Reverse Mortgages – No Longer a Loan of Last Resort

MONEY TALKS – When most of us hear the term “reverse mortgage” there is usually a negative connotation associated with the phrase. It’s hard to pinpoint why these two words leave such a sour taste in our mouths when you consider that most of us don’t even know anyone with a reverse mortgage. Furthermore, when pressed on the issue of why reverse mortgages are bad, the standard response is usually; “Ummm, I don’t know. I just heard they were bad because they take advantage of senior citizens.” Perhaps you are subconsciously hearing Henry Winkler’s smooth cadence from the reverse mortgage TV commercial while thinking of a poor widow from Nebraska who just lost her family home. The truth of the matter is, due to some recent legislative changes to protect the consumer, a reverse mortgage is no longer a loan of last resort. If fact, in the right circumstance, it can be used as a very effective financial planning tool to preserve your wealth.

What is a Reverse Mortgage? – A reverse mortgage is home loan that allows you to own your home without having to make monthly mortgage payments. Instead of making monthly payments, like you would with a traditional mortgage, the loan balance on a reverse mortgage is paid in one lump sum when the borrower moves out, sells the home, or passes away. One popular myth circulating among the public is that the bank can kick you out of your home if the mortgage balance exceeds the value of the home. This is simply not true. As long you live in the home, keep it insured, pay taxes, and maintain the property, the bank can never force you to move out or sell the home. Another common misconception is that your family could get stuck with a big mortgage debt. When the borrower passes away, your family has two options. They can either purchase the home, for 95% of the appraised value or the mortgage balance (whichever is lower), or sell the home. If they choose to sell the home and the home value exceeds the mortgage balance, they can keep any remaining equity. Conversely, if the mortgage debt exceeds the value of the home they can walk away without owing a nickel. Since the loan is guaranteed by the Federal Housing Authority (FHA) Mortgage Insurance Fund your family can never be liable for any amount over the value of the home.

Why Should You Consider a Reverse Mortgage? – The use of home equity in a retirement-income plan is becoming a more popular tool used by financial advisors today because of the flexibility and protection it affords their clients. For many Americans, their home is their largest asset, yet under a traditional model the accessibility to this asset is nonexistent. Integrating a reverse mortgage into a financial plan may allow clients to tap into their biggest asset that otherwise has been hiding under their nose. In fact, Wade Pfau, Professor of Retirement Income at the American College of Financial Services, states; “the reverse-mortgage option should be viewed as a method for responsible retirees to create liquidity from an otherwise illiquid asset, which in turn can create new options that potentially support a more efficient retirement income strategy.” Integrating a reverse mortgage into a retirement plan can be a great option for seniors who want accessibility to the equity in their home and the comfort of knowing they can age in place.

Are You Eligible? – In order to be eligible for a reverse mortgage the borrower(s) must be competent, at least 62 years of age, and have equity in the home. They must have the financial resources to cover taxes, insurance, and maintenance costs. Federal debt cannot exist and any existing mortgages on the property must be paid off (which can be done with the loan proceeds). Lastly, a receipt of a counseling certificate from an FHA approved counselor must be provided. In order for the property to be eligible it must serve as your primary residence, meet FHA property standards and flood requirements, pass an FHA appraisal, and be maintained to meet FHA health and safety standards.

What Now? – Thanks to the Reverse Mortgage Stabilization Act of 2013, many safeguards were put in place to protect borrowers from taking on too much debt. However, as with any other loan, there are risks involved. “Unquestionably there can be misuses of the product. But the problem is the use, not the product” says Harold Evensky, Professor of Personal Financial Planning at Texas Tech University. Understanding the complexities of the loan and how to best integrate it into your financial plan are critical to success. Speaking with a CERTIFIED FINANCIAL PLANNER™ and/or FHA approved counselor would be a good start to finding out if you could benefit from a reverse mortgage.

5 Mother’s Day Gifts That Keep On Giving


With Mother’s Day on the horizon, you may be scrambling around to find the perfect gift for mom. While none of the gifts below can be tucked in a card or fit into a box, they all will touch mom’s heart in one way or another. Following these simple steps will make mom proud and keep her happy for years to come.

