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What’s Your Risk Management Plan?

What’s Your Risk Management Plan?

Apr 2021

Most people couldn’t bear the financial hardships resulting from unexpected events, such as a major house fire, a car accident, a disability or the premature death of a family breadwinner, which is why one of the most important component of a sound financial plan should be your personal risk management strategy. Fully protecting your and your family’s financial future against the unexpected will help you to move forward with greater confidence in your wealth management decisions.

What exactly does it mean to “fully” protect your financial future? Of course, it involves insurance planning and the purchase of different forms of insurance. But before you overextend and become insurance poor, it would be important to carefully assess your risk exposures and develop a risk management plan that fits your particular needs. That requires a full understanding of all of the protections available to you and how to optimize their capacity to protect you.

Disability Income Protection

For most people, their most valuable asset is their ability to earn an income. Becoming disabled for a period of six months or longer could have a much greater impact than any of the other threats to your financial security, including losing your home in a fire, or a major car accident, or a premature death. Obtaining the best possible disability income protection plan should be your top risk management priority. Because your risk of disability increases as you get older, disability insurance can become very expensive. The best time to consider purchasing disability coverage is when you’re young and healthy.

The most important considerations for purchasing disability insurance are:

  • Obtaining a policy that protects your occupational specialty for as long as possible
  • Insuring future income increases
  • Relying first on an individual disability insurance plan and only using a group plan as a supplement

Disability income planning has become a specialty in the insurance industry, and it would be important to work with a disability specialist with access to the top disability insurance carriers in the industry.

Property and Casualty Protection

Generally, property and casualty insurance (P&C) protects us against financial loss resulting from damage to our property as well as the liability of someone harmed. Auto insurance, homeowner’s insurance, renter’s insurance and personal liability insurance are all forms of P&C coverage. The general rule is that, if you own it, insure it. Of course, there has to be an insurable interest which an insurance company deems worth protecting.

The other consideration when it comes to P&C coverage is: Don’t skimp on your coverage to save money; rather find all ways to optimize your capacity in your insurance coverage. For example: Choose the highest possible deduction for which you are financially able to cover. Paying a $1,000 deductible for a dented bumper or covering the first $2,500 of the cost of a roof replacement won’t break you. The higher deductible levels will lower your premium costs which should be redirected towards increasing your liability limits.

Personal Liability Protection

One of the least understood forms of protection is personal liability insurance; and with its capacity to form an extensive umbrella of financial protection for a low cost, it can also be the most overlooked. Most people don’t consider it because they think they have plenty of liability coverage in their homeowners and auto insurance policies.

Most people are just a slip on a banana peel away from a major lawsuit; however, people of wealth or high-income earners, such as physicians, can actually become targets of people seeking to benefit from an accommodating court system. For a few hundred dollars a year, you can provide yourself with a million dollars of umbrella protection. As a general rule, you should have umbrella liability protection to equivalent to the value of all of your assets.

Life Insurance Protection

The purchase of a life insurance policy may never make anyone's top ten list of favorite things to do. But, when given the opportunity to consider the range of purposes it can serve, it could turn out to be the most important financial instrument you own.

  • It creates an instant estate – Life insurance creates the capital a family needs when there are sufficient assets to cover their needs.
  • It provides tax advantages – Life insurance has a host of tax properties that make it attractive as a financial instrument. The death benefit is tax free to the beneficiaries. The cash value accumulates tax free. And, under certain circumstances, you can access your cash values tax free. Certain policies, such as Universal Life allow for tax free withdrawals of principal and most cash value policies allow for policy loans which are tax free. *
  • It’s cost effective – Life Insurance is a financial instrument with potential to provide the capital needed to provide for surviving family members or to settle the costs of a large estate, or to buy out the family of a deceased business partner, as inexpensively as life insurance.

The mistake many people make is to wait too long before purchasing life insurance. As with disability income insurance, the time to buy life insurance is when you are young and healthy.

*Policy loans can become taxable should the policy lapse. Also, policy loans, if not repaid, will reduce the death benefit amount.

Loans and withdrawals reduce the policy’s cash value and death benefit and increase the chance that the policy may lapse. If the policy lapses, terminates, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as distributed and taxable under the general rules for distributions of policy cash values.

Life insurance policies contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. Your financial professional can provide you with costs and complete details.

Tags: risk management, retirement

Warren Buffet Retirement Planning Rules: What Would Warren Buffet Do?

Warren Buffet Retirement Planning Rules: What Would Warren Buffet Do?

