Thursday, January 29, 2009

Failed Financial Beliefs and Time Tested Truths: Post 3

This is the third of a four post series that reviews retirement planning beliefs that have been shattered by a failing economy and then revisits a time-tested financial planning truth we can expect to be championed again.

Failed Belief No. 3: Invest regularly in your 401(k), and it will take care of your retirement.
This is another unquestioned idea. Over the couple decades financial advisors have come to believe that if we invest regularly in our 401(k) and maintain a well-balanced retirement portfolio with choices of mostly stock mutual funds, we will certainly achieve a financially comfortable retirement. But the stock market losses of the past year have scuttled a lot of retirement plans.

Even worse, a report from Boston College’s retirement research center examined scenarios where workers had done everything right: Contributed 6 percent of pay to a retirement plan for 40 years, invested in a target date fund, and never touched their retirement savings until it was time to retire, the portion of their pre-retirement income that these savers could replace in retirement still varied dramatically depending on when they retired. Those retiring in 1948 could replace 19 percent, 1999 retirees could replace 51 percent, and 2008 retirees could replace 28 percent. Notice that none of these percentages is anywhere near replacing 100 percent of their pre-retirement income.

Time-Tested Truth No. 3: Make paying off debt and building your savings a priority.
Make eliminating your debt and building your savings a central goal of your monetary life. For example, encourage any client who has a debt other than a mortgage to set a goal to have it all paid off within a year. If your client makes that a priority, chances are he can do it. If your client has a mortgage, he should set a goal to have it paid off within 10 years.

Once your client is totally debt free, he should set a goal to add a particular dollar amount to his retirement savings every year. Whatever the financial goal is, if it is a high enough priority for him, he is very likely to achieve it. After he meets the first financial goal, you will have instilled in him a very good habit, so it will get easier.

Check out Post 1 and Post 2 in the series, What to Do When the Financial Experts Don’t Know Anything, which discusses financial risk and guarantees.

Our next post will put buying a home and controlling risk in perspective when considering financial security.

Share your thoughts by clicking on the “Add Comment” link below.

Thursday, January 22, 2009

Failed Financial Beliefs and Time Tested Truths: Post 2

This is the second of a four post series that reviews retirement planning beliefs that have been shattered by a failing economy. Each point will also revisit a time-tested financial planning truth we can expect to be championed again.

Failed Belief No. 2: Smart money management can achieve consistently excellent returns.
The grand financial institution, Bernard L. Madoff Investment Securities LLC, rose to prominence because it was able to consistently deliver above-average returns to its customers, no matter what the economic environment. Its founder and CEO was a very respected figure on Wall Street. Over the last several months we’ve learned that it was all a Ponzi scheme that lost perhaps $50 billion of investor funds.

And note this: The Madoff firm had 147 employees and 54 registered representatives. Didn’t any of them know that the firm’s financial statements were a complete fraud?

Time-Tested Truth No. 2: Always spend less than you make.
Investing regularly in your 401(k) is good retirement planning, but it is even better to consistently put money away year after year not only in your 401(k), but also in your general savings or retirement products. No matter how big an income you produce, if you outspend it, you will retire a pauper. How many times have we seen a once-famous athlete or entertainer filing bankruptcy?

Following this financial truth may mean you drive an older, less impressive car than your neighbor. It may mean that you eat out less. It may mean you live in a more modest home than your co-workers. But it will certainly increase your financial security and ability to retire comfortably.

Check out Post 1 in the series, What to Do When the Financial Experts Don’t Know Anything, which discusses financial risk and guarantees.

Our next post will focus on the retirement planning ideas we hold about our 401k savings and paying off debt.

Share your thoughts by clicking on the “Add Comment” link below.

Wednesday, January 21, 2009

Video: Six Rule 151A Courses of Action for Insurance Marketing Organizations

Insurance Insight Group sees six courses of action independent insurance marketing organizations can take concerning Rule 151A. We put together a presentation with Insurance News Net to explain specific tactics that can be effective in such a changing time as this.