1. Start Saving Early – Most of us have probably heard mom repeat the old adage that a penny saved is a penny earned. While saving pennies today won’t get you far (a Venti Latte at Starbucks will cost you four hundred and fifteen), saving dollar bills will. If you saved a dollar per day from the time you were 10 years old until you reach 16.5 years old, you could have almost $3,100*. While this won’t buy you a new BMW, it could go a long way towards purchasing that used Toyota Camry your neighbor is selling.

2. Finish Your Degree – On average, college graduates earn about a million dollars more over their lifetimes than high school graduates. In fact, the average salary for a 2016 college graduate has soared to over $50,000, while high school graduates are treading around $35,000. Higher earnings typically allow us to become financial independent earlier in life. Becoming independent will ease mom’s financial burden and allow her to focus on own needs such as a trip to the salon or a relaxing massage.

3. Pay Your Student Loans – If mom was nice enough to co-sign on your student loans, missing a payment or making a late payment could adversely affect her credit. This could prevent mom from qualifying for a home equity line to update the kitchen or from purchasing that condominium in Florida she’s been dreaming about for the last few years. Set up the auto pay function on your student loans to ensure your payments are always made in full and on time.

4. Do What You Love – Above all, mom wants to see you happy. Choosing a career in a field that interests and excites you will inherently lead to a happier and more rewarding life. Focusing your time and efforts on something you are truly good at will allow you to fully realize your unique abilities and add more value to the world.

5. Pay It Forward – As a young child it’s incomprehensible to understand how giving can be more rewarding that receiving. However; as we age and mature, the gratification from helping someone else far outweighs the rewards of receiving a tangible gift. Make mom proud by choosing a cause that you are passionate about and start giving back. There are lots of ways you can give back whether it be a simple monetary donation, giving physical goods, volunteering your time, sharing special skills, or by recruiting others to help.

I would be remiss if I didn’t mention that all mom’s love flowers. Stop by your local florist and pick up a flower bouquet or mixed floral arrangement. And don’t forget the card! Here’s to wishing all the moms out there a joyous mother’s day.


*Using an 8% interest rate, compounded monthly.

Lakeside Financial Planning – Advisor Insights

Take Control Over Your Taxes Before It’s Too Late

MONEY TALKS – Congratulations, you finally finished your 2016 tax return (with 4 days to spare). If you, like most Americans, just sighed in relief and thought to yourself “thank goodness I don’t have to worry about my taxes for another eight months”; unfortunately, you couldn’t be further from the truth. This common line of thinking often gets taxpayers in trouble because waiting until January of 2018 leaves you with limited tax planning options and very little control over the size of the check you write, when filing your tax return. To get a jump start on the tax year, here are a few planning strategies you should be thinking about now so you can take control over your taxes before it’s too late.

Adjust Tax Withholdings – The majority of salaried employees receive a Form W-2 (Wage and Tax Statement) in early February showing their wages earned (Box 1) along with their Federal income tax withheld (Box 2). What you may not know is the amount withheld is generally dependent on two factors; your taxable wages and how you filled out Form W-4 (Employee’s Withholding Allowance Certificate) on your first day of work. If you owed money with your 2016 tax return, then you should consider adjusting your withholding so more tax is withheld. Rather than messing around with the number of allowances you are claiming, which confuses most people, the easiest way to increase the amount you want withheld from each paycheck is to simply write the dollar amount on Line 6. Conversely, if you received a large refund (over $1,000) then too much is being withheld from your paychecks. While it’s nice getting money back in April, if you are receiving a refund year over year then you are essentially giving the government an interest free loan. Lowering the amount of allowances you claim will reduce the amount withheld from each paycheck, giving you more money to invest throughout the year.

Manage Retirement Contributions – The easiest way to reduce your taxable income is by contributing to a qualified retirement plan such as a 401(k). The employee contribution limits for a 401(k) are $18,000 for those under 50 years old and $24,000 for those north of the border. Ideally, from a tax standpoint, you should be maxing out your contributions to lower the amount of income subject to taxation. If you aren’t sure how much you contributed last year, take a look in Box 12 of your W-2. You should see the letter D followed by a number, which was your 2016 401(k) contributions. If that number is below your respective contribution limit, increase your contributions to maximize your tax savings.

