Warren Wealth Article Archive
Articles Posted During 03/2010
Monte Carlo Simulation
Wednesday 03/24/2010 - 1:31:46 pm
Rolling the dice on returns.
Provided by Jacob Warren
When a man walks into a casino in Monte Carlo and rolls a pair of dice at the craps table, he has a 1 in 36 chance (62=36) of the dice lying face up in any particular combination. He knows this because each of the six sides of each die - if the casino is a fair house - has an equal chance of turning face up.
Financial markets and the economy have far more variables than a six sided die. Instead of only six potential outcomes that have an equal chance of happening, investing has a myriad of possibilities and outcomes. Furthermore, each possibility has a wide range of chances of occurring.
To help investors get a better handle on this wide range of possible outcomes the market can give them, statisticians look to the gambling houses of Monte Carlo. They modify their theoretical dice to make them best resemble the real world – full of different outcomes with different possibilities. They add more sides because there are more than just 6 different events that could influence a portfolio's return. They change the size of each side, because in the real world the probability of each event happening is different. If the statistician believes that a certain market or economic event is more likely to happen, then that side of the die will be bigger. If there’s a small chance that some event might happen, then that side is small. These statisticians then give their theoretical dice thousands of virtual tosses via computer.
After all the “virtual” tosses of their theoretical dice, measurements are made. How many times did each event happen? The total of all these tosses and the potential events that might occur can give investors useful information about potential results for their portfolio.
Monte Carlo simulations are commonly used to estimate potential answers to questions like “Do I have enough money to retire?” or “What are the chances that I’ll outlive my money?” Simulations can show the probability - considering thousands of possible outcomes - that an investor may reach their goal.
For example, a financial professional can enter a client’s total assets, current contributions to retirement plans, spending habits and age into a Monte Carlo simulation. According to the assumptions built into the simulation, they may find that investor has an 80% chance of achieving certain financial goals. If that doesn't sound like good enough odds, the variables in the simulation can be changed to illustrate what may increase the investor’s odds of reaching those goals.
These “what-if” scenarios can help both the investor and their financial professional balance risk and return.
One risk that a Monte Carlo simulation may help to illustrate is the chance that a particular "outlier" may occur. An outlier is a possible result that lies outside of the normal grouping of results … a bit like a bolt of lightning striking suddenly on a cloudless day. An outlier, in essence, is something with little probability that holds big consequences. Perhaps there is a 3% chance that a series of negative effects could occur that would totally decimate the investor's portfolio. If that's the case, the investor may choose to alter his portfolio to eliminate or reduce the chance of those outliers.
To illustrate, let’s assume that an investor has a portfolio of 65% stocks, 30% bonds and 5% cash. Let's also assume that a simulation has show he holds an 80% chance of reaching his retirement goals, but there's still that 3% chance he'll fall short. The Monte Carlo simulation may be able to run “what-if” scenarios that show how a change in investment allocation could affect those outcomes. The simple act of moving 5% of his portfolio from stocks to bonds may lower his chance of reaching his ultimate goal to 79.5%, but at the same time completely eliminate those outlier risks. If this is the case, the investor may decide that change is worthwhile, even if it slightly lowers the probability of reaching every goal.
The Monte Carlo simulation technique does face criticism.
The main issue is that these simulations assign a low probability to dramatic events. Downturns, such as the market crash of 2008, had only a small probability of happening … but it did happen. The effects of that one event had the power to set some portfolios and retirements back a decade. To counter this, investment professionals and statisticians are always on the lookout for better statistical models and improvements to the Monte Carlo simulation technique.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
[Permalink]
Provided by Jacob Warren
When a man walks into a casino in Monte Carlo and rolls a pair of dice at the craps table, he has a 1 in 36 chance (62=36) of the dice lying face up in any particular combination. He knows this because each of the six sides of each die - if the casino is a fair house - has an equal chance of turning face up.
Financial markets and the economy have far more variables than a six sided die. Instead of only six potential outcomes that have an equal chance of happening, investing has a myriad of possibilities and outcomes. Furthermore, each possibility has a wide range of chances of occurring.