Apr 2021

Everyone can learn some valuable lessons from Warren Buffet, arguably the most successful investor of all time. Buffet has two strict rules about investing that anyone would find, well, frustratingly simplistic. The first – “don’t lose money,” and the second – “don’t forget rule number one.” But for Buffet, winning can only happen in the stock market. Obviously, when your money sits in low yielding savings accounts it is impossible to win. In fact, if your money is earning below two percent interest, you lose each day to inflation. Over a twenty-year period, your dollars are worth just a fraction of what they were.

What Does Buffet Know that We Don’t?

Over time, Warren Buffet has graciously imparted bits and pieces of his knowledge with us average investors, and for those who really paid attention, they have managed to gain many of the advantages of his practices. See, Buffet adheres to history and he doesn’t fight the facts, while average investors tend to let their emotions guide their decisions. Buffet will be the first to tell you that emotions and investing don’t mix.

  • Fact #1: Bear markets do happen – but then, so do bull markets
  • Fact #2: The average duration of a bear market is 11 months as compared to 32 months for a bull market
  • Fact #3: The average bear market decline is 27 percent; the average bull market gain is 119 percent
  • Fact #4: Since WWII there has been as many bear markets as there have been bull markets, yet the stock market has still managed to advance more than 100-fold.

The takeaway for investors is that the losses of the bear markets have only been temporary while the gains of the bull markets are permanent. With each bull market, the losses of the preceding bear market decline were made up and the gains of the prior bull market were extended. In that perspective, bear markets are nothing more than a temporary interruption of a longer term uptrend. So, the real risk is not in the next market decline of 27 percent; the real risk is not being in the next 100 percent market increase.

How to Invest Like Buffet

The most notable successful investors, such as Buffet, are long term strategists with almost super-human patience. They believe in diversification, buy-and-hold, investing in value with a focus on wealth preservation, not wealth building – apparently a lot easier said than done for most people.

But, there are enough successful high net worth investors around from which we can glean the best practices that, when applied by any investor, can provide the edge that everyone seeks.

  • First: Develop clear and meaningful investment objectives. Many investors focus on investment performance, and, consequently, they often find themselves chasing it by trying to time the markets and making risky buy and sell decisions. Successful investors focus only on their specific objectives and use them as their sole benchmarks as opposed to some irrelevant stock market benchmark.
  • Second: Building and preserving wealth is as much about managing risk as it is managing investment performance. The key is to diversify your asset classes in a way that they act as counter weights to the various forms of risk, such as market risk, inflation, risk and interest rate risk. Periodically your portfolio should be rebalanced to ensure that the exposure to any one risk as not increased due to changes in your portfolio values.
  • Third: Buy stock insurance. Buffet and other successful investor hedge their portfolios with financial instruments called put options that limit their losses when stocks decline. The average investor, especially those closer to or in retirement might be better off by hedging their portfolio and their retirement income with annuities. With fixed indexed annuities a portion of your portfolio can still have access to stock market gains without having to endure the losses.
  • Fourth: Surround yourself with qualified and trusted advisors who have your sole interests in mind when providing you with guidance. The most successful investors rely on a team of advisors that provide unbiased advice in formulating the most appropriate investment strategy to meet their needs.

Not everyone has the courage or the patience (or the billions) that Buffet has to stay fully invested in the stock market, yet constant exposure to equities is vital if you are to have any chance of a secure retirement. And no one can pick individual stocks like Buffet either, nor should they try. Buffet has a fully diversified portfolio of hundreds of stocks invested across many industries, global regions and asset classes. You can achieve the same diversification with index funds or exchange-traded funds with the ability to allocate your assets broadly to reduce risk and volatility. Then, if you can exercise the same level of discipline and patience as Buffet, and hedge your portfolio and retirement income with annuities, you too can win by not losing.

Tags: retirement income, retirement planning, retirement

Securities are offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services are offered through NFP Retirement, Inc., a subsidiary of NFP Corp. (NFP). Kestra IS is not affiliated with NFP Retirement Inc. or NFP.

This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. NFP Retirement Kestra IS and Kestra AS do not provide tax or legal advice. For informational purposes only. Please consult with your tax or legal advisor regarding your personal situation

Trading option security contracts involves risk and may result in potentially unlimited losses that are greater than the amount you deposited with your broker. Because of the leverage involved and the nature of option contract transactions, you may feel the effects of your losses immediately. Under certain market conditions, it may be difficult or impossible to liquidate a position. Under certain market conditions, it may also be difficult or impossible to manage your risk from open options positions by entering into an equivalent but opposite position in another contract month, strike price, through another market, or in the underlying security. You may be required to settle certain option contracts with physical delivery of the underlying security. All option contracts involve risk, and there is no trading strategy that can eliminate it. You should thoroughly read and understand the customer account agreement with your brokerage firm before entering into any transactions in trading security option contracts.