Spring Clean – Donating clothing and household items to a qualified charity is a great way to save on taxes because the fair market value of your contributions is tax deductible. Household items include furniture and furnishings, electronics, appliances, linens, and other similar items. Keep in mind that you can’t take a deduction for clothing or household items unless they are in good used condition or better. One area often overlooked is recordkeeping. Remember that the burden of proof is always on the taxpayer, not the IRS. If you gave property, you should keep a receipt or written statement from the organization you gave the property to, or a reliable written record, that shows the organization’s name and address, the date and location of the gift, and a description of the property.

As with most areas of life, proper planning is crucial to achieving your goals. Tax planning is a fundamental component of any good financial plan. The key take away here should be that it’s much more effective implementing tax strategies now rather than waiting until the next year’s W-2 shows up in the mail.

Seven Deadly Sins to Avoid During Tax Season

MONEY TALKS – Anyone who has poked their head outside the last two weeks couldn’t help but notice that winter is fading and spring is steadily approaching. While the melting snow and chirping birds may give some solace that the dark and cold days are behind us, it’s also a reminder that tax season is quickly approaching. Each year millions of Americans make simple mistakes hastily trying to get their tax returns filed before the deadline. Before you file this year’s return, be sure to check this list to make sure you are not making one of the seven deadly tax sins.

1. Missing the Deadline – If you procrastinate getting your tax documents together, there is a good chance you could miss the April 15th filing deadline. Missing the deadline itself is not a huge issue unless you fail to notify the IRS in advance. Be sure to file a Form 4868 extension request if you are going to be late filing your taxes, which will give you an automatic six-month extension to file your return. Keep in mind that the extension is only on the filing of the tax return, not the payment due. If you think you may have a balance due with your tax return, be sure to make an estimated payment with your 4868 to avoid any penalties and interest.

 2. Filing the Wrong Tax Forms – Opting to use the Form 1040EZ because, as the name suggests, it’s easy to file could be a costly mistake. The 1040EZ forces you to take the standard deduction and does not allow you to itemize your deductions. Opting to file Form 1040 instead will afford you the option of choosing to itemize your deductions or take the standard deduction, whichever is higher. If you had significant medical or dental expenses, live in a state that taxes your income, paid real estate taxes or mortgage interest, donated to charity, or had a home office, then you should seriously consider filing a 1040 to maximize your deductions.

3. Spelling Your Name Wrong – Believe it or not one of the more common mistakes you can make on your tax return is to misspell your name. Whether it was a typo, you didn’t use your full legal name, or you recently married or divorced and haven’t registered a name change with the Social Security Administration, you need to make sure the name listed on your tax return matches your Social Security Card. Making a simple error could lead to a rejected return. Even if your return is accepted your refund could be delayed if the name on the check doesn’t match that on your bank account.

4. Wrong or Missing Social Security Number – Forgetting to include or entering the wrong Social Security number for you, your spouse, or your dependents is one of the most common errors you can make when filing your tax return. The IRS uses Social Security numbers to cross-reference information it receives from your employer and other financial institutions. If unable to do so, the IRS could reject your tax return. Avoid this simple mistake by verifying each Social Security number on your tax return matches the corresponding Social Security card(s).

5. Selecting the Wrong Filing Status – Filing under the wrong status is commonly made by single parents whom mistakenly file as Single instead of choosing Head of Household. If you have a qualifying dependent living with you and provided more than half the cost of maintaining the home then you may be eligible to file as Head of Household, which will give you an extra $3,000 in deductions. Another common mistake is for a recent widow or widower to file as Single. Widows or Widowers can file as Married Filing Jointly (MFJ) in the year of death. Furthermore, you may be able to file as a Qualifying Widow(er) for two more years if you have a dependent child in the house.

 6. Forgetting to Sign and Date Your Return – Technically speaking an unsigned return is incomplete in the eyes of the IRS. This means that your return may not be accepted and could be considered late, leaving you liable for penalties and interest. Be sure to sign and date your return! Keep in mind that if you are MFJ, then your spouse has to sign as well. Remember, if you are electronically filing you are not exempt for this requirement. If you are e-filing you need to sign the return using an electronic Personal Identification Number (PIN).

