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Retirement Planning – Preparing for ‘Guaranteed Income in Life’

In the thick of the stock-market catastrophe in November 2008, Craig Smith, a new retiree at 58, was seized with dread and anxiousness. He wasn’t aware of retirement funds, he was too young to collect Social Security benefits, and he was banking wholly on his savings.

In his mind, he was aware that he couldn’t cash out his stocks because he might live another 30 years or so and would want higher investment returns that would come in from stocks, but emotionally, he was completely scarred.

As retired folks watched their account balances drop sharply, most of them were counseled to cut down their retractions or head back to work to maintain their steady income. The thought of turning into a Wal-Mart welcomer or McDonald’s counter person was certainly not appealing to Craig as he found impossible to sleep at night.

Probabilities are alright — till you become a data point. The recent global recession that gripped the world in fear and horror was so serious and so uncommon (since nearly every asset class, save treasury bonds, endured grievous losses) that it has challenged the accuracy, integrity, and propriety of every conservative strategy.

The biggest source of danger to retirement income lies in removing too much money from a shriveling nest egg, for there may not be adequate left to gain from the unavoidable market backlash. Making the most of all the financial assistance you have at the moment and setting a plan in place that will take care of unforeseen outcomes into consideration is the most crucial and primary step in insuring against them.

Over the next few days we will touch topics such as how to map your time and how you can look out for while looking for a Fulfilling Retirement.

NAIFA Annual Meeting, Seattle

Randhir Judge from Judge For Yourself Insurance & Financial Services, Inc.

We at JFY Insurance & Financial Services Inc. just got back from the NAIFA Annual Meeting held at the Washington State Convention & Trade Center at Seattle, WA. It is always a treat to watch a mix of experienced & enthusiastic visionaries under one roof, to hear them share their rich insights on Financial planning.

Click Here for a set of photographs from the NAIFA event.

Why Buy-Sell Agreements make Good Business Sense

A business is largely dependant on its owners for its survival. So it is only fair that the owners will be concerned with the fate of the business in case something was to happen to the owner. One would want to ensure continuity of ownership and management without having to compromise on the business in any way. A fail-safe guarantee is a well-drafted buy-sell agreement. Think of it as a pre-martial agreement or even a will between business owners. Such a buyout agreement, between co-owners of a business is binding on the signees. Its purpose is to govern any situation, in relation to the owner, that can cause distress to the business.
The most important part of such an agreement is the listing of trigger events, or specific situations that will cause a mandatory or optional buyout of an owner’s interest.
These trigger events usually include;
Death: This is a universal clause in almost all buy-sell agreements. In the event of an owner’s death, the entity or the surviving shareholders have the obligation to purchase the interest of the deceased.
Disability: In case of an owner’s disability, after a defined period of time, the corporation can have a defined right or obligation, to purchase the disabled employee’s shares.
Sellout to a third party: The buy-sell agreement should specify the terms under which a potential sale can be presented to the co-owners of the business.
Retirement of an owner: The owner’s retirement will usually result in a mandatory buyout of the business, after deciding on the valuation methods and payment terms.
Owner’s divorce or bankruptcy: In either event, the business is liable to be subjected to outsider interference. As a safety measure, the co-owners should include a clause that forces the affected owner to sell either shares or the entity itself, after deciding on the valuation methods and payment terms.
Keeping these major trigger events in mind, a well-drafted buy-sell agreement will provide reasonable and workable solutions for your business.

The President’s Gold

Last week I attended the Annual Sales Exposition for NAIFA California which took place in Sacramento on May 18, 2010. NAIFA, by the way, is the largest insurance and financial services organization in the world, with almost 60,000 members. The California body consists of 26 local chapters.

Part of the event is the annual award for the best performing chapters. The Mt. Diablo chapter, of which I am President, won the President’s Gold for the Best Chapter. This is a great source of pride to our chapter, since we’ve won this for the first time in 13 years! It is truly a recognition of the immense hard work we have put in this year across membership growth, contributions and fund-raising, programs for continuing education, and for community outreach (This year, we held a fundraiser for Haiti).

While accepting the award and medal, I mentioned that I was there representing the hard work put in by the entire executive board of the chapter, especially the outstanding job done by our tireless executive director, Barbara Layson and the ombudsman role played by Nancy Hairsine, Chairperson of the Financial Planning Association of the East Bay.

As with all the milestones in my life, this would have been entirely impossible without my wife Anu’s support and presence.

A big thanks to the board and trustees at NAIFA California for an amazing Sales Expo. We’ve challenged ourselves to repeat our stellar performance next year so that we get that President’s Gold once again!

Why Do You Need a Cobra Cover?

Aside from one’s livelihood, a job provides people and their families a paramount security – Health Benefits & Coverage. However, circumstances through one’s career, brought about voluntarily or involuntarily, can have adverse effects on this Health Coverage. COBRA, which is the Consolidated Omnibus Budget Reconciliation Act is a legislature that provides workers who lose their jobs the opportunity an option to extend their group health benefits.

You now have a chance to protect your family and yourself under COBRA, and some of the circumstances that entitle you to extended benefits are:

1. Termination of employment (voluntary or otherwise) for reasons not including gross misconduct
2. If an employee already enjoying Health Cover becomes entitled to Medicare
3. In case of Legal Separation or Divorce
4. Status change other than Dependent
5. Demise of employee
6. Reduction in Work Hours

As a rule under COBRA, employers with over twenty employees are mandated to offer a chance to temporarily extend health coverage in circumstances where health cover would otherwise be null & void. This is also known as Continuation Coverage.

