The secrets of successful financial planning inside tips from an expert

Copyright © 2018 by Dan Gallagher All rights reserved No part of this book may be reproduced in any manner without the express written consent of the publisher, except in the case of brief excerpts in critical reviews or articles All inquiries should be addressed to Skyhorse Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018 Skyhorse Publishing books may be purchased in bulk at special discounts for sales promotion, corporate gifts, fund-raising, or educational purposes Special editions can also be created to specifications For details, contact the Special Sales Department, Skyhorse Publishing, 307 West 36th Street, 11th Floor, New York, NY 10018 or info@skyhorsepublishing.com Skyhorse® and Skyhorse Publishing® are registered trademarks of Skyhorse Publishing, Inc.®, a Delaware corporation Visit our website at www.skyhorsepublishing.com 10 Library of Congress Cataloging-in-Publication Data is available on file Cover design by Rain Saukas Cover photo credit: iStock.com Print ISBN: 978-1-5107-2530-0 Ebook ISBN: 978-1-5107-2531-7 Printed in the United States of America To Laura, mother of our four; wife for life TABLE OF CONTENTS INTRODUCTION How This Book Is Organized The Six Components of Personal Financial Planning What’s New Supplemental Resources CHAPTER 1: ADVICE, ADVISORS, AND WHAT’S NEW Regulation Fiduciaries Firms and Compliance Departments Fee-Only Equals Unbiased? Types of Professionals Credentials, Real and Imagined Methodology, the “Big Secret” CHAPTER 2: FINANCIAL POSITION, BUDGET, AND CASH MANAGEMENT Prudence and Priorities Three-Tiered Cash Reserves Budget Tracking: Target vs Actual Debt Strategy CHAPTER 3: RISK MANAGEMENT (PROTECTION PLANNING) Disability Insurance (DI) Health Coverages Life Insurance Long-Term Care Policies Annuities Liability Policies Security Cautions Carrier Claims Reliability CHAPTER 4: ACCUMULATION PLANNING Invest in Yourself College Funding Asset Allocation and Money Management Investment Products Real Estate CHAPTER 5: INCOME TAX MANAGEMENT The “Three Tax Categories” Concept A Long List of Tax-Controlled Growth and Tax Minimization Strategies CHAPTER 6: RETIREMENT PLANNING The Order of Returns and Losses Rollover Decisions and Income Planning Social Security Decision Support Medicare Long-Term Care Lifestyle, Attitudes, and Mindset in Retirement CHAPTER 7: ESTATE PLANNING Titling Property Special Real Estate Considerations Stretch IRAs and Beneficiary Forms Trusts and Their Uses Non-trust Strategies for Minimizing Estate Shrinkage CONCLUSION References Resources Index INTRODUCTION For more than three decades, until my December 2017 retirement, I’ve asked clients about the financial strategies and experiences they had prior to our engagements Roughly two-thirds had obtained great professional guidance, but had switched because of retiring advisors or a change of residence However, about one-third of my clients had one of three problems that kept surfacing: • They did little to no planning, ignoring professional advice but occasionally taking ideas from magazine articles or other impersonal sources • They diligently planned, using self-help books or software that offered strategies that were not customized to the client’s specific situation • They engaged human advisors who gave them bad advice (biased or incompetent) or bad products (inappropriate or noncompetitive) This includes professionals who used ghostwritten books to subtly promote their own financial products or fee-based services The first and second problems were usually caused by fear or disrespect of financial professionals, even though most professionals really offer sound advice and problem-solving products At best, these three problems led to inefficient or costly results; more often they led to financial disaster Real human experience stories, especially the tragedies that most of these are, help us learn and motivate us to act True accounts stay with us because we see a path to avoiding danger Although some of these accounts show certain advisors employing guile, or issuing self-serving advice to clients, not to mention poor judgment by some clients, don’t get the wrong impression: these are rare horror stories from three decades of observation, and they are far from the norm for advisor behavior or even client error They are admonitions They are reminders to pray, or to at least have compassion, for the victims I not want anyone to make the mistakes we will explore I want you to benefit from the information provided here Buy copies of this book for your adult children and preretiree/retiree friends This book can help you, and those you care about, avoid financial pitfalls It can help you think about money as something to steward wisely rather than to hoard in fear or risk greedily I have no products or advice to sell This book is different from other personal financial planning books for consumer use Most topics herein have engaging narratives of real-life drama, success, and wrenching failures These events rippled through time in their effects upon individuals and families I have known, with whom I have cried or celebrated Much of my advice runs counter to commonly held beliefs among the writers of sensational news, regulators, and industry professionals But every strategy discussed here is justified or derided in a way that enables you, the user, to determine whether it is good or bad for you in your specific situation, because I specify the conditions under which the strategy may be sound Knowing the conditions under which a strategy can help or hinder reduces the risk involved in doing one’s own planning Knowing the conditions under which a professional will make recommendations in your best interest is crucial to coordinating your strategies (newsflash: fee-only advisors are not the only professionals who must and will work in your best interest) Understanding the conditions that bear upon your product and advisor choices are what enable you to become confident—not merely