 7. Making Math Errors – The most common error year over year on tax returns is mathematical mistakes. In fact, every year the IRS catches millions of math errors as a result of poor arithmetic and/or inaccurate transposition. Using a tax software program will dramatically reduce the likelihood of a math error. That being said, tax software does not guarantee your return will be mistake free. It’s imperative that you double check the numbers you input because the software is not smart enough to know whether or not you are entering the correct figures. Filing an inaccurate return due to a math error could lead to big trouble with the IRS and less money in your pocket.

5 Ways to Turbo Boost Your Savings in 2017

MONEY TALKS – Achieving your goals and aspirations may be closer than you think. Saving is the foundation to any good financial plan. Follow these five steps to boost your savings to the next level!

  1. Max Out Your Retirement Plans – In 2017 you can defer up to $18,000 of your salary into an employer sponsored retirement plan such as a 401(k), 403(b), or 457 plan. If you are age 50 or older, the IRS has a special “catch-up” provision which allows you to contribute an additional $6,000 for a total contribution limit of $24,000. If your employer doesn’t offer a retirement plan you may still be eligible to contribute to a Traditional or Roth IRA. The IRA contributions limits for 2017 are $5,500 or $6,500 for those age 50 or older. If you didn’t maximize your IRA last year there is still time. The Internal Revenue Code has a special provision permitting you to make a 2016 contribution up until April 17th of 2017.
  1. Know How Much You Are Spending – Most people have no idea what they are actually spending. While some bold participants may blurt out a response when asked, in my experience what people say they are spending and what they are actually spending are two very different numbers. A good back of the envelop approach to calculate your spending is to look at your final pay check for 2016. Take your year to date gross pay and subtract any taxes paid as well as any employee benefits such as medical, dental, and retirement contributions. This in effect is your take home pay. From there subtract any additions you made to long term savings accounts throughout the year and you have calculated your annual spending. Most people are surprised by how much they are spending. Now that you know how much you’re spending, keep any eye on major outflows and set up an automatic transfer to your savings account to ensure some money is put away before hitting your pocket.
  1. Review Your Investment Portfolio – When it comes to determining an appropriate asset allocation, most people take the set it and forget it approach. Meaning they randomly picked some stock and/or bond mutual funds when they enrolled in their employer retirement plan, and they have not looked at it since. For many of us this could be 5, 10, or even 20+ years. Review your most recent portfolio statement to see if your current allocation is still appropriate for your age. Traditionally younger investors can be more aggressive and allocate a higher percentage of their portfolio towards equities. On the other hand, seasoned investors whom are approaching retirement may want to reduce their risk by diversifying into more bond funds and less stocks. If your current asset allocation is appropriate for your age, be sure to rebalance your accounts annually to make sure your portfolio stays properly aligned.
  1. Take Responsibility – The glamorization and/or demonization of politics and economics by the media can be hard to ignore because they are on the face of every TV station, newspaper, and social media site. Nonetheless, it’s essential to remember that for the most part these situations are out of your control. However, that doesn’t mean you should sit idly by and hope for the best. To use a weather analogy, while you don’t have control over when the next snow storm will hit, you do have the ability to buy snow tires for your car, a new shovel, and salt for your driveway. By personally managing the internal factors in your life such as; how much you save, your consumer loan balance, and the size of the home you purchase, you are taking responsibility over the aspects in your life that allow you to control your own financial destiny rather than taking a back seat to external factors over which you are powerless.
  1. Invest in Yourself – Many people don’t realize that the greatest financial asset they have is themselves; i.e. their ability to earn a living. Investing in post-secondary education, technical training programs, and advanced degrees go a long way toward building a complete resume. Combine these skills with quality work experience and you have just positioned yourself for a financially rewarding career.    

5 New Year’s Resolutions for 2017

MONEY TALKS – Lakeside Financial Planning was fortunate enough to be featured in a recent article on Investopedia’s advisor insights platform. The article is published below or you can view the original source by clicking here.

