The Importance of Preserving Your Wealth

In today’s economic climate, there continues to be a lot of uncertainty. As the current workforce approaches retirement age, hardly anyone feels secure that they will be retiring with sufficient money in the bank. This makes it especially crucial to understand your options and prepare carefully in order to protect your assets. With careful preparation, you can create a wealth preservation plan that is flexible, accounts for market fluctuations and inflation, and is based on assets you have at your disposal. Such a plan will create a more certain future for you and your dependents.

Develop a Clear Plan of Action

Establishing clear goals for the future is crucial. It is imperative that you have an idea of what assets are to be preserved, and for what period of time. Whether you are looking at liquidating assets currently, just prior to anticipated retirement, or much further into the future will impact the plan.

Also, it is essential to incorporate into your plan an assessment of how much annual income is required in order to maintain your assets, liquidity and desired lifestyle. Consider not only investment income, but also other sources of funds such as Social Security or other retirement benefits. It is important to know exactly from where you expect to receive funds. Furthermore, determine whether you intend to consult or otherwise have an income after retirement, or whether the difference between Social Security and pensions will all have to be generated from investments.

A comprehensive plan of action must also account for inflation, since it is likely to be a key factor if you are looking at longer time frames. In addition, it is likely that over time there will be increases in income tax rates and health costs. These must also be considered when you design your plan.

Lastly, look closely at your current finances with regard to your ideal lifestyle. If you already have sufficient assets at this point in time to maintain your desired lifestyle, consider what additional expenses you might incur. Such outflows may include charitable donations or trusts left to inheritors; payments made in support of grandchildren or your parents for care, and education. What if you or your spouse encounters unplanned medical issues? Do you have long-term care coverage, or will you have to pay those costs? After accounting for such expenses, consider whether it is still likely you can maintain the lifestyle you desire. If not, then perhaps either reassess your goals or look closely at your planned outflows. These issues must also be considered if you do not currently have sufficient assets to meet your goals, but they become secondary to accumulating assets.

Examine Your Assets

Besides developing a clear plan for managing your assets over time, it is crucial to have a comprehensive, honest picture of what assets you have at your disposal to generate liquidity. During this part of the process, it is advisable to consult with professionals. These experts can run a Monte Carlo analysis under different earning and inflation assumptions in order to give you a view as to what your investments must generate in order to reach your goals, and what kind of risks you have to accept.

Similarly, it is once again important to remember the dangers of inflation. Inflation, unfortunately, is a fact that must be accepted and accounted for. Over the coming years it is likely to have a significant impact. You therefore ought to have assets in your portfolio that are likely to perform well during an inflationary period. Such assets generally include stable blue chip dividend paying stocks, as well as real estate and other hard assets, including gold and silver.

With inflation in mind, it is also advisable to maintain a healthy supply of cash. Even though cash generally earns virtually nothing, it will be a useful tool if inflation escalates. Cash positions you to take advantage of any opportunities that arise and ensure that you can take comfort in always having at least some secure assets.

Furthermore, it is vital that you plan for any sales of illiquid assets that you currently own. This will include any assets that are not traded daily and require time to liquidate. Significant thought must be given to issues such as timing, sales price, and taxes, especially if the liquidity of these resources will be necessary in the future to provide funds for living expenses.

Lastly, and perhaps most importantly, your assets must be assessed in conjunction with any employment you are currently engaged in, especially if your current business represents a significant portion of your wealth. If this is the case, then consider carefully what your exit or liquidity plan may be.

Ensure that such a plan is carefully structured and in place for the future. If a plan is not already in place, then be certain to develop one as soon as possible, considering the role that life insurance will ultimately play in the process.

In Summary

Despite current economic uncertainties, it is possible to preserve your wealth for the future with careful planning and clear judgement.

In conclusion:

Create a clear, comprehensive plan of action that considers a variety of issues including timing, current assets, and necessary income. Assess your current assets with a view toward the future. Maintain a store of cash and determine how you will liquidate any illiquid assets that you currently own.

Be sure to consider the impact of inflation in the development of your plan. Inflation is likely to be significant over the coming years, and it is vital to account for its impact on your plan of action. You must also maintain a portfolio of assets that will perform well during inflationary periods.

The process of preparing for the future is incredibly important for determining your future financial wellbeing. Los Angeles and southern California executives may want to consider consulting with a CFO services firm, a resource with experienced professionals who can run detailed analyses and give expert advice on how to structure your investments.

