral of the son of very close friends.  He was 37, married and had two small children.  He fought an incredibly courageous 18 month battle with colon cancer.  Everyone who knew this young man learned painfully what real strength and character is about.  We, along with his family and friends, are devastated by his passing.

 

His wife now has the responsibility of being both parents to her children.  I learned yesterday that, beyond savings and equity in their home, there are modest assets to move forward.

 

When I was younger, I used to speak to clients about the need for life insurance in the same way as I would talk about homeowners insurance or auto insurance…the likelihood of a catastrophic event is small but very real.  With time, business models changed as did priorities and I haven’t mentioned the place of life insurance in securing a young family’s future in years…perhaps I should.

 

What I want to say to you is speak to your kids about it.  The cost is miniscule but the potential benefit is great.

 

When I think of our friends and their family, there is no way to make their grief go away…that’s something that, on some level, will stay with them.  I wish that someone had sat down with this young family to discuss the “what ifs” of life…perhaps the future wouldn’t seem quite so onerous and daunting.

 

Speak to your kids, tell them how much you love them and urge them to secure their financial houses for the future.  I did.

 

George

 

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Our Core Services

[ 0 ] August 21, 2013

Spectrum Financial LLC

Privately Financed Graded Premium Universal Life

Family Legacy Unitrust Edge

Applicable Federal Rates

 

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years. With an emphasis on partnering with the right professional, we offer technical help and specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.

732-450-9530

George Klahre

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