1. Pay off Consumer Debt
Credit cards can have interest rates well into the double digits. Paying off credit card debt is a great way to free up cash flow for the future. Credit card purchases are generally for short term items that have no lasting value. Putting away your credit cards and learning to live within your means can go a long way towards financial independence. If you are prone to consumer debt, try consolidating your credits cards down to one and using cash for everyday purchases.

2. Build an Emergency Reserve
Wage earners should have a minimum of 10% of their gross annual income in a long term savings account. An additional 20% should be saved as an emergency reserve. The best place for your emergency reserve is within your 401(k) or other tax sheltered accounts because the interest earned is tax deferred. Self-employed and retired individuals should build their cash/emergency reserves to an even greater level. As an additional test, the combined value of cash and emergency reserves should be at least 20% of your mortgage balance.

A Home Equity Line of Credit or HELOC is loan where a homeowner can borrow against the equity they have in their home. Unlike a conventional home equity loan where the borrower is advanced the entire lump sum up front, a HELOC is different in that the borrower only draws on the line of credit if needed. A HELOC could be used to cover a variety of expenses including unforeseen outlays for home improvements or medical bills. Homeowners should consider getting a HELOC as a supplement to their cash/emergency reserves as an added security blanket.

3. Purchase Long Term Disability Insurance
For most workers, the ability to earn a living is their most significant financial resource. A disabling illness or injury stops income, often leads to additional medical costs, and prevents savings for key goals such as education and retirement. Despite these facts, employees are more likely to have dental insurance than long term disability. The reason for this is most people associate disability with serious accidents. Since very few employees have high risk jobs, the general inclination in the workforce is to say, “I don’t need it” when it comes to disability insurance. In reality this couldn’t be further from the truth as 90% of disability claims are due to illness not injury. Even people who don’t have high risk jobs are still at risk of disability from cancer, cardiovascular, muscular, or other illnesses. A disabling illness or injury can have a devastating effect on you and your family. Purchase long term disability insurance now to protect you and your family’s financial security.

4. Increase Retirement Savings
Most company retirement plans allow you to enroll in a plan where your contributions are automatically deducted from your paycheck and directly deposited into the retirement plan. The beauty of automatic deductions is, since you never see the money, it’s nearly impossible for you to spend it. The only problem with this out-of-sight, out-of-mind enrollment process is most people set up a standard contribution rate when they enroll in their plan and never think to increase it. Lots of employers now offer an auto increase plan where your contribution percentage will increase by 1% per year. If your employer offers an auto increase plan be sure to enroll, if not then be sure to increase your contribution percentage manually each year. Consider investing in an Individual Retirement Account (IRA) if your employer does not offer a retirement plan.

5. Create an Estate Plan
Approximately 55 percent of American adults do not have a will or other estate plan in place. The primary reason for this staggering statistic is twofold; one being that no one wants to think about their own demise. The other; more alarming reason, is because many Americans are ill-informed on benefits of an estate plan. The most common excuses I hear are; “I don’t have children so I don’t need an estate plan” and “estate plans are only for wealthy families.” Both of these statements couldn’t be further from the truth. Most people don’t know that one of the primary purposes of an estate plan is to give guidance while you are still living. Questions such as, whom do you want to make medical decisions on your behalf or what are your wishes concerning life-prolonging procedures are typically addressed in a comprehensive estate plan. Regardless of your wealth or family situation an estate plan is beneficial for everyone involved.

2016 Holiday Update

MONEY TALKS – 2016 was a very eventful year for the Hoole family. In January we officially packed up and moved our family to Southern, NH. Windham is a quaint little town 3 miles north of the Massachusetts border with lots of outdoor attractions such as parks, a town beach, a public golf course, and the Rail Trail; an abandoned rail bed that was converted to a walking and biking path. While the town itself has lots to offer, probably the best part about the move is our new neighborhood. There are tons of kids close in age to Carsyn, and the neighbors and the community as a whole have been very welcoming.

While we officially moved into our new home on January 8th, we had a 3rd birthday party to host for Carsyn just two days later. To some this might sound a bit crazy, but thanks to my wife Alisyn, the party went off without a hitch. Carsyn of course loved being the center of attention and reveled in any gifts that involved Disney princesses.