The specific time-frame and conditions of Continuation Coverage varies on the basis of ‘reasons for job-loss’. For example, in the case of Termination or Reduced Work Hours, the employee, spouse and dependent child can qualify for an extension of 18 months. Similarly, if the employee becomes entitled to Medicare, or undergoes Divorce, or passes on; the spouse and dependent child are entitled to a 36 month extension on health cover.

While the COBRA presents many benefits, in order to fully utilize the Act; one must carefully plan its engagement. There are several stringent Notification Requirements that work both ways. There is certain information regarding COBRA that the health cover administrator must furnish to the employee. Likewise, the employee/beneficiary must keep the administrator updated of changing status (of employment and beneficiaries) – reduction in job hours, loss of job, legal separation etc.

One’s Continuation Coverage may be cut short in some cases for example reduction of your hours of employment or termination. Hence to avoid such a situation, and make the best of the COBRA; one has to tread cautiously and seek the help of a financial advisor to reap it’s deserved advantages. It is designed so that it can become a huge relief to your life and well- being; provided it is used justly.

Split Dollar Life Insurance – Benefits at Half the Cost

Insurance. A reassuring word. Your fallback and your contingency plan in case of unforeseen risks. But of course you know that this assurance comes at a premium…quite literally.

The greater you want, your amount of compensation to be, the larger the premium amount. But if one can’t afford large sums to be paid out as insurance premiums, it doesn’t mean that they have to settle for a smaller insurance amount.

The solution here is to opt for a split dollar life insurance. In this kind of an insurance policy, both the premiums and proceeds of the policy are split between multiple people.

This can mean an employer and an employee, or even a parent and a child. This is a clever planning tool, especially for younger people just starting out their lives, since it enables you to obtain an insurance policy at a subsidized cost, since the policy premium can be divided with your employer or family member. It is a mutually beneficial agreement, wherein all benefits can also be shared.

There are two types of split dollar polices available:

* Endorsement: This policy is owned by the employer, and the insured person’s chooses his beneficiaries and terms of death benefits.
* Collateral: This policy is owned by the employee and the employer’s contributions towards premiums are considered as loan, to be paid off with the compensation from the policy proceeds.

What needs to be kept in mind is that the premium paid is not tax deductable for either party involved. Whoever, with the help of a good financial advisor, all concerned can reap full benefits of such a policy.

Disabling Long-Term Disability

The likelihood of contracting a Long Term Disability always seems bleak. The truth however is quite different. In fact, according to the US Census Bureau, disability is imminent for one in five of us! Disability that could be induced by Cancer, or back, neck, joint & tendon related complications and any such ailment that renders us incapable of holding our jobs for periods ranging from 6 months to 3 years. To go that long without regular income is hard; and to ignore the possibility of disability in the first place; foolhardy.

While we can not always prevent Disability; we can guard against its outcome to a large extent by investment in a good Long Term Disability Insurance program. Experts contend that this is the most important insurance type one can purchase. Depending on the kind of insurance bought, one can be compensated to the tune of 60-70% of one’s salary. This payout can be increased to a healthy 80% if your employer allows you to purchase additional insurance.

There are some basics that one must take into account when deciding a fitting Long Term Disability Insurance. They are:

* Salary is set at the time of Policy Purchase. As your salary increases, increase the value of the plan
* Policy with or without mandatory Physical Examination
* Payout Periods vary. It might be better to opt for late payout (until age 65) as against 5-10 years
* Disability Definition differs between insurers. Take a studied and suitable plan
* Insurance Type varies. ‘Guaranteed Renewable’ ensures that the company can not drop the plan (unless premium payment is defaulted). ‘Non-Cancelable’ type prevents the insurer from raising Premium

These and many more factors need to be specifically scrutinized. Would it suit your needs better to have a ‘residual benefits’ policy (where insurer compensates for incremental difference between old & new remuneration), or buy a ‘cost of living’ policy (where insurer takes inflation into account).

There are many things to consider for a tailor-made insurance plan, best done by engaging a trusted financial advisor (or company). With the perfect Disability Insurance, you have the power to ‘disable’ many of the worst effects of ‘disability’.

Smart Wills Are a Must Have for a Happy Retirement

Having worked tirelessly for all of your lives, its now time to reap the benefits of a well deserved retirement. A crucial part of that retirement is knowing the security of the wealth you have created for your family.

Some aspects to keep in mind:

Your Will:

* Is the single-most important document of your Property/Asset Distribution ‘intent’,
* It is how you would like your wealth, and assets, to be dealt with once you have passed,
* It is to whom you wish to bequeath all that you own,
* As well as a careful understanding of your wishes, which in turn yields a clear & tamper-proof will,
* It is the sound financial plan, advisable for ensuring the smooth transition of your family wealth.

The Much Needed Beneficiary Designation:

Since your wealth must only go to the Beneficiaries you think fit, and to no one else,

* Wealth Beneficiaries must be reviewed at the time of planning asset & property distribution.
* Beneficiaries need to be revised in several cases like divorce and death
* Beneficiaries must be assigned in consultation to derive the best Tax & Financial benefits

Joint Tenancy

Once in a while, jointly held property is a matter that results in family disputes:

* On the passing on of a holder of Joint Property, the ‘Survivor’ clause is activated
* The Holding then passes on to the survivors of the tenancy(or the plot)

Therefore careful thought must be given to a decision of starting Joint Tenancy.

Revocable Living Trust

A Revocable Living Trust is one where you can be both the Grantor (original trustee) & the Beneficiary (receiver) do the following :

* The property & wealth are put into a trust, and have the power to Amend or Discontinue the trust at any time,
* Since it does not constitute a Gift, there are no Gift Tax consequences in setting it up
* Thus, when setting up your trust you must seek sound advise and consult with an appropriate advisor – with ample experience in the field.

Your wealth distribution must be well informed, well thought out, safe and equitable; done in a legal, sensitive and advantageous way.