Why You SHOULDN’T Want to be Financially Popular

Why You SHOULDN’T Want to be Financially Popular

In all my years of financial practice – meeting and talking with folks from all walks of life – I have yet to encounter anyone whose financial goal is NOT to make the most gains they possibly could, not a single soul. Makes perfect sense, because a person with that goal would obviously not be sitting in my office, or in front of any other financial professional for that matter.

That thought has led me to a question: Why aren’t the majority of investors financially successful? It seems to me that most folks, after a lifetime of hard work, saving, investing, end up spending their retirement years in an inadvertent cycle of financial nervousness – often wondering what went wrong.  

On the other hand, it’s not a secret that only a select few (and I mean, a tiny, itty-bitty percentage) investors are able to retire with complete financial success and the associated peace of mind.

Here’s My Unofficial Observation

Unfortunately, the overwhelming majority of investors follow what amounts to nothing but complete myths. The thing is, when it comes to money, intentions and/or following the majority isn’t enough. You’ve got to get it right! The simple fact that the majority is pursuing something doesn’t endorse it as financially prudent, does it?  Let’s face it, in reality isn’t the exact opposite the case? As in, only the few who seemingly are NOT doing what everybody else is doing achieve meaningful success.

If you are a regular reader of my columns you may have noticed that I love telling stories. Here’s one history lesson I want us to ponder. Mind you this actually happened!

Once upon a time, way back when, virtually everyone in the world thought and believed that the Earth was the center of the Universe – and that the sun, as well as all the other planets in the solar system, revolved around the Earth. Then one day, a guy by the name of Galileo Galilei came along and argued that his evidence proved the complete opposite. You know what happened to him? He was asked to “stop it,” as in “shut up or else.”

You see, to the overwhelming majority, that issue was already settled! After all, everybody had already accepted the conclusion that the Earth was indeed the center of the universe. In fact, Galileo was arrested and imprisoned for standing his minority ground. Unfortunately, he died in 1642 as a prisoner under house arrest.

That’s unbelievable, isn’t it? For those of you who may be geographically challenged, Galileo was 100 percent correct, meaning that “everybody else” in the world was dead wrong.

That said, when it comes to your finances, take a page out of Galileo’s book. The minority and unpopular perspectives are precisely what you should be seeking if you really want to hit a financial home run. Unless, of course, you want what everybody else has. In that case, follow the popular advice and you’ll end up exactly like them – mostly struggling and facing an insecure financial future.

Personal finance is the one area of your life where I can tell you with 100 percent specificity NOT to follow the majority – because I don’t believe you’ll like the outcome. Think about it!

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Contact a financial professional at Laser Financial Group TODAY to schedule your complimentary appointment that you can discuss a potentially unpopular – yet fiscally rewarding – financial solution for your future. 301.949.4449 or LaserFG.com.

How to Put Your Inheritance on Steroids – Practically Overnight!

How to Put Your Inheritance on Steroids – Practically Overnight!

Christie was able to more than double what she intends to leave behind for her loved ones without spending even one extra cent! Of course, I’ll tell you exactly how she was able to accomplish that, but before I forget, let me thank the 71-year-young lady for allowing me to discuss her story with you.

Income from Christie’s pension, Social Security, and savings is more than enough for her ongoing expenses. In addition, she’s always been able to maintain a comfortable, sizeable emergency fund. Roughly nine years ago, Christie thought it wise to stash away $100,000 in the form of a CD at a local bank because, as she puts it, “I didn’t foresee any circumstances under which I’d need to tap into those funds, other than leave it as an inheritance.”

A couple years ago, she sought my thoughts on “anything you could come up with” that would be better than her idea, “without compromising the guarantee of that $100,000 inheritance.” Boy, did I have a recommendation for her!

The Right Answer Could Be the Simplest 

My suggestion? Use the $100,000 CD to purchase a permanent cash value life insurance contract. In spite of Christie’s health challenges, we were able to secure such a contract with an A++ rated insurer with a no-lapse guarantee for life in the amount of $276,000!! 

In plain language: I got the carrier to write up a contract saying that in exchange for Christie’s $100,000, the company guarantees that come what may, whenever she dies her named beneficiaries will receive a check for $276,000. The thing you must understand about this contract is that it must happen exactly as is written, irrespective of what happens on Wall Street. Whether Christie dies the very next day or twenty-five years later, her heirs will receive that check. 