1. http://www.stowefinancialplanning.com/blog/planning-new-normal-retirement

NFPR-2019-86 ACR#324841 09/19

Three Tax Tips That Can Help As You Approach or Begin Retirement

Three Tax Tips That Can Help As You Approach or Begin Retirement

Apr 2021

Retirement is a whole new phase of life. You’ll experience many new things, and you’ll leave other things behind. One thing that won’t disappear, however, are taxes. If you’ve followed the advice of retirement plan consultants, you’re probably saving in tax-advantaged retirement accounts, like 401(k)s or IRAs. These types of accounts defer taxes until withdrawal, and you’ll probably be withdrawing funds from them in retirement. Also, you may have to pay taxes on other types of income, like Social Security, pension payments, or salary from a part-time job. With that in mind, it makes sense for you to develop a retirement income strategy. Here are three tips:

Consider when to start taking Social Security.

The longer you wait to start taking your benefits (up to age 70), the greater your benefits will be. Remember, though, that currently up to 85 percent of your Social Security income is considered taxable if your income is over $34,000 each year.

Be cognizant of what tax bracket you fall into.

You may be in a lower tax bracket in retirement, so you’ll want to monitor your income levels (Social Security, pensions, annuity payments) and any withdrawals to make sure you don’t take out so much that you get bumped into a higher bracket.

Think about your withdrawal sequence.

Generally speaking, you should take withdrawals in the following order:

  • Required minimum distributions (RMDs) from retirement accounts. You’re required to take these, so start here first.
  • Taxable accounts. You should use these up.

Remember:

  • If you sell investments, you’ll need to pay taxes on any capital gains.
  • Tax-exempt retirement accounts like Roth IRAs or 401(k)s.
  • Saving Roth accounts for last makes sense.
  • You can take withdrawals without tax penalties, for example for a large medical bill. You can also use them for estate planning, since your heirs won’t pay any taxes on their distributions, either.

All these factors are complex, and you may want to consult a tax professional to help you apply these tips to your own financial situation. You can test different strategies and see which ones can help you minimize the taxes you’ll pay on your savings and benefits.

Tags: retirement income, retirement

Three Ways to Ensure the Continuation of the American Retirement Dream

Three Ways to Ensure the Continuation of the American Retirement Dream

Apr 2021

Frequently, the news about retirement is pretty pessimistic. Pensions no longer exist for most workers, we aren’t saving enough, and Social Security is going to disappear. However, things may not be as bleak as they are often painted. If you’re a retirement plan sponsor, you may be wondering how you can help your employees prepare for retirement. Retirement plan consultants suggest three ways that anyone can use to help them retire:

  • Start saving now. No matter what your age or financial circumstances, you’ll improve your retirement prospects if you start saving now. Ideally, you should set aside at least 10 percent of your income, but it’s more important to get started than to worry about exactly how much you can save. An employer-sponsored retirement plan can help you by allowing you to save pre-tax dollars, and the interest on your funds also accumulates free of taxes. You will be taxed at your normal rate when you withdraw funds. If your employer matches all or a portion of your contribution, that will immediately boost your savings.
  • Choose appropriate investments. It’s important to balance your personal tolerance for risk against potential gains. While conservative investors might want to put all their funds into savings, like money market accounts or certificates of deposit, returns on those types of accounts are low, and often barely outpace inflation. Even conservative investors may need to have a portion of their assets in investments with a higher potential return, such as stocks, to help their portfolios grow.
  • Maximize your retirement income. One way to increase your income in retirement is to work longer. You’ll have more time to save, and waiting to claim Social Security means you’ll get a larger benefit later. Even working part-time will help your retirement income. Other ways to maximize your retirement include downsizing your home and/or moving to a location with a lower cost of living.

Tags: retirement income, retirement

Have a Long-Term goal? Financial Planning can Help You get you there

Have a Long-Term goal? Financial Planning can Help You get you there

Apr 2021

After several years of wallowing in financial upheaval caused by a severe recession and financial crisis, Americans are, once again, looking to the future. A renewed confidence has many people setting their sights on long term goals that, just a few years ago, may have seemed out of reach. However, as too many people have painfully learned, simply having a long-term goal, whether it’s an early retirement or a college education for your children, is not enough to realize your ambition.