To help investors get a better handle on this wide range of possible outcomes the market can give them, statisticians look to the gambling houses of Monte Carlo. They modify their theoretical dice to make them best resemble the real world – full of different outcomes with different possibilities. They add more sides because there are more than just 6 different events that could influence a portfolio's return. They change the size of each side, because in the real world the probability of each event happening is different. If the statistician believes that a certain market or economic event is more likely to happen, then that side of the die will be bigger. If there’s a small chance that some event might happen, then that side is small. These statisticians then give their theoretical dice thousands of virtual tosses via computer.
After all the “virtual” tosses of their theoretical dice, measurements are made. How many times did each event happen? The total of all these tosses and the potential events that might occur can give investors useful information about potential results for their portfolio.
Monte Carlo simulations are commonly used to estimate potential answers to questions like “Do I have enough money to retire?” or “What are the chances that I’ll outlive my money?” Simulations can show the probability - considering thousands of possible outcomes - that an investor may reach their goal.
For example, a financial professional can enter a client’s total assets, current contributions to retirement plans, spending habits and age into a Monte Carlo simulation. According to the assumptions built into the simulation, they may find that investor has an 80% chance of achieving certain financial goals. If that doesn't sound like good enough odds, the variables in the simulation can be changed to illustrate what may increase the investor’s odds of reaching those goals.
These “what-if” scenarios can help both the investor and their financial professional balance risk and return.
One risk that a Monte Carlo simulation may help to illustrate is the chance that a particular "outlier" may occur. An outlier is a possible result that lies outside of the normal grouping of results … a bit like a bolt of lightning striking suddenly on a cloudless day. An outlier, in essence, is something with little probability that holds big consequences. Perhaps there is a 3% chance that a series of negative effects could occur that would totally decimate the investor's portfolio. If that's the case, the investor may choose to alter his portfolio to eliminate or reduce the chance of those outliers.
To illustrate, let’s assume that an investor has a portfolio of 65% stocks, 30% bonds and 5% cash. Let's also assume that a simulation has show he holds an 80% chance of reaching his retirement goals, but there's still that 3% chance he'll fall short. The Monte Carlo simulation may be able to run “what-if” scenarios that show how a change in investment allocation could affect those outcomes. The simple act of moving 5% of his portfolio from stocks to bonds may lower his chance of reaching his ultimate goal to 79.5%, but at the same time completely eliminate those outlier risks. If this is the case, the investor may decide that change is worthwhile, even if it slightly lowers the probability of reaching every goal.
The Monte Carlo simulation technique does face criticism.
The main issue is that these simulations assign a low probability to dramatic events. Downturns, such as the market crash of 2008, had only a small probability of happening … but it did happen. The effects of that one event had the power to set some portfolios and retirements back a decade. To counter this, investment professionals and statisticians are always on the lookout for better statistical models and improvements to the Monte Carlo simulation technique.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
[Permalink]
Health Care Changes In America
Wednesday 03/24/2010 - 1:12:00 pm
But the historic vote hardly means an end to the debate.
Provided by Jacob Warren
The House approves the Senate bill. Not a single Republican voted for it, but 219 Democrats did – and by a vote of 219-212, the House of Representatives sent the Senate’s version of landmark healthcare legislation toward President Obama’s desk. The President could sign the bill into law as early as March 23.1
But the fight is not over. The House of Representatives also passed a collection of amendments to the Senate bill by a 220-211 margin, but the Senate must also approve this reconciliation bill – exactly as it is worded. If that doesn’t happen, then guess what … there will be another vote on the Senate version of the bill in the House.1,2
“If those people think they’re only going to vote on this once, they’re nuts,” Sen. Orrin Hatch (R-UT) said on Bloomberg Television March 20. Hatch claims that Senate Republicans have the votes to force a modification of the bill passed on March 21 and boot it back to the House for a second vote.3
Will the reforms be overturned? Twelve state attorney generals have indicated that they will contest the bill on these grounds the moment President Obama signs it.4 What are the odds the Supreme Court will throw the reforms out? Probably pretty slim. Look at the precedents of Medicare and Medicaid. When both those federal programs were enacted, the Court twice upheld a broad federal role in health care.
The big reforms will take effect in 2014. If you are looking forward to health insurance reform, you will have to wait a while before many of the big changes occur.