emotionally, but validly—in your decisions We will explore optimal decision-making as well Finally, as the title implies, I will identify numerous little-known—even some intentionally withheld or mischaracterized—strategies: boom and bust indicators, restrictions upon consumer choice, good-versus-poor value factors, and others These issues are crucial to understand when planning for success with your money and other hard-earned assets that you have the responsibility and privilege to steward How This Book Is Organized Chapter is about types of professionals and who will be best able to help you It clarifies professional designations, “captivity” and degrees of “independence,” analysis work you can rely upon yet obtain free, paying fees, and when commissioned brokers may be relied upon versus when they may not This chapter, like the others, has “secrets” and “little-knowns” of success you’ll definitely need There are new developments in services, including practical tips on the fiduciary debate and regulatory environment that affect you Do-It-Yourself (DIY) software and online roboplanning, new phenomena, are also clarified to help your decision-making The planning process itself, updating plans, and when to just focus on a few components are also explored in chapter The Six Components of Personal Financial Planning Big problems can arise if you don’t coordinate and integrate these components carefully, so each component has its own chapter You might be tempted to skip chapters and 3, thinking that you have a handle on your budget and insurance strategies Skipping any chapter, especially these foundational ones, would almost certainly cost you some efficiency, which equates to real money and important options There are some very scary real-life accounts of intelligent adults who assumed they knew all … and lost big! Ever heard of someone losing money in a money market account, or losing their disability payments while on an approved disability claim? Hmm, what’s that they say about the three parts of the word “assume”? What does it make out of “u” and “me”? Chapters through cover the six financial planning components: Chapter 2: Financial position (including cash and credit management and budgeting) Chapter 3: Risk management (non-insurance and risk transfer techniques) Chapter 4: Accumulation planning (strategies and the truth about financial and nonfinancial investments) Chapter 5: Income tax management (including considerations most brokers always say to “talk to a CPA” about) Chapter 6: Retirement planning (tips for the young, for seniors, from medical to lifestyle and everything in-between) Chapter 7: Estate planning (health care powers of attorney versus living wills, and much, much more) All of these topics connect to each other, and some integrate deeply, such as tax management and accumulation strategies Picking optimally efficient strategies for your individual portfolio might depend on having an insurance product (risk management, like long-term care insurance) perform double duty with accumulation strategies, tax management, and retirement planning Likewise, certain tax-advantaged pure investments may not be discussed in detail in the accumulation chapter because their use is primarily for retirement income planning So, if you skip a chapter, you might miss important discussions that you assumed should be only in your chosen chapters Topics are labeled within chapters to help you judge which to focus on in a detailed read versus a skim What’s New There are several little-known changes and trends in financial products themselves; these are explored in the applicable chapters, mainly chapters and (accumulation and retirement) One financial product, of which even many professionals are unaware, is new on the market since 2014: Qualified Longevity Annuity Contracts (QLACs) It’s still evolving in 2018, and so is the supplier list Yes, there are new things under the sun! There are significant trends in some product categories, too, including some still-little-known changes in the last decade in some composite investments: mutual funds, investment trusts, derivatives, and risk-hedging products Changes are brewing, too, with equity-indexed annuities Design and tax treatment of life and annuity products are also changing: for example, drawing a death benefit from newer life policies while alive in event of terminal illness or to pay for at-home or institutionalized nursing and custodial care There are also hybrid policies for long-term care expenses that can be for ordinary income (no premium loss if long-term care insurance (LTCi) is unneeded), and that preclude premiums being required These trends and new products are clearly described and “prescribed” to help you decide whether and to what extent they are needed in your situation Supplemental Resources This book provides extensive detail, key references, and an index Supplemental resources and a blog are online for my valued readers: AuthorDan.com If you are a business owner, this book can help you and would be an appreciated gift for your employees (they’ll see that you care) But financial planning for business entities is a different—and just as crucial—“to-do.” I’m working on a book all about that, so look for it in the future Ready to finally get your finances as close to optimized as possible? Great Let’s get started! Chapter ADVICE, ADVISORS, AND WHAT’S NEW The following experience did not end well for anyone involved Frank’s wife Lu felt a twinge in her neck as she jerked her head left, away from the overdue mortgage notice, toward her husband’s shout “Bastards!” he yelled, crushing the annuity carrier’s letter “What?” she gasped, simultaneously wiping away tears and rubbing the back of her neck “These people actually refuse to take my whole rollover! They want to know what I want them to with the half they won’t accept The rollover was almost nine hundred thousand and I chose them to get away from market risk into this pension thing Chester advised me on Almost a million dollars, and they