And most amazing of all is that under Section 101 of the U. S. Tax Code – read the next words very slowly – every bit of that $276,000 check will be completely and absolutely income-tax free. Yes, her beneficiaries will not owe a penny in income tax! So just like that – in an instant – we’ve turned Christie’s $100,000 CD inheritance into a $276,000 tax-free check with ironclad guarantees.

But the question IS…?

Can her current CD – or any CD/mutual fund, for that matter – produce the same result? The honest and straightforward answer is that it would depend on the rate of return that the specific instrument earns. And let’s not forget that since CDs/mutual funds are “taxable” instruments, she’d have to prudently factor the paying of taxes into the equation (given a 28 percent marginal rate). Let’s look at a couple of scenarios here.

If Christie were to live for another 10 years, a CD/mutual fund must consistently – without fail – earn 14.84 percent every single year for the next 10 years in order for her heirs to walk away with the same $276,000.  What if she lived for 15 years instead? That return would have to be 9.37 percent – again consistently, without fail – for the next 15 years straight. Hey sure, that’s possible, because anything is possible, right? But wouldn’t you agree with me that it would take a complete fool (with a capital “F”) to pursue that possibility?

I’ve always maintained that when it comes to your overall financial wellness (retirement, asset transfers, etc.), you first need to know what you’d like to achieve. Then you must talk with an honest financial professional(s) with a hefty dose of common sense. And please be prepared and willing to step outside of the traditional, cookie cutter mold, because more likely than not, that’s what will have to happen for you to make the best gains possible for your retirement.

You know that warning they put on those daredevil reality shows? Please don’t try this at home! Contact a financial professional at Laser Financial Group today so that we can have a discussion about your specific situation and see what we can come up with to help you to supercharge your assets. It took Christie nine years of searching, but only a couple of hours of meeting with me, to know she’s finally nailed it for her heirs.

Call us today at 301.949.4449 or visit us on the Web to schedule your complimentary session.

Why a “Stretch IRA” Simply Begs the Real Question (PART 2)

Why a “Stretch IRA” Simply Begs the Real Question (PART 2)

Let’s begin by stating the bottom-line issue when it comes to a “Stretch IRA”:  to ensure the transfer of all or at least the lion’s share of qualified plan money that you’ll leave to your beloved heirs. In fact that’s the only reason. While I haven’t met anyone yet who’s even remotely thrilled about the idea of their heirs having to share their inheritance with the IRS, a “Stretch IRA” – get this – will not solve that issue. Actually, given the real-life facts on the ground, “Stretch IRAs” don’t even begin to scratch the surface of the income-tax dilemma for two simple reasons:

Issue #1: Mission Control, We Have a Tax-Rate Problem

The plain and simple fact is that “tax rate” is completely irrelevant here, in the sense that whatever the tax rate happens to be is exactly what it will be. Just because someone uses the “Stretch” option doesn’t mean that they’ll end up with more money than the person who did not use that option. That’s simple, basic Income Tax 101. Again, ‘Stretch IRA’s” don’t have any special lower tax rates, period!

The only scenario under which I could see a benefit of some sort is in the highly unlikely situation of tax rates actually decreasing down the road – after the “Stretch” period begins. However, given where we are fiscally as a nation, it would be foolish, quite frankly, for anyone to think that income-tax rates are going to be trending downward.

All of which means the much more likely scenario is that tax rates will increase. If you’re honest, you know this is true, don’t you? If that were to happen, where does that leave “Stretch IRAs” as a solution? Think about it in the light of this little hint: we presently have a temporary extension of our historically low tax rates. What do you really suspect will happen next? You need to understand that all “Stretch IRAs” do is permit beneficiaries to withdraw small amounts – BUT they must pay income-tax at the “prevailing rate” at that time of each withdrawal. Are you beginning to see how stepping back from all the hype and actually breaking things down brings clarity?

Issue #2: Sorry, But the Choice Is NOT Yours.

This is extremely important to understand. The decision of whether to “Stretch” or not ultimately rests with your beneficiaries. Think about it – the owner must be deceased for the decision even to apply. Remember our example in Part 1 of this series? It was George Junior (not George Senior) who called that shot? Again, that’s another fact of life.

From what I’ve seen as a practicing financial professional, whenever beneficiaries are faced with the choice of how to withdraw their inherited IRA money, for some strange reason they always opt to take all of it out ASAP!! While there may be several reasons for this phenomenon, I’m quite sure it’s also because they realize at that point that a “Stretch IRA” is not really a solution. In fact, if you were George Junior from Part 1, would you have opted for the “Stretch IRA” (Option 3)?