• Starting in 2014, individuals will be required to have health insurance coverage or pay an annual penalty which could climb to $750 or 2% of their income (alternately $695 or 2.5% of income), whichever is larger. Inmates, Native Americans, and those with religious objections would be exempted.5,6
• In 2014, if you aren’t enrolled in an employer-sponsored health care plan, you will have to buy coverage yourself. You could shop for it through a state insurance exchange. The federal government will offer $500 billion worth of assistance to help insurance shoppers buy coverage through these state exchanges. Undocumented immigrants would not be able to buy coverage.5,7
• After 2014, businesses with more than 50 employees could be fined as much as $2,000 per worker for failing to provide the option of coverage.5
• In 2014, insurers will be required to provide coverage to all Americans regardless of their health status.7
• Medicare spending will be cut by about $500 billion over the next decade, mostly in reduced government payments to Medicare Advantage plans. Democrats have claimed this will not shortchange Medicare recipients.5
• Federal money coming from the bill could not be used for abortions, with exceptions made in cases of rape, incest, or danger to a woman’s life.8
What changes are about to happen in 2010? These new rules would go into effect presently thanks to the new law.
• Insurers will be barred from revoking existing health insurance coverage on an individual, unless fraud or misrepresentation can be shown.6
• Insurers will not be able to limit the amount of money that can eventually be paid out on a health care policy, and it will be harder to limit the amount of money that can be paid out annually.6
• Seniors will get $250 payments to help them out if they face a coverage gap in the middle of the Medicare Part D prescription drug coverage plan.6
• Children will be able to stay on their parents’ health care policies until age 26, and they won’t be denied coverage because of pre-existing health conditions.6
• Adults with pre-existing health conditions will get a chance to enroll in a national high-risk insurance plan – albeit a temporary one.6
• Small businesses that sponsor health care plans for their workers could qualify for tax credits of up to 50% of the cost of the premiums they pay.6
New taxes? Yes – starting in 2013. Approval of these reforms will also bring a new 3.8% tax on investment income for individuals earning more than $200,000 and households earning more than $250,000, so the effective capital gains rate will be 23.8% for these taxpayers in 2013. Also, these taxpayers will be able to keep 8.8% less of the income resulting from taxable stock investments. The Medicare tax rate on households with income over $250,000 will also rise in 2013, from 1.45% to 2.35%.5,6,9
A huge savings? Maybe. The non-partisan Congressional Budget Office estimates that the health care reforms will reduce the federal deficit by between $65-118 billion over the next decade and by more than $1 trillion in the decade after that.5
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 nytimes.com/2010/03/23/health/policy/23health.html?ref=us [3/23/10]
2 blogs.ajc.com/kyle-wingfield/2010/03/22/obamacare-now-for-the-hard-part/?cxntfid=blogs_kyle_wingfield [3/22/10]
3 bloomberg.com/apps/news?pid=20601087&sid=aghrqNBEBtIc [3/20/10]
4 csmonitor.com/USA/Justice/2010/0322/Attorneys-general-in-12-states-poised-to-challenge-healthcare-bill [3/22/10]
5 cnn.com/2010/POLITICS/03/21/health.care.main/?hpt=Sbin [3/21/10]
6 csmonitor.com/USA/Politics/2010/0319/Health-care-reform-bill-101-Who-must-buy-insurance [3/19/10]
7 latimes.com/features/health/la-na-healthcare-passage22-2010mar22,0,2788293.story?page=2 [3/22/10]
8 whitehouse.gov/blog/2010/03/21/one-more-step-towards-health-insurance-reform [3/21/10]
9 investmentnews.com/article/20100322/FREE/100329992 [3/22/10]
[Permalink]
Provided by Jacob Warren
The House approves the Senate bill. Not a single Republican voted for it, but 219 Democrats did – and by a vote of 219-212, the House of Representatives sent the Senate’s version of landmark healthcare legislation toward President Obama’s desk. The President could sign the bill into law as early as March 23.1
But the fight is not over. The House of Representatives also passed a collection of amendments to the Senate bill by a 220-211 margin, but the Senate must also approve this reconciliation bill – exactly as it is worded. If that doesn’t happen, then guess what … there will be another vote on the Senate version of the bill in the House.1,2
“If those people think they’re only going to vote on this once, they’re nuts,” Sen. Orrin Hatch (R-UT) said on Bloomberg Television March 20. Hatch claims that Senate Republicans have the votes to force a modification of the bill passed on March 21 and boot it back to the House for a second vote.3
Will the reforms be overturned? Twelve state attorney generals have indicated that they will contest the bill on these grounds the moment President Obama signs it.4 What are the odds the Supreme Court will throw the reforms out? Probably pretty slim. Look at the precedents of Medicare and Medicaid. When both those federal programs were enacted, the Court twice upheld a broad federal role in health care.