have the nerve to tell me that?” “Says here, Frank, that your income is zero now and expenses are four thousand monthly,” Lu said, reading the letter “Where did they get that? Our expenses are twice that anyway.” “I made a hundred forty thousand until the layoff, and I can hit that again anytime now I don’t know why it says four —” He paused and looked again, and his mouth fell open “Says some financial report has my other assets at zero but that my application shows another million in something called ‘nonqualified’ mutual funds If I were worth two million, we could retire early What is this?” “Frank, calm down You’re already so over-focused on getting re-employed, you forgot to pay the mortgage.” “I did not It’s auto-debit from checking and we had …” He watched a tear escape Lu’s eyes “Hon, the homeowner’s dues and the club and several other things come out first, and you wanted the vacation paid with cash, not on the credit cards, so—” “Our credit is going to crash.” “Didn’t Chester say you could take income right off the bat from this new IRA until he got you a new job?” “Right, and there’s no surrender charge on that, but he said his fee for coaching and job consulting would be less if I paid in lump and … He’s got this thing all in a spreadsheet and he knows what he’s doing He’s been a career and investment coach for over a decade I hope he won’t see me as some lower-priority client now that the investment is half what we expected, but I can’t figure out how this—” “Everything will be fine, hon Call him Monday and get it all put into the pension annuity, just like he advised, and then it will be there if you don’t find the kind of job you want and you have to keep looking At least we have the option to start the annuity early It’s almost what we need for the mortgage and debt, anyway.” “Yes This letter is obviously some mistake Chester will fix this, just like he found the best annuity by being different from all those shyster brokers he showed me articles on Why anyone would use a broker, I cannot fathom Those guys don’t care about your career or income or retirement like Chester and people at a professional career-focused shop like his Watch, he’ll fix this Monday Anyway, this can’t be real Who ever heard of an investment company that wouldn’t take your money? This is America, isn’t it? I get to pick what I invest in, don’t I?” Turns out, Chester had correctly calculated that the income from the rollover annuity would cover most expenses … if they waited a year to take income; no income without penalties prior Frank and Lu had told Chester that they would put their vacation—a tax-deductible one due to Frank’s interview schedule and possibly starting a business consulting for his old employer and others—on credit and that Lu was about to start a job, but that fell through So Chester had them roll the entire 401(k) into the annuity Chester knew that because of the regulatory environment annuity carriers must deal with (more on this later), these carriers have become so intimidated by regulators and the legal environment that they are de facto forced by the government to deny people full investment choice Carriers design their applications, and sometimes check financial sources, to enforce what is actually the government dictating to consumers that they cannot invest more than half of their investable funds in insurance products; roughly half must be in other forms of investment Frank wanted all existing investable funds to be in an annuity that was his personally owned pension; he wanted all new savings from any new job’s income to go into at-risk mutual funds, but he wanted to protect the existing assets To maximize the sale and to satisfy Frank’s desired strategy, Chester had lied on the application Frank had signed and hoped random examinations would not be made For his part, Frank felt he could trust Chester, and it was Frank who had pushed for this two-phased strategy of diversification Chester had also used being deemed controlled by the owner (hence included in his or her estate) is that ongoing contributions to trusts must be accessible on demand by beneficiaries thirty days after the contribution Notice must be sent and provable as such This is typically used when paying premiums for policies owned by an ILIT ILITs keep the death benefit out of the insured’s estate, and the trustee will “loan” the money to the deceased’s estate in order to pay estate taxes that could not be escaped The obvious purpose is to provide liquidity for estate tax payment rather than have the deceased’s business or other assets sold in a forced sale or family asset ownership lost to that process Regardless of the trust’s validity, the death benefit is deemed to be in the deceased’s estate if the death is within three years after the trust’s creation and funding After that, however, the death benefit will escape estate taxation Many criticize this—as with the entire estate tax system—because it is entirely contrived and artificial rather than pursuant to normal economic reasons for purchasing the coverage I must concur, especially since the “loan” is never repaid by the decedent’s estate The IRS requires that a new policy be used for this, not one transferred in to the trust because the trustee must apply Special-needs person’s guardians: Make certain the contingent guardian you nominate continues to be willing and able to serve A parent’s, not a child’s, assets are counted for purposes of qualifying for Supplemental Security Income (SSI) and Medicaid up until age 18 (SSI) or 21 (Medicaid) There is a three-year lookback for transferred assets, including those transferred to a trust, the usual vehicle for their care (also for adult and senior special-needs persons) Use a trust to manage and fund for a special-needs person rather than leaving the person out of your will, which is how some strategies enable the special-needs person to qualify for Medicaid Consider a possible unequal division among your heirs, depending upon need Consider transferring assets to a special-needs