In February we took a family trip to Maui. The entire Hoole family came along including my parents, brother, and sister. It was our first family vacation since our disastrous trip to San Juan Puerto Rico in 2006 that featured a trip to the hospital, a scooter crash, and a car accident. Thankfully our trip to Hawaii was much less eventful. For many of us it was our first time to the Hawaiian Islands. While there we visited Haleakala – a 10,000 foot volcano, Pearl Harbor, drove the road to Hana, and went to a luau. Carsyn seemed to enjoy the luau the best, despite the tropical rain storm that blew in right as we were about to eat our dinner. When we got back to our hotel Carsyn even showed us her version on the hula dance, which to our dismay looked like something you would see in a Rihanna music video.

In July we took our annual summer vacation to Lake Winnipesaukee. Carsyn enjoys driving grandpa’s boat and is starting to swim on her own with a little help from her arm floats. Her favorite activities this year were swimming with the dogs at Braun Bay – a large sand bar where people “tailgate” on their boats, playing games at FunSpot – the world’s largest arcade, and singing and dancing at cookouts (as I mentioned, she really enjoys being the center of attention).

On December 7th we welcomed our second child, Brody Robert Hoole. He was born at Beth Israel in Boston and was a healthy 8.53 pounds and 20” long. The first few nights he seemed determined to never let us sleep, but just recently is finally giving us 4 hour stretches between feedings. Carsyn is very excited to have a younger brother and is already showing us what an amazing big sister she is going to be. She calls Brody “my baby”, wants to help as much as possible, and is very concerned when he cries. Although it’s clear there are going to be some growing pains when it comes to the latter. Just last night she mentioned that she doesn’t want a baby brother because he hurts her ears when he cries.

Carsyn is very excited for Christmas to come. This year she seems to be grasping the holiday concept and is eagerly awaiting Santa Claus, although she is somewhat perturbed how Santa is going to fit in our gas fireplace. Just recently after our first snowfall Carsyn looked out the window and asked, “Is it Christmas?” Since then we’ve been watching Rudolph (or as she calls him Rudolph the Rainbow Snowman) and the Grinch on repeat. But I don’t mind because this is usually coupled with her snuggling with me in our big leather chair with a cup of Cheez-Its.

Otherwise the year was filled with us learning our way around town, my wife adjusting to her commute from Windham to Boston every day, and me getting a crash course in home ownership. So that’s it. Another year in the books, and what an amazing year it was. My family and I wish you all the best. Have a wonderful holiday season and a happy new year!

Presidential Elections and Your Portfolio

MONEY TALKS – The 2016 presidential race may be the most tumultuous election the country has ever seen. Americans have been voicing their opinions now more than ever and the polls are expecting to see a record numbers of voters next Tuesday. Unfortunately, much like the national debates, the lead topics of conversation at the dinner table have not revolved around political policies. Rather than discuss the economy, foreign policy, immigration, or the Supreme Court, many Americans have been following the candidates’ leads and talking about email scandals and sexual misconduct. The result of these lewd conversations has left a negative taste in the mouths of democrats, republicans, and independents from Maine to Hawaii.

Much of the negative energy from the presidential candidates themselves, political advertisements on television, and conversations with friends and family has transformed into fear and mistrust. In fact, a recent poll by the Washington Post and ABC News showed that 59% of registered voters have an unfavorable impression of Hillary Clinton, while 60% had and unfavorable impression of Donald Trump. It’s clear that regardless of whether Trump or Clinton win the election, the nation is in fear of what the future holds. With more cynicism now than ever, investors are anxiously waiting to see how the stock market reacts to the announcement of the nation’s 45th president.

Unfortunately, the uncertainty surrounding this year’s election has prompted many investors to make dangerous predictions about which presidential candidate will be better for the stock market. Rather than rely on patience and portfolio allocation, many investors are trying to outguess the market based on who they think will win the election. For example, some investors are selling off their investments now, and rather than reinvesting in the market, they are waiting for the election results to determine when or if they’re going to get back in. While enticing, this hasty strategy could lead to costly mistakes and is unlikely to provide any significant advantage. The following illustrative information was compiled by Dimensional Fund Advisors. Exhibit 1 shows the growth of one dollar invested in the S&P 500 over the last 15 presidencies which span just over 90 years.