The big reforms will take effect in 2014. If you are looking forward to health insurance reform, you will have to wait a while before many of the big changes occur.
• Starting in 2014, individuals will be required to have health insurance coverage or pay an annual penalty which could climb to $750 or 2% of their income (alternately $695 or 2.5% of income), whichever is larger. Inmates, Native Americans, and those with religious objections would be exempted.5,6
• In 2014, if you aren’t enrolled in an employer-sponsored health care plan, you will have to buy coverage yourself. You could shop for it through a state insurance exchange. The federal government will offer $500 billion worth of assistance to help insurance shoppers buy coverage through these state exchanges. Undocumented immigrants would not be able to buy coverage.5,7
• After 2014, businesses with more than 50 employees could be fined as much as $2,000 per worker for failing to provide the option of coverage.5
• In 2014, insurers will be required to provide coverage to all Americans regardless of their health status.7
• Medicare spending will be cut by about $500 billion over the next decade, mostly in reduced government payments to Medicare Advantage plans. Democrats have claimed this will not shortchange Medicare recipients.5
• Federal money coming from the bill could not be used for abortions, with exceptions made in cases of rape, incest, or danger to a woman’s life.8
What changes are about to happen in 2010? These new rules would go into effect presently thanks to the new law.
• Insurers will be barred from revoking existing health insurance coverage on an individual, unless fraud or misrepresentation can be shown.6
• Insurers will not be able to limit the amount of money that can eventually be paid out on a health care policy, and it will be harder to limit the amount of money that can be paid out annually.6
• Seniors will get $250 payments to help them out if they face a coverage gap in the middle of the Medicare Part D prescription drug coverage plan.6
• Children will be able to stay on their parents’ health care policies until age 26, and they won’t be denied coverage because of pre-existing health conditions.6
• Adults with pre-existing health conditions will get a chance to enroll in a national high-risk insurance plan – albeit a temporary one.6
• Small businesses that sponsor health care plans for their workers could qualify for tax credits of up to 50% of the cost of the premiums they pay.6
New taxes? Yes – starting in 2013. Approval of these reforms will also bring a new 3.8% tax on investment income for individuals earning more than $200,000 and households earning more than $250,000, so the effective capital gains rate will be 23.8% for these taxpayers in 2013. Also, these taxpayers will be able to keep 8.8% less of the income resulting from taxable stock investments. The Medicare tax rate on households with income over $250,000 will also rise in 2013, from 1.45% to 2.35%.5,6,9
A huge savings? Maybe. The non-partisan Congressional Budget Office estimates that the health care reforms will reduce the federal deficit by between $65-118 billion over the next decade and by more than $1 trillion in the decade after that.5
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 nytimes.com/2010/03/23/health/policy/23health.html?ref=us [3/23/10]
2 blogs.ajc.com/kyle-wingfield/2010/03/22/obamacare-now-for-the-hard-part/?cxntfid=blogs_kyle_wingfield [3/22/10]
3 bloomberg.com/apps/news?pid=20601087&sid=aghrqNBEBtIc [3/20/10]
4 csmonitor.com/USA/Justice/2010/0322/Attorneys-general-in-12-states-poised-to-challenge-healthcare-bill [3/22/10]
5 cnn.com/2010/POLITICS/03/21/health.care.main/?hpt=Sbin [3/21/10]
6 csmonitor.com/USA/Politics/2010/0319/Health-care-reform-bill-101-Who-must-buy-insurance [3/19/10]
7 latimes.com/features/health/la-na-healthcare-passage22-2010mar22,0,2788293.story?page=2 [3/22/10]
8 whitehouse.gov/blog/2010/03/21/one-more-step-towards-health-insurance-reform [3/21/10]
9 investmentnews.com/article/20100322/FREE/100329992 [3/22/10]
[Permalink]
The DB(k)
Tuesday 03/23/2010 - 12:17:30 pm
In 2010, companies have a whole new retirement plan option.