trust so that neither the parent nor the child is deemed the owner The parent can still be the income beneficiary and can also have full corpus invasion rights, even though the special-needs person is an eventual beneficiary Plan, no later than age 14, for a child’s assets to be zero to maximize SSI Don’t forget to provide written instructions, whether or not a trust is used, for daily care, from activities and meal preferences, to how to best deal with frustrations, to therapy and preferred healthcare providers Make this document now, as you (the primary caregiver) could become incapacitated or die unexpectedly Be on good terms with other special-needs parents and your family members Your child or even elderly parent may need these people if you are unable to continue as caregiver Finally, be sure to prepare a health care power of attorney and other estate documents for your special-needs person (more on such documents shortly) This is a specialty area of law and counsel Look to the Special Needs Alliance (www.specialneedsalliance.org) and similar organizations for referrals to such specialists and for helpful tips and lobbying efforts Non-trust Strategies for Minimizing Estate Shrinkage An estate-related strategy that maximizes remaining assets at death is that of using life insurance in a QRP Up to half of assets and new contributions can be so allocated If your employer opted to offer cash-value life insurance as one of the options in a retirement plan, you might think that the agent pulled off a great sell job But let’s examine this, for you might want to ask the employer to this if it’s not already an option Let’s compare the end results between the usual retirement procedure (IRA rollover without life insurance having been in the QRP) to an example of the “insurance inside a QRP, then distributed” strategy IRS valuation of the policy can be complex (see revenue Proceeding 2004-16), but cash value is a simplified approximation strictly for planning purposes A pre-retiree obtains a life policy through his QRP and funds it such that the cash value by retirement is $60,000 After retiring, he has it distributed outright to himself, paying income tax out-of-pocket on the $60,000 value (assume 33% tax rate) and so pays $20,000 income tax He or she could use a loan, but that reduces the death benefit He gifts it to non-spouse heirs (via ILIT or multiple individual owners) and pays gift tax of $3,600 to this Assume 30% gift tax, but this could be if there were several new owners and the $14,000 annual exclusion were used He dies just over three years later Compare this to mutual funds with twice the $60,000 value (just to overcompensate for commissions hitting the insurance cash value) This is also transferred to non-spouse heirs, but via an inherited IRA, and we can assume a 15% income tax bracket for those heirs who eventually pay income tax: IRA w/o Life Ins Value distributed or rolled Immediate income tax Estate tax (gift tax for policy) $100,000 $ $ 18,000 Income tax estimate $ 15,000 Net value for beneficiaries $ 67,000 Life Ins Strategy ($200,000 death benefit, $60,000 cash value) $ 60,000 $ 20,000 $ 3,600 $ (death benefits are tax-free) $176,400 Granted, the premium is paid along the way (not shown), and that would be paid for many years if the retiree lived many years Such a policy would be subject to estate tax if the retiree died within three years of gifting it to heirs So there are several scenarios for this But this strategy clearly benefits from the fact that the policy is valued at the cash value, rather than death benefit, and from the fact that the death benefit is immune from income tax Joint life insurance: Don’t forget the “second-to-die” policy mentioned earlier This provides a death benefit for estate tax payment (if applicable and best kept out of your and your spouse’s estate via an ILIT) Even if estate taxation is not likely, such policies can be used to provide cash for care of a parent you must support or a child with special needs exactly at the time that cash is needed—when a caregiver must be hired and you are not around to be the caregiver Only one insured must be insurable Help for annuity inheritors: Since 2013, both spouse and non-spouse beneficiaries of annuities may now use a tax-free exchange of their interest in an annuity for a different annuity of their choice, provided that the carriers exchange the money and not the heir See IRS Private Letter Ruling 201330016, and present it to your CPA prior to executing this option Help for executors: Please visit my blog, which has two useful articles on managing an estate and also finding missing assets Here is our last true story Amara, an owner of five Greek restaurants and one of my very first clients, called to set an appointment Her husband of thirty years, Galen, was not my client, but I liked them both more personally than any clients; we could even debate Catholic versus Greek Orthodox theology with humor and remain close friends But now, she was distraught and needed to meet as immediately as possible I stayed late She was already snuffling and in tears as she approached the conference table, her knees buckling as she fell into the chair and dropped her purse on the carpet “Mara,” I said softly, using the familiar diminutive, “What’s troubling you, is it Selene again? I thought she stopped living with that guy and had moved back after graduation, at least for a few months.” “Yes, but it’s much more.” She paused, breathing erratically I reached across the table and held her hand “Take your time.” I handed her the tissues After some moments, she composed herself “You know she’s left the Church, all that ‘superstition’ label from her professors and immoral friends.” “Yes Has she attacked you again? I thought she grew out of that.” “Dan,” she said, her voice trembling, “yesterday afternoon, I told Galen about a filthy letter I found from her college live-in, and I showed him some horrendous things I spied from her Facebook because was I was afraid for her safety and