Senior Advisors of Illinois
The following articles were written by Chuck Arrington, an independent financial advisor with Senior Advisors of Illinois.
He provides clients with a no-obligation evaluation and recommendations at no cost.
Reach him at 708-299-3276.
Paralysis Through Analysis Affects Financial Decisions
How often are we told we live in the age of instant information? How many people reading this article right now have a phone attached to a personal computer? In the spirit of full disclosure I must confess to still owning a flip phone. I know I know, my adult children are so embarrassed for me. I do still have a computer at my office and my home, so I am not totally disconnected from the internet world.
But we do have access to more information and more products than ever before. But is enough too much? For example if you google Medicare,the first 7 to 10 entries aren’t for Medicare at all. They are for Medicare products like Medicare Advantage plans or Supplements. It can actually be a challenge to find what you are looking for. The same goes for annuities, life insurance, prepaid final expense policies and on and on. Tech savvy companies have learned how to make sure that searches for product information will result in visits to their websites and then converted into sales opportunities for themselves. We search for information and end up being subjected to digital sales pitches and requests for our personal information.
This has caused consumers to become more frustrated and also suspicious of companies. And who can blame them? Pretty much society as a whole has become more cynical. Much of this cynicism is based on what we see going on around us, whether its our polarizing political campaigns or constantly being warned about different scams or frauds that prey on seniors, its a scary time to be a senior.
The problem is for many people, what was once a healthy skepticism has turned into a real aversion to making decisions. particularly where financial products are concerned. people get information on five, six, seven different ideas or products only to end up feeling overwhelmed and not acting on any of the products that they requested information on to start with.
I know for me personally, the number of people who call me requesting information on financial products and refusing to give out information on their situation has increased tremendously. People are just so afraid of making a poor decision they can’t make any decision at all. So what to do about this?
Meet with a professional and focus on YOUR situation and needs. Warren Buffet’s goals and situation are alot different than Chuck Arrington’s. I want to know what’s best for me and what I need to be comfortable in my retirement and protected against the cost of poor health if that happens. I suspect this is what most people are searching for.
If you are this type of person, the answers may not be found online but in a good old fashioned face to face meeting with someone who answers your questions and tailors a plan to fit your needs.
Toasters, Pennies vs. Dollars, and Incomes That Last Forever
Happy Independence Day! Hoping yours was also a safe one as well. Summer is here and while we enjoy cook outs and the grand kids ( I have 5 of my own , you know.) I wanted to cover a few topics involving money and making the most of it. It is after all what The Senior Advisors of Illinois do, help people make the most of their hard earned and saved cash.
Remember when banks would give you a gift if you opened up a new account? Seems like you could always get a toaster or a clock radio or something like that. Now you can’t even get a decent rate on your Certificate of Deposits that they often just automatically roll over into a new one for you. Sure, they offer you FDIC protection but the banks pay a “premium” for that insurance and costs tend to get passed down,don’t they? We help people every week find C.D. Alternatives that offer far better rates and liquidity for seniors. A certificate of deposit only allows you to access the interest you earn, or you pay a penalty. An Alternative C.D. will let you access up to 10% of the entire balance without a penalty. Also, the interest on the deposit grows tax deferred while it remains in the account. As opposed to your Certificate that sends you a 1099 on the interest earned, whether its withdrawn or not.
Speaking of making money last. What happens to your Social Security if either you or your spouse passes? You’re right, the surviving spouse gets to keep the higher amount. So, if you were getting a check of $1500/monthly and your spouse was getting $800/monthly, the survivor keeps the $1500.Here’s the problem, how do you make up for the loss of the$800/monthly income. Sure your monthly expenses did go down some, so maybe you only need $500 a month. Where does that $6000 a year come from and how long will you need it to be there? Ever here of income replacement insurance? Basically, its a type of life insurance that allows an income to be paid out in the event of a death. Which sounds like a better deal, Ninety dollars a month paid out as a premium or a loss of several hundred dollars a month for as long as you outlive your spouse? Not saying anything, you understand? Just asking a question.
One final thought, before the grand kids come over and remind me I gotta get in better shape. (I turned sixty in May) What is the purpose of the money you aren’t using for income right now? Is it in case one of you need long term care? Or maybe its to be a gift to your loved ones. If you could increase the dollar value of your “rainy day” money simply by re positioning it to something more beneficial to your future needs, would you feel more secure? I know sometimes Insurance gets a bad name, but thats because sometimes it was centered around the “commission” the agent made. Insurance should always be focused on solving your needs and taking care of future problems by using the right products. Enjoy the rest of July.