Provided by Jacob Warren
What is a DB(k)? Basically, a DB(k) combines a pension plan with a matching 401(k) plan. As the name implies, it is a defined benefit retirement plan with some of the features of a 401(k).
DB(k)s could become great recruiting tools. These hybrid retirement plans will be very attractive to employees looking to restore pre-bear market retirement savings levels – not to mention workers who want to retire with a pension-style income like the one Mom and Dad had. In the coming years, firms in especially competitive industries may be prompted to offer DB(k)s as perks.
Won’t it cost a lot for a company to fund one? Not necessarily. It is likely that the companies that do create them will have sizable cash reserves and profit margins. However, it isn’t as if a business is funding two retirement plans at once. In fact, any businesses that offer both defined benefit plans and 401(k) plans may unite them in this new option.1
A DB(k) could save a business paperwork & money. These plans are exempt from “top-heavy” rules, and a company can put one in place with just one Form 5500 and one plan document. Principal Financial Group vice-president Chris Mayer, whose firm helped to develop the DB(k), told the Washington Post that the cost of providing a DB(k) will probably work out to 6-8% percent of payroll for most companies. This is certainly beneath the administrative costs of having both a 401(k) and a pension plan. Companies with 2-500 employees are eligible to have DB(k)s.2,3,4
What do employees get? An income stream, an employer match and a really neat tool to save for retirement. In brief, the DB(k) has four compelling attributes:
• An arrangement for lifelong monthly income. The income stream won’t replace an employee’s end salary, but it certainly will help. Loyalty is rewarded: the pension income equals either a) 1% of final average pay times the number of years of service, or b) 20% of that worker's average salary during his or her five consecutive highest-earning years.5
• Employees are automatically enrolled in the 401(k) portion. (They can choose to opt out.)2
• The company automatically directs 4% of a worker's salary into his or her 401(k) account. The company also has to match 50% of that amount, which is vested upon the match. (Employees do have the choice to alter the contribution level up or down from 4%.)3
• It only takes three years for an employee to become fully vested in a DB(k) pension plan. So even if they leave the company, the money is theirs.4
The best of both worlds? Maybe. The DB(k) is shaping up as an intriguing 401(k) alternative, a new IRS-sanctioned way to offer valued employees something more than the usual voluntary retirement savings program. If you are saving for retirement, ask your company about it. If you own a business in a very competitive field, it may help you recruit, impress and retain the caliber of employees you really want.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 irs.gov/irb/2009-35_IRB/ar09.html [8/31/09]
2 kiplinger.com/businessresource/forecast/archive/DBk_pension_of_future_090819.html [8/19/09]
3 investopedia.com/articles/retirement/10/dbk-plan.asp [3/19/10]
4 washingtonpost.com/wp-dyn/content/article/2009/11/13/AR2009111304651_2.html [11/15/09]
5 bankrate.com/finance/retirement/where-to-find-income-for-retirement-1.aspx [3/9/10]
[Permalink]
Provided by Jacob Warren
What is a DB(k)? Basically, a DB(k) combines a pension plan with a matching 401(k) plan. As the name implies, it is a defined benefit retirement plan with some of the features of a 401(k).
DB(k)s could become great recruiting tools. These hybrid retirement plans will be very attractive to employees looking to restore pre-bear market retirement savings levels – not to mention workers who want to retire with a pension-style income like the one Mom and Dad had. In the coming years, firms in especially competitive industries may be prompted to offer DB(k)s as perks.