health I had to know what we were dealing with; what dangers she was getting into under our noses Galen thinks I was outrageous for spying on her and I would push her away like our in-laws.” “I remember your upset for so many years over in-laws.” “Galen told her about that Can you believe he would betray me like that?” “Mara, she used your Internet and was under your roof As I see it, you were nothing short of courageous for risking your relationship with your daughter to learn what threatened her so you could deal with it Can’t you make Galen understand and appreciate that? As for the in-laws, you had to protect her.” “Galen never accepted that I had to keep Selene from concluding that their influence was … It was all about success in life after abandoning the morals and teachings of the Church You’d think he would make that a ‘we’ thing, but no He never fully joined me with that when she was a teen, and he was always critical of me in front of her Eventually I had no influence, even as a mother.” “Now, you never told me that part, Mara What’s happening now?” “I told Selene we had to talk and she blew up and said she had something big to say to me, too Her online stuff was all about hating me and home and the Church, and ‘BS morals.’ I asked Galen to come home when she got off work and tell her that, if she wanted to leave home, she could that but help me get her straightened out But he’s no support “When she got home, she started in on me being irrelevant as a mother She said she wouldn’t care if I died By the time Galen got there we were arguing civilly, but mostly I was pleading with her to return to what’s wholesome, when she yelled that the Church is just a superstition I stood up to rebut that, and Galen must have thought I was going to hit her—I never hit her, and he knows that—but he grabbed my wrists And then she got up and started kicking and punching me, and I told her to stop, and begged Galen to help me get her under control But he kept preventing me from grabbing her hands and she just kept hitting and kicking me I kept telling him I had to get ahold of her arms, but he just let her keep—” “Tell me this calmed down!” “I told her this time I was calling the police As they arrived, I told her I would let it alone if she would just talk reasonable She ignored me, but I dismissed the police anyway No ‘Thank you, momma’ at all Then we went back to the kitchen, and that’s when life ended.” My jaw dropped I was dumbfounded I could only stare as she lowered her head onto the table and began to quiver She spoke with her head in a pool of tears “With Selene right there, Galen told me he was no longer in love with me.” “Oh my God, Mara! You know he couldn’t mean that.” “He loves me but he’s no longer in love with me.” “What did you do?” “I sat on the bed, alone, with his pistol, and pulled the trigger It wouldn’t pull; the magazine was out and no round loaded It’s always loaded, so I knew it had to be a miracle.” “You have to go back and work with him, Mara You have a purpose.” “I have responsibilities, and I love them I can’t give up on either of them But Galen is afraid to stand with me for what’s right, so he’s undermining my influence so he will have a relationship with her; she’s got him to shut up and that effectively endorses her lifestyle He won’t stand with me on this So I only have one way now get her to reconsider her values and beliefs That’s why I need you and Alan.” “Me? Selene won’t listen to me, and she certainly won’t listen to a lawyer!” “I need you to help me design a trust for my stores and life insurance I need it to allow pass money to Selene only if she straightens out Galen needs a share, but there has to be an incentive to make her rethink her ways And I don’t want Galen to know how this gets done.” “I can’t … I mean, I don’t see how …” “How long have you been my friend and advisor? You know how to this.” We stared at each other for a long moment I said slowly, “Mara, you need to sit in chapel and list the good and bad effects that can come from this before you take this to Alan Promise me.” “Promise How can this be done?” “You change your will to assign these assets to what’s called a testamentary trust It is created upon your death The life insurance company uses a special kind of beneficiary form for testamentary trusts I’ll get it for you The stock does not have to have any change, but the certificates have to be noted in the will’s section defining the trust Galen will not see either change unless he reads the will, and he can’t see a copy you record at the Clerk’s office without a death certificate or an incompetency order.” I paused, surprised at myself for relating this and anticipating a question “Will you be my trustee?” “Impossible Same for Alan It would be a conflict of interest because we helped you structure this But the will’s wording can get you a trustee.” “What about the stores? And how can a will get me a trustee?” “The stock need not be re-titled, so the public record at the Corporation Commission will not show any change; it still passes per verbiage in the will Don’t keep the new will around the house, and technically, there’s no need to destroy the old will at your home.” I paused, sweating and regretting I resumed “That’s because the new automatically cancels the old Alan will record the new one and the probate court will have it in advance The will can ask the court to appoint a trustee—not Galen, if you don’t want him to bypass your intent— or it can appoint a bank trust department In case you were considering less for Galen, he has to get at least a third of your total estate Work with Alan on allocation language.” “I need the incentive for Selene to re-think the Church and right her life.” “Getting to that You are a merciful person, Mara The only way to be sure she doesn’t fake ‘getting religion’ is to have the trust section have the probate court appoint an independent trustee who has instructions to contract to have a lie detector test administered to Selene for her core beliefs Keep it short, like