This reminds me of a fascinating story my late grandfather told me when I was a young boy. You’ll love it! 

Due to extreme famine in their land, Ananse convinced Ted and Mike, who happened to be twin brothers, to go hunt for food with him. After all, they all needed to survive. They scouted the land for several hours, when Ted and Mike each found an orange. Ananse, on the other hand, came up with nothing – because all he did was take a nice long nap under the shade of a large oak tree the entire time. Mind you, Ted and Mike were unaware of Ananse’s napping.

Ananse woke and, finding that Ted and Mike had secured some food, suggested that the brothers give up one whole orange for him while they split the other in half between them; Ted would get half and Mike the other half. Of course, the brothers rejected that offer outright. But Ananse came up with a fresh suggestion that would allow each of the brothers to keep their respective oranges. However, since all of them had gone hunting together, Ananse told them it was fitting and proper for each brother to share with him by giving him half of their respective oranges. To that they complied. You see, the thing about Anase is that he always got what he wanted, one way or the other – and made his victims felt good about it until after the fact.

The moral of my story? “Stretch IRAs” beg the real question – they always have and always will. Here’s the thing: Did you know there are simple, straightforward changes you could make TODAY that wouldn’t cost you anything more than you’re already spending, irrespective of your age, health, or wealth and that can help ensure that your heirs will receive their inheritance completely income-tax free? Yes, there are!

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Contact a financial professional at Laser Financial Group TODAY to schedule your no-strings, complimentary session to discuss which sort of plan will work best for YOUR needs. We're guessing it's NOT a ""Stretch IRA."  LaserFG.com or 301.949.4449.

Why a “Stretch IRA” Simply Begs the Real Question (PART 1)

Why a “Stretch IRA” Simply Begs the Real Question (PART 1)

Let’s say – hypothetically speaking – that at the time of his death in 2010, George Senior owned a traditional IRA worth $200,000, and his 39-year-old son, George Junior, was the sole beneficiary.

 As is generally the situation with all pre-tax (or qualified) plans such as 401(k)s, 403(b)s, and the like, George Junior must pay income-tax on the entire $200,000. A very important caveat to note here is that I am limiting this discussion to income tax only. I am ignoring federal and state estate taxes, as well as inheritance taxes, because while those may or may not apply, Junior and everyone who inherits any qualified plan must at the very least pay income tax. There’s no way around that.

Generally speaking, all the income tax must be paid within five years of the account owner’s death. So pretty much, George Junior could withdraw the entire $200,000 in one year or spread it out any way he desires, as long as that happens by December 31^st of the fifth year – which would be 2015 in this scenario.

Now let’s keep things really simple by holding all other variables constant and assume a combined federal and state tax rate of 25 percent as we consider the various options available to George Junior.

Option 1: If George Junior decided to withdraw the entire $200,000 in 2011, he’d have to send the IRS an income tax check for $50,000 (25 percent of $200,000), giving him $150,000 to keep.

Option 2: On the other hand, let’s say Junior decided to spread the $200,000 out equally over the five-year legal timeline. Each year, he’d withdraw $40,000, then pay 25 percent tax ($10,000), therefore ending up with $30,000 a year. Doing the quick math, at the end of those five years he’d have paid a total of $50,000 ($10,000 a year for 5 years) in income tax, keeping a total of $150,000. Pretty interesting, wouldn’t you agree? But there is a third option available to Junior.

Option 3: The Pension Protection Act of 2006 allows George Junior to do what is known as a “Stretch IRA.” As the name implies, Junior could “stretch” the $200,000 over his entire life expectancy – as determined by Table 1 (Single Life Expectancy for Use by Beneficiaries) in Appendix C of IRS Publication 590. Here’s how that works:

In 2011, George Junior turns 40. According to Table 1, his life expectancy is 43.6 years. Since the value of his inherited IRA (or any other qualified plan, for that matter) at the end of 2010 (the year his father died) was $200,000, he’d divide that by 43.6 to arrive at $4,587. That is the minimum amount he must withdraw in 2011. And if George Junior withdrew this $4,587, he’d owe the IRS $1,147 (25 percent of $4,587) in income-tax, and would therefore end up with a net amount of $3,440. At the end of 2011, his inherited IRA would have a new balance of $195,413 ($200,000 less the $4,587 he withdrew).