Pre-Existing Conditions and The Health Care Reform Bill
Happy June to all! I would like to hopefully clarify what would happen to people with pre existing medical conditions if the American Health Care Reform Act of 2017, that passed the house last month, ever became law.
First of all, if you are on Medicare, none of this talk about the Affordable Care Act or its repeal affects you. How is that for some good news? This bill does not affect Medicare beneficiaries at all. When you hear about seniors paying more for health insurance, they mean people aged 50 to 64 who do not get employer based health insurance. In other words group health insurance from your job. If you do get health insurance from your job, this really doesn’t affect you either. If you are a young person under age 26, you would still be insured under your parent’s insurance, so nothing new there either.
Actually, the biggest overall change is that insurance for people over 50 will become more expensive and insurance for younger people will decrease. “How much’” you ask? The premiums would be increased by up to five times, some of this would be offset by tax credits. But the bottom line is that if you are over 50 and get individual health insurance, you will pay more. Although the new plan would allow you more options in coverage to reduce costs. For example, a 55 year old man would no longer have to pay for pregnancy coverage.
Younger people who currently are not buying health insurance because their premiums are higher to make up for the undercharging of insurance will be repriced to reflect their age. They will pay less, older people who usually have more claims as we age, pay more. The system needs more younger healthier people to buy the insurance plans.
Ok, so pre existing conditions: You will not be denied health coverage due to any pre existing condition. No, you won’t. In any State that uses “community rating”, your premium cannot be more than everyone else pays. If you had insurance thru your job and lost that job, you cannot be denied coverage or forced to pay more because of a pre existing condition.
So what about talk of states opting out and getting waivers? A State may indeed ask for a waiver on “Community Pricing.” Doing this would enable them to set up a “high risk pool” for people with pre existing conditions. By doing this, people who don’t have pre existing conditions would be able to pay less for their health insurance. Which would probably make insurance more affordable for more people. But if a State opts to do this, they must set aside a “high risk pool fund” to help those folks pay for their coverage. The health care reform bill also promises to set aside $136 billion towards this to help the states that choose to do this. Will some States attempt this? Probably, Maine and Wisconsin actually had this type of pool in their states before the Affordable Care Act and a lot of times the people actually were not aware they were in these pools of coverage.
One final thought, this plan still has to pass the Senate and I don’t think it will in its current state. So stay informed but it’s too soon to loss sleep. And again, if you are on Medicare, relax.
Are All Annuities Bad And A Rip-Off?
So this was a question left on my phone the other day. It was from a woman who had retired from an executive position about 7 years ago and rolled over her entire $919,614 401k into a variable annuity which now stood at $748,682. Not exactly going in the direction she had hoped for, and she was at a loss to why this was happening to her.
After meeting with her and calling her annuity company on speaker phone so she could hear the entire conversation we got the answers and explanations as to why her annuity had performed the way it had. We also both came to a pretty stunning conclusion, she never should have been in this product at all!
So to try to avoid the same mistake from happening to you,let me explain the basic differences in annuities.
First are fixed interest annuities. They offer a guaranteed fixed interest rate of return usually better than a bank CD or money market account and depending on the company, range anywhere from a 5 year to 10 year period. During this time, you can access up to 10% of the total amount for withdrawal,which also makes them more liquid than a CD.
Next is the fixed indexed annuity. This product allows you to choose a stock index like the S&P 500 or the Dow Jones Industrial. Your money IS NOT invested into these indexes. What happens is this: If the index you choose goes up, you get interest added to your account, and so it grows. On the anniversary date of the contract you get your annual statement breaking down your gains. Well, what happens if there are no gains in that index you chose? What if it lost money? In a word, nothing. You didn’t gain any money, but you didn’t lose any money either. Your principal is always protected from loss. Remember you ARE NOT invested in the market. You picked an index and you get interest if the index grows. How is it possible to make money but not lose it? Have Insurance Companies lost their business sense? Not hardly, what happens is your gains are capped for the year. This cap is the ceiling you can make in any one year and can range from as low as 3% to a high of 18% depending on the company and the index you choose. This is one of the biggest differences in products and most people do not realize how important these caps are. Not having a higher cap does not guarantee you will get that percentage in a year, merely that if the index does very well , this is the maximum you could earn in interest. This product is designed to grow over time, without exposing a nest egg to losses.
