July 2018: Celebrating Your Financial Freedom
Being the month of our country’s independence, let’s talk about freedom: Franklin Roosevelt once said: "In the truest sense, freedom cannot be bestowed; it must be achieved." This holds true whether seeking independence from political, religious, or other control. We are grateful to our forefathers for their hard work and willingness to put their lives on the line for the freedoms we continue to enjoy. We can apply Mr. Roosevelt's words of wisdom in finding and building financial freedom as well. Financial freedom requires education, planning and strategy. I hope this month’s money tips will help you to achieve or to maintain your financial freedom.
Your Ten Money Tips for July:
1. Important things to know about your Social Security:
- You qualify for benefits if you worked at least ten years or forty quarters.
- Full Retirement Age is between ages 65 and 67, is based on your date of birth.
- You will get your full benefit, or 100%, if you wait until your Full Retirement age.
- If you take it before Full Retirement age you will take it at a discount. If you take it after Full Retirement age you will receive a higher benefit.
- Social Security is complicated. Talk with a professional who can guide you on the optimal time to take Social Security.
2. Be sure to add waiver of premium rider to your next life insurance application! Life is a series of unexpected events. One of these events is disability. Waiver of premiums allows you to waive the premiums on your life insurance policy, and the policy remains in force. The insurance company pays the premium on your behalf as long as you are totally disabled. Talk with your life insurance agent on the benefits of having this living benefit as an attachment to your policy.
3. Have you had a prescription filled lately at your pharmacy? Don't forget to ask, "If I paid cash how much would the cost be?" There is a good chance that cash may be cheaper than your co-pay. Also, look online for discount coupons. The website www.goodrx.com is an excellent place to find discounts.
4. Six important things to know about Medigap or Medicare Supplement Plans
- These plans are standardized, supplemental coverage sold by private insurance companies.
- These policies help fill the gap which is your share of covered expenses.
- These policies pay only after original Medicare pays. The plan only pays if it is a Medicare eligible expense.
- These plans don't cover expenses under Medicare Advantage Plans.
- Part D (Drug Benefit) is not included under these plans.
- Plan pricing is geographical specific. Premiums vary depending on where you live.
5. What are your thoughts on using annuities as a strategy for retirement planning? Here are David Blanchett's ideas. David is Head of Retirement Research at Morningstar Investment. "Outliving one's savings is one of the greatest fears among retirees. For example, a study by Allianz Life has noted that more retirees feared outliving their resources (61%) versus death (39%) (Bhojwani 2011). Annuities allow a retiree to hedge away longevity risk and can therefore improve the overall efficiency of a retiree's portfolio. The contribution of an annuity within a total portfolio framework, (benefit, risk, and cost) must be considered before determining the appropriate amount and annuity type."
6. Summertime is a good time to review your estate to make sure all the necessary documents are in order. I suggest you work with an attorney to secure these documents. Let your loved ones know where the documents are located.
- Last Will and Testament
- Designation of Health Care Surrogate
- Durable Power of Attorney
- Living Will
- HIPAA - individuals authorized to receive information on your medical care
7. Are you planning for retirement and don't know where to start? A good place to start is determining your essential income. Essential income is money used to fund your lifestyle. You will need to review all of your recurring monthly expenses and determine monies you need to live-on. You will want to do this using after tax dollars. It is important to add a cost of living increase to your numbers each year. This number can be significant. Remember, you could live 30+ years in retirement.
8. Don't forget the rule of 72 when factoring inflation in determining your essential income. The rule of 72 is a simple formula that tells you the approximate amount of time or interest rate needed for an amount to double. The formula is Years X Rate per year = 72. If you use 4% as an inflation factor, then it would only take eighteen years for your income need to double. If you are 50 years old and living-on $75,000 after tax, then you would need $150,000 at age 68 to have the same purchasing power.
9. Another note on Inflation - don't underestimate the real inflation percentage rate over a long period of time. The postage stamp is a good barometer of inflation. A first-class stamp increased to 50 cents in January 2018. The same stamp cost 10 cents in 1975. The inflation rate over this forty-three year period is 3.81%. Assuming you retire at age 65 and use the postage stamp inflation rate, the replacement cost of $75,000 to live-on would be $191,000 at age 90.
10. Have you crossed the line? You are probably familiar with the acronym DOB, but are you familiar with DOU? That is the day of un-insurability. This is the term used for when you apply for life, disability or long- term care insurance, or in some cases health insurance, and are denied coverage. The insurance company is saying. "We looked at your health history, and we do not want to take the risk." It is important to purchase these policies prior to DOU. All insurance companies do appraisals on the applicants, and not everyone qualifies for the coverage. All of us will face our "DOU" at some point in our lives. It is important to secure coverage before it occurs.
Wishing you and your family all the best!
Sincerely,
Gary Pevey, CLU ChFC
3445 American River Drive, Suite B Sacramento, CA 95864
(916) 480-0669
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The information provided by Wealth Design Group is intended for educational purposes only. This information is not intended as tax, legal, investment, or retirement advice or recommendations. You are always encouraged to seek your own advice from other legal and financial professionals.