the Creed, for example But make it basic enough that if she becomes Protestant or whatever, she gets credit for at least seeking God; try not to be too restrictive God isn’t.” She frowned but slowly nodded “Go on.” “If Selene fails or refuses the test, the trustee holds the assets for her and she repeats after a year, or maybe two tries, so she has time to genuinely re-study and re-explore the faith You have to decide whether Galen or a charity gets what she might end up forfeiting If Galen gets everything and then dies or died with you and he is deemed to have died second, then she will get his estate and gloat at your memory and your incentive will have been for nothing So, I hate to say it, but you need to ponder how to prevent that bypass An income payout to Galen over time, rather than a lump, would work to slow his just gifting to Selene The only way to totally stop a pass-along would be to have language passing Selene’s potential forfeit to a charity instead of Galen But, Mara …” “What? You will go with me to see Alan, right?” “Mara, if Galen learns of this, he’ll feel shut out of an estate he helped you build up It will cut him to the quick If Selene discovers this, you might push her farther away than she is now That could even be the result when this all comes out at probate You’d need some letter to them both, explaining why you felt this was you only option and that this means only that you loved them so much that you couldn’t give up on bringing Selene back on track Even then, all this could backfire.” “I know I have to something, Dan I have no other influence with her.” “Please, Mara: Remember your promise Take a week of prayer.” “I will Promise.” “And, Mara?” “What?” “Don’t ever think this is your only tool for the job God’s working too And talk to your priest about what you can expect if you abandon hope and take another try with that pistol You might even teach Selene that’s a way out of problems she’s headed for, and what would your legacy be then?” At this writing, Mara has taken more than a week, but she is still pondering this approach to her responsibility to her daughter She and Galen are closer, but the issue is not resolved So far, Selene has no appreciation for the great love and worry that drove Mara to risk the mother-daughter and even the wife-husband relationship Did Mara err by sheltering Selene, which generated resentment in Galen? Was moralizing persistence and, later, spying and standing up for what is right so egregious as to merit blame, or does this loving and courageous mother merit laud? I not know the best approach But I ask all readers to pray for Mara and her family CONCLUSION Picking the right trustworthy professional help in arranging your financial plan clarifies the likely financial future, helps avoid pitfalls and captures opportunities that may not have dawned on the doit-yourselfer But whether or not you employ professional assistance, planning ahead is essential for most people Such planning should be updated at least annually Over many years, efficiencies in budgeting maximize savings and net worth; it can also keep your financial obligations from oppressing you Risk hedging has cost but minimizes the financial effect of a life catastrophe’s creating a compounding financial catastrophe Asset allocation identifies the return (or budget changes) you must seek to reach goals, and it enables minimizing risk associated with a given target return Tax planning helps make funds available for savings and other goals, and brings focus upon a three-pronged approach to hedging the risk of tax law changes Retirement planning encompasses all of these strategies and more to help keep you from exhausting income sources during retirement Sadly, estate planning is the most ignored of the six elements of personal financial planning, perhaps because it connects most deeply to issues and questions of personal belief and feelings These include charitable giving and tithing, whether material concerns control a person, worry over loved ones, damaged relationships, and end-of-life contemplations What beliefs and things spiritual have to with financial planning? Besides health care power of attorney, estate planning connects profoundly to ongoing choices and attitudes about money and what—or who—awaits after death Three belief systems impact stewardship of money, relationships, and planning: An atheist conducts his or her affairs influenced by the unscientific assertion that it is a fact that there is no God in love with him or her The atheist may be misguided or merely mistaken So, if sin and spiritual merit are real, an atheist’s sin is less than the agnostic’s An agnostic knows, quite scientifically, that the negative cannot be proved (that one cannot prove there is no God who loves) Yet the agnostic makes a decision to either not care or to indolently not investigate an infinitely important question Then there is the believer The paramount question for the believer is whether he or she will act upon a Father’s instruction, or simply offer those in need of compassion (at the individual and societal levels) mere scraps from the table It is my sincere hope that you, and those whose lives you touch, will steward—not merely efficiently manage—resources with good goals in mind For he who treks the right path will never know an end REFERENCES Brinson, G., Hood, L R and Beebower, L (1986) “Determinants of Portfolio Performance,” The Financial Analysts Journal, July/August, 39–45 Dent, H S Jr (1993) The Great Boom Ahead, New York, NY: Hyperion, 21–46 Hegstrom, J (2008) “Marketing Appeal of Variable Annuities Compared to Mutual Funds,” complied for USAA Insurance Company, San Antonio TX Lambert, K., PhD (2008) Lifting Depression New York, NY: Basic Books, 83–87 Marion, J., VanderPal, G and Babbel, D F (2010) “Real World Index Annuity Returns,” Philadelphia, PA: Wharton Financial Institutions Center for Personal Finance RESOURCES AuthorDan.com My blog and useful resources, free to my readers! CenterForFinancialPlanning.org library