The most important thing to keep in mind regarding Rule 151A is that change is inevitable. But, whenever there are major changes in any marketplace, there are opportunities for insurance marketing organizations to embrace the changes, respond aggressively, and grow their businesses.

We hope the presentation, Surviving a 151A World: A Six Part Action for Insurance Marketing Organizations, offers extra insight.

Share your thoughts by clicking on the “Add Comment” link below.

Tuesday, January 20, 2009

Rule 151A – Go Away!

On Friday, the SEC’s new Rule 151A was published in the Federal Register. This is the rule that will make index annuities subject to securities legislation effective January 2011.

A coalition of insurance companies and independent marketing organizations, the Coalition for Indexed Products, promptly filed suit, seeking to overturn Rule 151A in federal court. Insurance Insight Group hopes the lawsuit is successful and the court strikes down Rule 151A.

Index annuity products provide much stronger guarantees of principal than securities products. At a time when investors in securities have lost trillions of dollars of their wealth, index annuity policyholders have lost nothing.

The SEC’s initial rationale for proposing Rule 151A was that there was, in the SEC’s view, rampant abuse in the sale of index annuities. It is hard to give this assertion any credibility when you consider that gaping regulatory failures in the securities markets are plainly evident to the general public. It seems to us that the SEC has misallocated its resources, attacking a class of insurance products that pose no risk all the while ignoring other areas with rampant abuses.

Index annuities are popular with retirees and people planning for retirement because they provide safety of principal with the possibility of higher interest crediting over time than traditional fixed interest rate savings vehicles. There is little doubt that Rule 151A would dramatically decrease the number of insurance agents selling index annuities, limiting the availability of these popular retirement products to consumers building a retirement strategy.

In September, then presidential candidate John McCain said that SEC Chairman Christopher Cox had “betrayed the public’s trust,” and “If I were president today, I would fire him.” While Mr. Cox’s term of office has ended, we hope that the federal court “fires” Mr. Cox’s misguided Rule 151A. It would be in the public’s best interest for Rule 151A to go away.

Share your thoughts by clicking on the “Add Comment” link below.

Friday, January 16, 2009

What To Do When the Financial Experts Don’t Know Anything

It seems that almost all the financial ideologies we have relied upon in recent years have turned out to be houses of cards.

It’s time to start picking up the financial mess that has been strewn across both Wall Street and Main Street. What is a consumer to do to ensure that their retirement savings will be their when they need them? Who and what retirement products can be relied upon? And, what assertions can a responsible financial advisor make to a consumer and know that he is truly standing on firm ground?

Over the next four posts, I’m going to talk about the retirement planning beliefs that have been shattered by a failing economy. With each point, I will also revisit a time-tested financial planning truth we can expect to be championed again. You know – those that were too conservative – too stodgy. Not surprisingly they are suddenly seen as wise advice again.

Failed Belief No. 1: Risk can be controlled.
No. 1 Merrill Lynch sold itself in hardship to Bank of America, and No. 4 Lehman Brothers and No. 6 Bear Stearns failed and went out of business. If these firms, each employing tens of thousands of the best financial minds in the business, could not control their risk enough to stay in business, how can the average future retiree expect to do so? And why should any retiree rely upon similar firms, their strategies, or their advice?

Time-Tested Truth No. 1: Nothing is a guarantee unless it is a guarantee.
When risk cannot be reliably controlled, and when wise management cannot achieve consistently excellent returns, guarantees matter. The good news is that whether you are offering annuities (index annuities, multi-year guaranteed annuities, etc.), cash value life insurance, or any other type of insurance product, there usually is an excellent selection of products that provide long-term guarantees and that are offered by solid, strong insurance companies. During the financial boom times, current and future retirees sometimes lose their focus on guarantees. But today, consumers and financial advisors can easily see the value of strong, long-term guarantees.

Share your thoughts by clicking on the “Add Comment” link below.

Our next post will focus on whether smart money management can achieve consistently excellent returns.