A financial goal is a life destination which requires a map and a way to get there; and, assuming you have finite resources with which to successfully make the trek, they need to be used wisely or you are likely to come up short. If you have a long-term goal, financial planning can help you get there.

What exactly is Financial Planning

All of us have certain things in life we want to accomplish and many of them require financial resources. These are called financial goals. Living a secure and enjoyable retirement is a goal shared by most people. In addition to that, parents want to be able to provide a college education for their children, buy a bigger house, or expand their business, and while working towards all of those, they want to ensure the financial security of their loved ones. These all become intricately linked pieces of your financial puzzle.

A financial plan is about carefully forging those pieces and fitting them in their proper place so that they work effectively together towards your vision. If a piece is missing or doesn’t fit quite right, it could skew all of the other pieces. As you become financially successful, more pieces are needed to complete the financial puzzle, such as risk management, tax strategies, and estate planning. Because of their impact on the total financial puzzle, it is critical to have a wellconceived, integrated plan.

The financial planning process enables you to focus clearly on your specific goals while addressing all of your concerns so they are no longer obstacles. And, having a well-conceived, comprehensive financial plan enables you to shutout the constant drone of doom and gloom, because, in the long-term, your plan is all that matters.

Steps in the Financial Planning Process

The financial planning process involves four essential steps that, if followed diligently, will increase the likelihood of achieving your long-term goals; however, it does require discipline, patience and adherence to basic financial principles.

Establish Clearly Defined Goals

Very rarely does anything of financial importance happen accidently. In reality, absent a clearly defined, quantifiable goal that’s set along a realistic time horizon, chances are it won’t happen. Your goals need to be both realistic and inspiring enough to motivate you to action. It’s not enough to know what it is you want to achieve; you need to have a deep sense of why it’s important, and how it would make you feel when it’s achieved. To set a realistic goal, envision it, quantify it (what you need to save), and make sure you have the resources to fund it.

Assess Your Current Financial Situation

Financial planning is a continuous process of assessing where you are currently in relation to your goals. This enables you to make the adjustments in your strategies necessary to keep you on track. Your financial picture is comprised of a balance sheet (assets and liabilities) and a cash flow statement (budget and savings). Your objective is to constantly improve your financial picture – reduce debt, increase cash flow/savings, grow your assets - which could enable you to achieve your goal early, or enable you to target additional goals.

Create an Actionable Plan

A financial plan is typically comprised of several strategies, each designed to address a different piece of your financial puzzle. Developing a systematic savings and investment strategy for accumulating the funds needed for your goal is obviously a key part of your financial plan. But, life happens, and your financial plan should also include strategies for dealing with life’s contingencies, such as an accident or illness, or even a premature death in the family that could derail the plan.

Priorities have to be established in order to shore up all aspects of the plan. Before allocating all of your resources towards your financial goal you need to create an emergency fund to cover at least six months of living expenses, and an insurance plan to protect your finances in the case of a disability or death of a family member. Each priority should have an actionable plan to achieve it.

Monitor and Measure Your Plan

The biggest mistake many people make is to create a financial plan and then put it on the shelf. A financial plan is a living, working document that needs to reflect your current circumstances as well as the impact of a changing environment. It becomes a benchmark against which your progress to your goals is measured.

As your personal circumstances change and evolve, your plan needs to be updated, and, very likely, strategies will need to be updated or added (i.e. increases in insurance amounts, a change in your asset allocation, a new tax reduction strategy). The more frequently you assess your situation and measure your progress, the more minor any adjustments to your strategies will be.

Seek Professional Guidance

Although financial planning is not rocket science – there are plenty of resources available to develop your own – it can become more daunting than the average person is able or willing to tolerate. The body of knowledge required to navigate multiple disciplines (i.e., investments, insurance, taxes, retirement planning, estate planning, etc) is beyond the capacity of most people. In addition, most people lack the discipline and patience to strictly adhere to a plan, especially when their emotions get the upper hand.

A competent financial advisor can more efficiently guide you through the process of planning your future, designing your strategies and navigating the complex universe of investments and financial products. Of equal importance, he or she can also be your financial coach, holding you accountable to your plan while coaching you through your emotions and encouraging you to the finish line.

Tags: reduce debt, debt, retirement, long term goals

Securities may be offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services may be offered through NFP Retirement, Inc. Kestra IS is not affiliated with NFP Retirement Inc., a subsidiary of NFP.

This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.


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