Lleimberg.com “Tools and Techniques” books and software, strongly recommended for DIYers SSA.gov/myAccount and /Planners/benefitCalculators.htm HealthCare.gov Pensionrights.org is a Pension Rights lobby group, helpful for pension disputes INDEX 1031 exchange, 174, 185 457 Plan, 179, 181 529 plans, 122–123 72 (q), 178 72 (t or q) withdrawals, 178 Accidental Death, 100 Accumulation and Rollover Strategies, 193–194 Activities of Daily Living (ADLs), 105–106, 112, 206 Advice and advisors, 1–45 ADV-Part II, 11 agricultural land tax benefits, 185–186 Alpha, 128–129, 132 Ameriprise, 16, 24, 50, 53, 130, 141 Annuities, 107–113 Annuities for retirement income, 207 Annuities that are not IRAs, 176 annuitization, 176, 178–179, 209, 211, 234 Annuity needs analysis, 222 Anxiety and depression, 57, 246 Asset allocation, 124–134 asset classes, 11, 27–29, 43, 124–126, 128, 129, 132, 134, 143, 152, 194 asset management tax-deductible, 188 assuming is dangerous, 161–162 attitude, 153–154, 245–249 AuthorDan.com, xiii, 73, 99, 230 Automobile maintenance warranties, 116 banker, 31, 32 basis, 43, 123, 173–174, 176–178, 203, 271 benchmark, 128–129, 132–133, 143 Beneficiary forms disinheritance danger, 263–264 Beta, 132 Bond maturities Staggered, 212 Bonuses, 206–207 brokerages, 16, 17, 130 BrokerCheck, 10 Budget spreadsheet, 48–49, 58, 73 Budget tracking, 56–67 Business brokers, 26, 37, 175 Business DI, 81 business financial planning, 36 Buying or starting a business with an IRA, 182–183 Calculating DI need, 79 Calculating life insurance need, 97–99 call contract, 134 callable notes, 71–72 Cancer policies, 83–84 Capital assets, 156, 173–174 Capital gains, 173 Caps and participation, 137 Carrier claims reliability, 116–117 Case study Life insurance used as a Roth, 222–223 Cash Reserves, 48–55 Certified Financial Planners, 34 Certified Public Accountants, 29–30 Cerulli and Associates, 6, 15, 39 Charitable giving, 269 Charitable trusts, 269–270 Checklists and fireproof safes, 254 Child riders, 100 COBRA, 81–82 College funding, 122–124 Commodity Futures Trading Commission, 130 commutation, 157, 198, 212 Compliance departments, 13–15 Components of financial planning, xi–xii computer modeling, 33 Consumer Price Index, 200 Costs of long-term care, 84, 93–95 Credentials, 35–42 Credit and debit cards, 48, 70–71, 83, 100 Crediting method, 137–138 Crummey power, 271–272 Debt strategy, 67–74 Department of Labor, 8, 26, 182, 193, 214 Derivatives, 149 Disability insurance, 49, 76–84 Disaster fund LTCi tax advantage, 176–177 Disclaim, 265 Discount associations, 83 discounted residence property tax, 187 disorganization, 72 Disposition of property, 262 Dividends Qualified vs nonqualified, 173–176 DIY, xi, 39, 42–43, 56, 58, 155, 194 dollar cost averaging, 150–153 downside risk, 134, 154 Dream book, 57 Dynasty trusts, 270 economic indicators, 150–151 efficient portfolios, 11–12, 43, 130, 193–195, 197, 202 Ego or procrastination, 246 EIA caps, 137 EIA income riders guaranteed lifelong withdrawals, 206 Emerging trends, 150–152 Employee Stock Ownership Plan, 183–184 enrollment period, 237 equities-based certificates, 50 Equity-indexed annuities, xiii, 109, 196, 204–207, 209 Equity-indexed guarantees, 136 Errors & Omissions, 6, 21, 49, 114 Estate documents, 251, 273 Estate planning, 250–281 Estate planning attorneys, 24, 34, 186, 251 Estate taxation, 267–268, 272, 275 Estates in real estate, 259 exclusion ratio, 176, 178, 203 Executors, 250, 254–255, 261, 275 Federal student aid, 124 Fee-only, x, 10, 15, 16–19, 21 Fidelity, 18, 130, 141, 180 Fiduciaries, 9–13 Field Marketing Organizations, 22–23, 130 Financed life insurance, 103 financial catastrophe, 59, 75, 282 Financial planners, 35–37 Financial position, budget and cash management, 46–74 Financial questionnaire and inventory, 73 FINRA, 10 Flexible spending account, 82–83 frugality, 66 Gauging management talent, 128–129 Generation-skipping transfer tax, 259, 268–269 Gift taxation, 266–267 gross concession to the dealer, 17 Hardship withdrawals, 179–181 Health care powers of attorney vs living wills, 253–254 Health care savings account, 74 Health insurance, 81–84, 237 Hope Corporation of America, 73 “hybrid” Life-LTCi policy, 99, 100, 105 IAR (Investment Advisor Representative), 10–13, 26–29 identity theft, 114–115 Immediate annuities, 202–203 Income Account Value, 140, 196, 199, 205–206, 209 income doubler, 106 Income planning, 197–216 Income tax management, 155–190 Individual 401 (k) plans, 182 Influence from beyond the grave, 40 inherited assets emotional ties, 142 Insurance agents, 19–22 Insurance carriers, 23–26 insurance licenses, 20 interest crediting methods, 138 Investing through a rear-view mirror, 194 Investment in yourself, 119–122 Investment products, 134–144 IRA, 155–156, 262–266 IRA plan loan, 179–181 Irrevocable life insurance trusts, 272 Joint life insurance, 275 Joint-life policies, 102–103 lapse protection, 226 lending officer, 32 leverage, 71–74 Liability policies guns, special equipment, 114 Life insurance purposes for lifelong coverage, 84–88 Life insurance as an investment, 141 Life insurance illustration assumptions, 88 Life policies, illustrations for, 88 Lifestyle attitudes and mindset in retirement, 245–248 Limited and general partnerships, 185 liquid assets, 118, 176–177, 208 Longevity annuities, 211 Long-term care, 103–106, 238–245 Margin, 149–150 Measures of risk, 131–133 Medicaid and hiding assets, 243 Medicare, 105, 189, 236–238 Medicare supplement, 162 Merrill Lynch, 16, 130, 141 MFS, 18, 141 Minimizing estate shrinkage Non-trust strategies, 273–281 Modified Endowment Contracts, 85, 87, 101 Money management, 124–134 money market, 48, 51–53 Monte Carlo, 11–12, 22, 27–30, 43, 126 mortgage, 67–69, 115 Mortgage DI and life insurance, 81 Municipal bond funds, 142, 173 Mutual funds, 92, 141–142, 204, 211 mutual insurance company, 18 Nature/historical easements, 187 Necessities annuities and, 202 Net Investment Income Tax, 189 Net Payment Cost Index, 93–94 new savings very aggressive, 127 No-lapse guarantees, 95–96, 167, 226 