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“How Parents can become our Safest Retirement Account”

The millionaires and billionaires grow their wealth on market timing and influencing market movements with their huge portfolios of money. And the media, don’t forget them, Wall Street pays the media and networks to get valuable airtime with advisory shows, panels, and experts all telling the public where they should invest their next dollar. When was the last time you saw an advisory show regarding the safety of annuities and life insurance products?  It’s all about influence, and Wall Street has the deepest pockets to steer this influence straight into your living room daily.   

Have you ever invested with a broker who told you the price is low now and can only go up, so buy?  The price then increases and he calls, and says you should buy more, look what a great choice I made for you, so you follow his guidance again and buy more. Then the stock soars to an all time high, and your broker calls you back and says look at what a great advice I have given, you should buy more before it goes through the roof, and you give him more money.  Then the market crashes due to sell off in China, or the announcement that some major corporation’s CEO is sick and the value of your stocks now loose 25 - 40%.  Then, the broker’s advice is, hold on to it, wait don’t get out now you need time for the market to recover.  When does this investor get off the “hamster wheel”? Usually never, brokers want money to manage day in day out, which is the life’s blood of their business, through the 1-4% in fees they peel off every year, weather you have gains or not. They very rarely advise to cash out, take your winnings and go home, just like Vegas, the odds are usually always against you.  

The idea is to pick a stock while priced low and then sell it high, but most people make decisions reverse of this timing, they get in after the frenzy has driven the prices upward, far too late, and they sell off emotionally distraught after the pricing crashes, not wanting to stomach any more losses. These same Brokers and Investment Banks took advantage of the uniformed and uneducated public, by creating innovative packages of investments wrapped around mortgage backed securities, leading them like lambs to the slaughter. It’s no surprise now about 65% of the brokers licensed in 2008 are now out of work, in different work. Some of them are now lining up to get in the insurance business to now advise their clients, the ones still talking to them, to buy annuities and life insurance products because of their long history of safety and guarantees.  

The same products they told their clients to stay away from just less than a year ago, because they do not pay enough interest!  How much of a return, do you have to earn to make up for a 50% loss in one year, its 100%, and how long will that take in today’s economic climate? How long will it take to get back to that starting point before the loss, now calculate the lost rate of return if they were earning 4-6% the whole time. (see article “Tortoise & Hare”) The minimums of 3-4% sounds real attractive now doesn’t it, well most insurance professionals sleep well at night and are never afraid to run into one of their clients in a public place, or ever answer the phone in a down market.

 “No investor’s wealth has been or ever will be determined by market rates or returns. It is simply based on predictable planning using systematic savings strategies and knowing how to protect and preserve what you save.”

Today’s market and worldwide economy dictates that we seek out safe, predictable, alternative retirement planning strategies.  Most adults between the age of 35 -55 have at least one healthy insurable parent that would make using the “Parent Insuring Strategy” a safe viable alternative or compliment to traditional retirement investing.  By 2030 it is estimated that Medicare, Medicaid and Social Security will dominate the entire Federal budget, and that was before the new health bill was passed. With long term physical concerns like these occurring in the middle of our retirement, creative strategies like this type of advanced insurance planning must be used and taken advantage now. Before the government decides, to pass laws to tax proceeds on life insurance policies owned by other than husband/wife or parent/child. Most grandfathering laws will protect against this, if you own the policy before any new laws take effect. But who knows what the government might need to tax to pay for their recent spending spree.

  Working with seniors for over 20 years, I have found most all of them desire leaving behind a financial legacy to their children, grandchildren, churches and charities. High net wealth or high income earners, such as medical professionals, attorneys, athletes and entertainers all have the same financial needs in common. They all need income tax, probate, estate tax, and lawsuit free protection of their assets.  Special Care Planning professionals like myself, for years have used various forms of life insurance contracts to help meet these advanced planning needs. 

Now with the recent economic meltdown and the exposure of Bernie Madoff and his 12% rate of return scheme uncovered, it is time to illustrate a legitimate high rate of return strategy still available to most Americans. I have implemented and used this strategy for years just as many others advanced insurance planners, but always competing with The “Pied Piper” on Wall Street. Because it was considered too far out of the box, and even told it was morbid, by everyone except, experienced business people and the wealthy that really understand the unparalleled benefits of the concept. 

Insurable Interest

In recent years a transaction called “Life Settlements” has transferred Billions of dollars of unwanted life insurance policies from the retired insured to investor groups.  They would buy a 1M policy from a 70 year old that had 100K cash value it is for say, 300K.  The investor group would then continue to pay the premiums as the new owner of the policy and reap the benefits of tax free death benefits when the insured dies. Providing, as equally beneficial deal to the senior that now pays no more premiums, receives a great buyout, higher than the policy’s cash value would pay for cancellation.                                                                                                                   

This business has dramatically slowed down due to the recent banking meltdown, and insurance companies hate it because they will end up paying out on more full death benefits of the policies issued than statistically expected, or actuarially calculated into the premium structure. Consequently life insurance companies have responded with stricter insurability interest rules for the issuance of any new policies.  Meaning if you do not have a legitimate insurance or financial interest in a person you could not own a policy on them and they will not issue one, period.

Insurable interest covers a broad range of relationships, husband/wife, parent/child, business partners are the primary groups. Interest also extends to business owners for key employees, trusts for estate taxes, caregivers for special needs, and churches or charities with their donors. 

Children all have a unique insurable interest and potential financial risk related to their own parents. Yes, our parents pose financial risks to our own retirement income, especially with the rise of Alzheimer’s and other senior specific debilities. The children could end up caring for their parents in some way even if the parents have a good long term care policy established. Time alone, could cost tens to hundreds of thousands in lost professional efforts spent off the job just dealing with a debilitated parents needs.

One of my good friends, and fellow insurance professionals at the age of 60 had his widowed mother to care for full time after she was involved in car accident at the age of 78. The accident left her needing full time care, with no long term care insurance and wanting her at his home, he juggled his professional time losing income while caring for his mother.  He ended up taking the company’s early retirement program, which paid him far less than what he had planned if he worked until 65. How does he make up for his lifetime reduction of retirement income providing this needed care for his injured mother, he doesn’t, this is what I referred to as “parent insurable interest”.  <