Exhibit 1: Growth of a Dollar Invested in the S&P 500 January 1926 – June 2016


Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.

The data clearly shows that there is one key trend; over long periods of time, the market has consistently grown regardless of whether a democrat or republican was in office. Contrary to popular belief, there is no clear pattern that one party or the other will result in better market performance. As a matter of fact, from an investor’s standpoint, staying out of the market is a much more dangerous proposition than either Hillary Clinton or Donald Trump winning the election. By removing oneself from the market, an investor is eliminating any real chance of long-term appreciation within their portfolio.

At Lakeside, we counsel our clients to stick to a long-term investment plan and avoid the temptation of trying to time or outguess the market. Academic research has shown that it is very unlikely that investors can gain an edge by predicting how the stock market will perform based on the outcome of a presidential election. To capitalize in the equity markets, investors should develop a long-term investment policy and stick to the strategy regardless of the latest political headlines.

3 Easy Ways to Save on Life Insurance

MONEY TALKS – Last week I was approached by a colleague of mine who was concerned that he was paying too much for his life insurance policy. Naturally I wanted to help, so I began by asking some questions to get a better grasp on his situation. As it turns out, he was sold a $500,000 whole life policy by his brother-in-law and was paying an annual premium of $6,100 which was completely unnecessary for a number of reasons. Rather than get in the middle of a sticky family affair, I thought it would be best to step aside and offer some general guidance that can be used by anyone looking to purchase or reevaluate their life insurance needs.

  1. Understand What You’re Buying – Many people like the idea of having life insurance because of the protection it provides their families. However, when it comes to determining how much coverage is needed or what type of policy to purchase, they often feel confused and overwhelmed. While there are many different types of life insurance, the two most common policies are whole life and term life. Spend 30 minutes Googling the differences between the two types of policies so you know what you are buying before you buy it. Once you have figured out the type of policy that you’re interesting in purchasing, you’ll want to determine how much coverage you need. This can be an arduous process when done manually, luckily there are numerous life insurance calculators available online. Try a few out so you have a ball park figure in mind before talking to an insurance professional about your coverage needs.
  1. Buy Term Insurance – Permanent life insurance policies such as whole life or universal inherently combine insurance with a savings or investment component. While purchasing a whole life policy with an accumulating cash value sounds good on paper, as they say on Wall Street, there is no such things as a free lunch. These policies are extremely expensive for the protection they afford you. On the other hand, term life insurance has no residual cash value, but offers significantly lower premiums. A term life policy for the same amount of coverage might cost you one-tenth of the price of a whole life policy. To fill the void of the lost saving/investment component, take a portion of the reduced premiums, saved by switching from whole to term life, and increase your savings or 401(k) contribution amount. Separating the insurance and the investment component from one another will offer more transparency while saving you both commissions and fees.
  1. Ladder Your Policies – It’s not uncommon for someone’s insurance needs to change during the life of their policy. For example, your oldest child is graduating college in 2025 and your last mortgage payment is scheduled for 2030. For people with changing needs, term layering may be the best option because it offers maximum protection when you need it most and can significantly reduce your premiums. In the aforementioned scenario, the largest needs (education, mortgage debt) are within the first 10-15 years. Rather than purchase a large, say $2 million 30-year term policy as many agents would suggest, consider buying three different term life policies. The 1st policy would be a $1 million 15-year term policy. The 2nd policy would be a $500k 20-year policy and the 3rd policy would be a $500k 30-year policy. You’ll notice in Figure 1.1 that the coverage for the first 15 years ($2 million) remains the same and gradually decreases over time as your insurance needs subside.

Figure 1.1

life-insurance *Based on a $1,700 annual premium for a $2M 30-year term policy.

Determining your insurance needs in not as simple as reading a couple of articles online and plugging numbers into a calculator. Ask your financial advisor if he/she can recommend a qualified licensed insurance professional to help you determine the type and level of coverage needed to protect you and your family. When meeting with an agent to purchase a life insurance policy be sure to do your homework beforehand so you know exactly what you are getting and how much it’s costing you.