In the spirit of full disclosure, I am an insurance broker and I am compensated by the more than 100 companies I represent. Also, I can get into a lot of trouble giving advice out over the phones without knowing your financial situation in some detail. So please, call me to schedule an appointment or free review, but not to give you the names of “ good” annuity companies.
The third and most misunderstood annuity is the variable annuity. In this annuity you have a choice of investments and they involve the RISK of your principal. Since the insurance company is also managing your investment, you will be charged a separate annual fee regardless of how the investment performs. This fee varies for each company and can range from 3 to 6 percent. So yes, you can lose money and be charged on top of the loss. So why do people invest in this type of annuity? This type of annuity offers the biggest potential for gain. There are usually no caps and you can make whatever your investment choice makes, minus the fee. If you pick the Dow Jones Industrial and it gains 28% you make 28%, minus the fee the insurance company charges. If it loses, so do you. It is a product seasoned investors can relate to and brokers are comfortable talking about. Also insurance companies like them as it involves you participating in the risk and them collecting a guaranteed annual fee.
This is the product the woman I talked about in the opening paragraph had purchased.
One final note, any of these above listed products may have a “bonus” added to them to make them more attractive to the consumer. Make sure you know that this bonus is credited up front and also qualifies to earn interest in the future. So a 10% bonus should make $100,000 grow into $110,000 at the beginning of the contract and then the $110,000 is able to grow over time.
I hope this helps everyone understand the products a little better. I believe it is important for the consumer to understand the product they have or intend to purchase.
Retirement Tips And Ideas For Your 401k and IRA
So the big day is finally here and you’re ready to retire. Or, maybe you’ve just left your last job for a better opportunity and you’re wondering what your options are for the retirement account that you left behind.. Should you just leave there? Can you move it? If you do, are there penalties or fees if you do move it? Can I use the money before I retire?
If you move your 401K into an IRA, commonly known as a rollover there are no penalties or fees. And this is what most people when they have a retirement account that was provided from their employer. IRA stands for Individual Retirement Account, which means that you have not yet paid taxes on the money in the account. As for using the money before you retire, if you take any withdrawals from your retirement account before age 591/2, you will pay a 10% penalty in addition to having the money withdrawn taxed as income. An option to this would be to see if your company allows you to borrow part of your retirement account. If so, the money will not be taxed and you won’t pay a penalty, but you must repay the loan plus whatever interest you are charged. Know the implications before you make the decision!
After age 60, there are no penalties, but because you never paid taxes on this money while it accumulated, you must pay taxes on any withdrawals. Most people opt to move their money from their previous employer to a local advisor for convenience and access to their account and current advice. So where to move it to?
'A lot of the answer to that depends on you. If you’re aggressive and want the biggest opportunity for gains you are probably looking at stock or mutual funds or a variable annuity that allows you to invest in stock and precious metal accounts. More conservative? Willing to sacrifice some potential gain in exchange for a more restful nights sleep and guarantees on your investment? You might want to look into fixed indexed annuities or even bank certificate of deposits. Some Insurance companies also offer C.D. alternatives which typically offer higher interest rates than banks, with terms anywhere from 36 to 60 months. It is very important you know how these financial instruments work before you invest. If you are confused do not make a decision. Talk to someone else, who can explain things in terms you understand.
The other thing to consider is this: What do you need the money to do? What is your situation? Does the money have to provide an income to help support you for as long as you live? How much money do you need this money to provide? If not, how important is leaving money behind for your children or grand children?
Also, how much other income do you have coming in? And do you have other money put away for an emergency or illness fund? What kind of debts do you have?The lower your debt,the less money you need for your retirement. One thing I learned from my clients is that money saved from not buying new cars and paying off mortgages early is money you don’t have to spend in your retirement.
Remember, what IRA stands for. That's Individual Retirement Account, and it should be tailored to you and your needs.
Why You Shouldn’t Worry About Losing Your Medicare
Hello and happy spring! Being an independent marketing organization that researches insurance companies and financial institutions,it’s our job to keep up on changes that affect the insurance and financial service industries. So let’s cover the most popular questions we are being asked.
• Can the Cubs repeat as World Champions? It’s springtime and hope is everywhere, am I right? Depends on the depth of their starting pitching and if they get consistent production from the lead off spot. Whether it’s Schwabs or Zobrist, you gotta set the table for Bryant and Rizzo.