Understanding Investment Grade Insurance Contracts

Recently, many Financial Advisors have started to recommend using investment grade insurance contracts to supplement your retirement savings. I think the first person to come up with the term “Investment Grade Insurance Contract” was the best-selling author of “Missed Fortune 101” Douglas R Andrew. What he has taught about this unique savings vehicle has changed the way advisors around the country view insurance contracts. Insurance contracts in general are some of the most often misunderstood financial vehicles on the planet and yet they offer some opportunities that cannot be found in any other financial products. Why should you care? Because not knowing about the unique advantages of an investment grade insurance contract (IGIC) could cost you literally thousands of dollars in missed opportunities. Let’s take a look at some of these opportunities and then we can break down for you just what an investment grade insurance contract really is. There are many financial vehicles that allow your money to grow tax-deferred while you are trying to grow your nest egg.

Any financial advisor will tell you that tax-deferred growth is an advantageous pursuit. Making interest on your interest without having to split that growth with Uncle Sam means that you will end up with a much larger account than if you had to pay taxes along the way. Even if you have to pay tax at the end when you pull the money out you still end up way ahead of an investment vehicle that offers no tax shelter. But what if your money could grow not only tax-deferred but you could pull your money out tax-free whenever you need it. How much better off would you be? Well an IGIC can help you do exactly that if you know how. But before we get into what it is and how to set one up let’s talk about another unique advantage. So far we talked about this IGIC offering tax-deferred growth during the accumulation stage of your life and then tax-free distributions during the distribution stage of your life and then lastly we talked about how this plan can be passed on to your children income tax-free in the wealth transfer stage of your life but are these the only benefits? Actually no. There are at least 3 other advantages that I can think of. The first other advantage in addition to the tax break is that your money can grow without any stock market risk. This makes for a very nice supplement to most government regulated retirement plans like 401(k)’s that are often subject to sharp stock market losses. Yet even with this protection in place the return on your money can also be very competitive. The second advantage of the IGIC is that when set up properly, you have very liberal access to your money. If you are currently using IRA’s or 401(k)’s, your money is generally tied up until you are 59 1/2 years old except for certain rare circumstances.

If you borrow out your funds beware, stiff penalties apply if you don’t pay the money back on their terms and in their time frame. Often you are forced to garnish your wages just to pay back a loan of what is supposed to be your own money. None of these harsh requirements are involved with an IGIC. Access to your money is much more easily accomplished because the plan is not a government regulated retirement vehicle. The final advantage is the most important one to some people and not really a concern to others. If you happen to die prematurely the IGIC pays out a large lump sum insurance payment to your heirs that always ends up being much more of a payout than what you actually paid in. This last benefit helps you begin to see just what an investment grade insurance contract really is. Now you know some of the most important benefits of an IGIC but how do you go about setting one up and exactly what is it? An Investment Grade Insurance Contract is simply a permanent life insurance policy that has been set up in exactly the “opposite” way that most insurance agents tend to set them up. The most common way the typical life insurance agent goes about setting up your plan is to first determine how much life insurance you need. Then he or she tries to calculate, what is the largest amount of insurance they can give you for the smallest amount of money out of your pocket? When a life insurance policy is structured using that method, a good portion of your premium dollars ends up going back to the life insurance company in fees and insurance charges. You will most likely be disappointed in the growth of your cash value. On the other hand there is an alternative way to structure a life insurance plan that tends to go against the conventional wisdom of trying to get as much death benefit “bang for your buck” as possible. In this alternative scenario the agent or advisor structures the plan to give you the least amount of death benefit that the IRS requires so that you can stuff your plan with the highest allowable amount of cash that the law permits. Why would anyone want less death benefit you ask? Because the lower the death benefit in relation to your premium the less you pay in insurance charges and the more cost effective your plan becomes. But you are probably wondering why go through all of that trouble to calculate the correct proportions? How does that benefit you? Well if you set this up correctly you get all of the benefits mentioned above and a competitive return on your money over the long haul. Lastly there are lots of ways to set up these plans. You can use many different types of life insurance as your chasse. You are not limited to just one type of policy, you can use Whole, Universal, Variable, or Equity Indexed Universal Life. But often times it is not the product that is the biggest concern, it is instead finding someone who truly understands how to structure these plans correctly so as not to violate the current tax-code. Make sure your advisor knows more than you do about IGIC’s and has helped others to set them up.