Then, come 2012 the amount Junior must withdraw would be based on the ending 2011 balance of $195,413, divided by 42.6 (2011’s divisor of 43.6 reduced by 1 year because he’s now a year older, or 41). That math yields a result of $4,587. So George Junior must now withdraw $4,587, pay 25 percent income-tax (which is $1,147), and end up with $3,440. We are now at the end of 2012, at which point Junior’s inherited IRA is now worth $190,826 – the previous balance of $195,413 less the $4,587 he just withdrew. I recognize that things are really beginning to get interesting, but bear with me a little further and let’s go through the complete scenario – so that you can fully appreciate my viewpoint.

There’s a saying that three times is the charm, so let’s see what happens in 2013. We take the 2012 ending balance of $190,826 and divide by 41.6 (remember, we must reduce it by 1). That amount turns out to be $4,587. With a 25 percent tax ($1,147) George Junior will have a net amount of $3,440 to spend in 2013.

As simple as we have kept our assumptions, I believe you can follow the general direction of what is happening under all three options. The REAL question for debate, though, is whether “Stretch IRAs” provide a tax solution or benefit – because that’s the only reason anyone would pursue them.

In my next column, I’ll share my thoughts on that question, but for now, what do YOU think about the options? By the way, just in case you were wondering whether your age appears on Table 1, it covers every age from zero through 111 years.
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Schedule a complimentary session with a licensed professional at Laser Financial Group to discuss whether a stretch IRA may or may not be right for you. LaserFG.com or 301.949.4449.

Are Variable Investments Ever Safe?

Are Variable Investments Ever Safe?

The vast majority of conventional financial advisors seem to one way or the other suggest that variable investments could be safe – if you play your cards right, so to speak. They seem to suggest that pretty much all you need to do is ensure that you have the right asset allocation, or a well-diversified/balanced portfolio. And then be sure to keep rebalancing every so often.

Plain and simple, I’d say that line of thought is completely preposterous. Before I explain, let me point out that I don’t fault you – as an investor – if you subscribed to this theory up until today. The fact is that when almost everyone around you repeats the same refrains or behaviors for years (however ill-advised they might be) you’re more inclined to subscribe to them without even realizing it.

What Is a Variable Investment?

I define a variable investment as any investment that varies directly with the stock market. Sure, such an investment could shoot way up, within the twinkling of an eye – or at least, shall we say, that’s the hope. On the other hand, though, the opposite is also true, isn’t it? The same investment could take a nosedive, couldn’t it? 

Conventional theorists believe that if your portfolio is well-balanced or you mix your investments correctly, you won’t have to worry – which I must admit sounds pretty good, in theory. In reality, however, variable means variable, period! So putting a bunch of variable investments together, regardless of how well or how often you balance them, does not, has not, and will never eliminate the fact that they are variable, and that you could therefore lose everything (including the seed money you started with) at any time! Has such a thing happened in recent memory? I don’t believe I need to say any more on that, do I?

Absolutely No One Knows the Supposed Correct Allocation or Mix – NO ONE!

Unfortunately, many investors seem to miss this point. Then, whenever the stock market goes through a major downward spiral, the best explanation they usually receive from their traditional financial advisors is that they should have had the “correct asset allocation” or “proper diversification mix.” BUT, if  anyone – including all the experts, commentators, and gurus – knew or has ever had that silver bullet, why in the world would they wait only to reveal it after the fact – every time? Does that make any sense to you, whatsoever? In this country, we refer to such behavior as Monday-morning quarterbacking for a reason. Who can’t assess what went wrong in hindsight? Seriously?

So, What Must You Do?

It’s about time you stopped chasing baseless, porous theories that could potentially damage your financial assets at the time you need them most. I would encourage you as an investor to take a pause and really – I mean really – begin to focus on what will matter most above all else at the end of the day – reliable, consistent income for life. Wouldn’t you agree that you must use investments that make sense and have actually proven reliable, as opposed to leaving things to pure chance? 

Bear in mind that more likely than not, you may have to resort to alternatives that are deemed to be “unpopular,” but let’s face it: the popular thing seems to be that most retirees, after all those years of saving, planning, and “diversifying,” end up with nervousness and constant financial worry. Who wouldn’t if their life savings were variable? Irrespective of where you are in life, you can correct your undesirable investing woes with the right help, so go for it!

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Contact a professional at Laser Financial group today to schedule your complimentary consultation. We'll help you explore proven, common-sense avenues for you to protect your retirement income, rather than trying to balance and rebalance it, leaving it at the whim of the stock market. 301.949.4449 or LaserFG.com.