Non-qual annuity capital gains and losses denied, 176, 178 Non-qual deferred compensation, 187 One pool LTCi savings on LTCi, 105, 242 Options, 134–135 Options trading, 149 Order of returns and losses, 191–197 Out-of-pocket maximum, 82–83 Partnership policy, 240–241 Penny stocks, 149 Pension Benefit Guarantee Corporation, 198 Pension maximization, 127, 162 Pension settlement, 197–216 Pension survivorship, 45, 227–232 pensions, 58–59, 84, 99, 157, 197–199, 212, 227, 230–233 Per stirpes, 263–265 Personal residence trust, 270–271 Phantom tax, 162 Plan loans, 179–183 policy lapse IRS, 95–96, 169 Portfolio management, 194 Powers of attorney, 253–254 Precious metals, 124, 149 premium life insurance, 105 Prenuptial agreements, 253 Prepaid tuition, 122 Priorities, 46–47 Product and account-type mix, 199–201 Protection planning, 75–118 Qualified retirement plan, 183–184 Quicken, 48–49 Rate shopping, 206 Real estate, 144–149 Estates in, 259–260 Rights in, 38, 261–262 Real Estate Investment Trusts (REITs), 40, 145–149, 184–187 real estate tax rates, 185 Refinancing, 69 Registered Investment Advisor, 11, 21 regulation insurance, 8–9 replacement, 97 Required Minimum Distributions, 165, 233–234 Rescission, 217 Residence Sales tax benefit, 174, 187 restricted illiquidity, 17 Retirement Equity Act of 1986, 230 retirement money Withdrawals while employed, 179 Retirement planning, 191–249 Reverse dollar cost averaging, 150–153, 225 Reverse mortgages, 235–236 Riders and policy combos, 100–103 Risk management, 75–118 RMD calculation methods, 233–234 Robo-planning, xi, 29, 39, 42–44, 121, 124, 127, 134, 161, 252 Rollover decisions, 197–216 Roth conversion, 163–167 Roth emulator Life insurance as a, 167–169 SBP trade-offs between spouses, 227, 230–232, 233 SEC.gov, 10 Security cautions identity theft, 114–115 Self-investment, 119–122 Self-regulatory organization (SRO), 13–14 separate accounts, 87, 92, 95, 140, 204 Sharpe ratio, 132–133 short selling, 149 SIMPLE and SARSEP, 179–181 Single-premium life, 76–77, 96, 101–102, 167 Social Security application timing, 219–220 Social Security decision support, 216–236 Social Security income taxation, 170, 188–190 Social Security optimization, 221 Social Security payback strategy aka “do-over,” 220–221 Social Security penalty, 216, 217–219 Socially responsible Investing, 150 Software packages, 30, 35, 39 Special-needs persons, 30, 251, 271–273 Spending Wave H.S Dent, 153 Staggered bonds, 212 Standard deviation, 132 State Corporation Commissions, 279 State guarantee funds, 117–118 stock brokerage, 16, 25, 32 Stockbroker, 12–13, 22, 24, 37, 131 Stretch IRAs, 262–266 student debt, 69 style drift, 132 subaccounts, 131–132, 197 surrender charge, 18, 131, 140–141, 177, 206–207 Surrender cost index, 95 Target-date funds, 193–194 Tax attorneys, 142, 175, 186 Tax categories, 155–158 tax consequences Failing to consider, 161, 195 Tax minimization strategies, 162–190 Tax Triangle, 155–161, 175 Tax-exposed portfolio changes efficiency practices, 195–197 Term life insurance, 162 Tiers Cash reserve, 48–55 Timeshares, 149 Titling property, 255–259 trigger for LTCi benefits, 106 True-up of cash value and IAV, 209–210 trust departments, 33 trusts, 266–273 Types of ownership JTWRS and T-in-C, 258–259 Umbrella policies, 40–114 Unified Tax Credit, 268 Uniform Gifts (and Transfers) to Minors Act, 271 Universal life insurance, 85–88, 93, 95–96, 223, 232, 241 Vanguard, 18, 141, 256–258 Variable annuities and basic income needs, 203–204 Variable annuities vs mutual funds Landmark study, 204 Venture capital insurers, structure, 116 Waiver of premium, 101 weddings, 67 Wells Fargo, 13, 16, 24, 130 Wharton School of Business annuities vs mutual funds, 211 Whole life, 85–86, 92–94, 96, 101, 135, 169, 231 Wills and codicils, 252–253 Working abroad, 188–190 ABOUT THE AUTHOR Dan Gallagher graduated from Virginia Military Institute (1981), third among economics majors, while simultaneously completing the modern languages curriculum He served in the Infantry, then as a reservist in a Special Forces support role, next as a training company commander, and later in a classified Army Research Institute role Dan completed his master of business administration at the College of William & Mary (1986) He and wife Laura married in 1988, loved raising their four children, and assisted both boy and girl scouting through their church They now hail from Charlotte, North Carolina, where they actively volunteer During his practice (retired December 2017) Dan’s professional designations included: Chartered Financial Consultant and Chartered Life Underwriter (1989), Certified Financial Planner (1992), and Certified Business Intermediary (2002) Dan now offers speaking/training services and was recently (June 2018) accepted and registered as an “expert witness” with The Expert Institute, New York Dan’s thirty-year financial practice encompassed group and individual benefits, money management, financial plans, business valuation and brokerage, commercial realty, and—often very personal— counseling He has given numerous seminars at major employers and other entities Dan is the author of a novel, a licensing manual, and numerous articles in journals such as Virginia Lawyers Weekly, Financial & Estate Planning, and Charlotte Ventures Dan’s fiction and narrative nonfiction have been published by Skyhorse Publishing, Superversive Press, Millhaven Press, Creative Loafing, NFAA Archery, and AncientProphecies Press ... Carlo simulation or the CPA does not routinely work in financial planning) In other words, don’t let the tax tail wag the financial planning dog Other important financial professionals for your... merely an annual or semiannual checkup) But this fact makes many people assume that they not need real financial planning, or that they can planning themselves An honest IAR will evaluate whether... Real and Imagined The gold standard for personal financial planning, including working with teams of specialists, is the Certified Financial Planner The CFP Board of Standards has rigorous and,