• Is the Government going to take away my Medicare? Not hardly. The fact is this, Republicans and Democrats have no wish, desire or want to change Medicare A and Medicare B for seniors already on Medicare. A pays for your hospital expenses ans B pays for your doctor expenses and medical durable goods. Do the Republicans, led by Paul Ryan wish to change it for the future generations? Yes and Medicare will look different for our children than for those currently on it or within 10 years of receiving it. As for Part D, which provides your prescription drug benefits. Well the new president is saying the right things about allowing Medicare and Medicaid to negotiate lower drug prices for their beneficiaries. That would be a wonderful thing and its about time that the single largest purchaser of prescription drugs (Medicare) be allowed to negotiate for better prices from the pharmaceutical companies.
• Wait a minute, you said if I was within 10 years of Medicare, I’m only 50, what about me? Your Medicare will probably be different, not bad or good but different. You will probably have more deductibles and co pays but with the option of limiting those in exchange for being in a physician network. Alot like what Medicare Advantage plans currently look like. Or think of your options if you have group health insurance thru your employer. You have choices based on what you want to pay premium wise and for deductibles and co insurance. My main point is, Medicare is not going away for those close to it or already on it.
• Is it true that I won’t be able to buy a plan F Medicare Supplement in the future? If you have a Medicare Supplement Plan F you will be able to keep it. Right now, there is talk of changing Medicare Supplement Plans so that anyone new to Medicare in 2020, will not be offered Plan F. I can’t stress enough that this is being planned for 2020 and only affects people new to medicare in 2020, or who don’t already have a Plan F in force already.
• If there isn’t a fee for you seeing me, how do you guys make any money? Thats a great question! We have independent relationships with over 100 companies. By staying independent it allows us to pick the right product for your situation. Then the company pays us. The good news is that there is no charge to you. Also, since we get compensated regardless of the product, there is no need to worry about are we choosing one plan over another based on compensation. We work for you, but you don’t pay us, the companies do.
• You are in Tinley Park, I live in the city .................don’t mean to cut you off but we meet with people in their homes. Its private, its convenient and you have all of your information right there. We try very hard to work the way insurance and financial services used to work. At the kitchen table.
What Investment Is Best For My Situation
You have worked, saved and sacrificed,accumulating money for your “Golden years.” So now what? Whether you are a millionaire or used to living paycheck to paycheck here is everyone’s biggest question,” What do I do with my money? Where do I find someone to trust?” Ok so actually that’s a couple of questions. But my point is that regardless of your net worth,no one can afford a bad choice.
Social Security income has stopped keeping pace with higher prices for food,medicines and utility costs. Interest rates remain historically low and retirees are feeling the effects of this. Not to mention that outliving one’s nest egg is increasing as a concern as people live well into their 80’s on average today.
This anxiety exists not only in those who are retired, but also those who will be retiring in the next couple of years. People want the answer to their retirement needs. One that is true and right for them and that answer exists for everyone. So what's the catch?
Simple this, the product or usually products that work for your situation, work if they are focused around YOUR situation. Based on your health, assets, income and expenses. Your advisor needs to know all these things and also your thoughts and emotions. How aggressive are you with investing? Can you afford a loss while looking for a larger gain?
You know, almost every single client I have has gone to one of those dinner seminars where you get a nice dinner and then a sales pitch. I always tell my clients to go if they are invited, enjoy the meal, just remember that the product being “pitched” to you is also being “pitched” to everyone else in the room, regardless of anyone’s individual needs or wants. And the thing is, thats kinda a one size fits all approach to your situation. Is that what you want for your retirement funds?
Honestly, in the last 12 years I have not lost one client to that kind of presentation. Simply put, to know whats best for you I have to know you. Your goals and your financial needs. Then we can work together to find the financial and insurance products that are out there that work best for you.The products really are out there for everyone, they just have to be matched up to you.
So, what can you do to get the right investment help? Be proactive and take the initiative, it is YOUR retirement. Call advisors and financial planners up. Ask how many companies and kinds of investments they offer. Take some time and meet with them as long as they do not charge an upfront fee. Then, at the meeting be honest, share your situation, all of it. An advisor worth their salt will not give you advice without knowing the whole picture. Also, do not be discouraged if you are turned down by a firm because they only handle “high dollar clients.” Whatever your net worth is, you deserve the opportunity to get professional help that is centered around you.
When you bring your concerns to the right financial advisor, you’ll get back not only solutions, but your peace of mind as well.