Won’t it cost a lot for a company to fund one? Not necessarily. It is likely that the companies that do create them will have sizable cash reserves and profit margins. However, it isn’t as if a business is funding two retirement plans at once. In fact, any businesses that offer both defined benefit plans and 401(k) plans may unite them in this new option.1
A DB(k) could save a business paperwork & money. These plans are exempt from “top-heavy” rules, and a company can put one in place with just one Form 5500 and one plan document. Principal Financial Group vice-president Chris Mayer, whose firm helped to develop the DB(k), told the Washington Post that the cost of providing a DB(k) will probably work out to 6-8% percent of payroll for most companies. This is certainly beneath the administrative costs of having both a 401(k) and a pension plan. Companies with 2-500 employees are eligible to have DB(k)s.2,3,4
What do employees get? An income stream, an employer match and a really neat tool to save for retirement. In brief, the DB(k) has four compelling attributes:
• An arrangement for lifelong monthly income. The income stream won’t replace an employee’s end salary, but it certainly will help. Loyalty is rewarded: the pension income equals either a) 1% of final average pay times the number of years of service, or b) 20% of that worker's average salary during his or her five consecutive highest-earning years.5
• Employees are automatically enrolled in the 401(k) portion. (They can choose to opt out.)2
• The company automatically directs 4% of a worker's salary into his or her 401(k) account. The company also has to match 50% of that amount, which is vested upon the match. (Employees do have the choice to alter the contribution level up or down from 4%.)3
• It only takes three years for an employee to become fully vested in a DB(k) pension plan. So even if they leave the company, the money is theirs.4
The best of both worlds? Maybe. The DB(k) is shaping up as an intriguing 401(k) alternative, a new IRS-sanctioned way to offer valued employees something more than the usual voluntary retirement savings program. If you are saving for retirement, ask your company about it. If you own a business in a very competitive field, it may help you recruit, impress and retain the caliber of employees you really want.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 irs.gov/irb/2009-35_IRB/ar09.html [8/31/09]
2 kiplinger.com/businessresource/forecast/archive/DBk_pension_of_future_090819.html [8/19/09]
3 investopedia.com/articles/retirement/10/dbk-plan.asp [3/19/10]
4 washingtonpost.com/wp-dyn/content/article/2009/11/13/AR2009111304651_2.html [11/15/09]
5 bankrate.com/finance/retirement/where-to-find-income-for-retirement-1.aspx [3/9/10]
[Permalink]
But, I Don't Need Estate Planning ... Do I?
Tuesday 03/23/2010 - 12:07:39 pm
Why estate planning is so important, and not just for the rich.
Provided by Jacob Warren
Do you have an estate? It doesn’t matter how limited (or unlimited) your means may be, and it doesn’t matter if you own a mansion or a motor home. Rich or poor, when you die, you leave behind an estate. For some, this can mean real property, cash, an investment portfolio and more. For others, it could be as straightforward as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is considered to be your “estate”.
If the estate is small, should you still plan? Well, even if you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them, or be split between them? If you don’t decide, you could potentially be leaving behind a legacy of legal headaches to your survivors. This, quite simply, is what estate planning is all about – deciding how what you have now (money and assets) will be distributed after your lifetime.
Do you HAVE to create an estate plan? While it is absolutely possible to die without planning your estate, I wouldn’t say it is advisable. If you die without an estate plan, your family could face major legal issues and (possibly) bitter disputes. So in my opinion, everyone should do some form of estate planning. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre- or post-nuptial agreement, long-term care insurance, power of attorney and more.
Why not just a will? Did you know that your heirs could encounter legal hassles … even if you have a will? Basically, a will tells the world what you’d like to have happen, but proper estate planning is what provides the tools to make those things happen. While your will may state who your beneficiaries are, those beneficiaries may still have to seek a court order to have assets transfer from your name to theirs, and in such a case, those assets won’t lawfully belong to them until the court procedure (known as probate) concludes. Estate planning can include items like properly prepared and funded trusts, which could help your heirs to avoid probate.
Where do you begin? I would advise you to speak with a qualified legal or financial professional – one with experience in estate planning. A financial advisor can refer you to a good estate planning attorney and a qualified tax professional, and lead a team effort to assist you in drafting your legal documents.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
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Provided by Jacob Warren
Do you have an estate? It doesn’t matter how limited (or unlimited) your means may be, and it doesn’t matter if you own a mansion or a motor home. Rich or poor, when you die, you leave behind an estate. For some, this can mean real property, cash, an investment portfolio and more. For others, it could be as straightforward as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is considered to be your “estate”.
If the estate is small, should you still plan? Well, even if you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them, or be split between them? If you don’t decide, you could potentially be leaving behind a legacy of legal headaches to your survivors. This, quite simply, is what estate planning is all about – deciding how what you have now (money and assets) will be distributed after your lifetime.
Do you HAVE to create an estate plan? While it is absolutely possible to die without planning your estate, I wouldn’t say it is advisable. If you die without an estate plan, your family could face major legal issues and (possibly) bitter disputes. So in my opinion, everyone should do some form of estate planning. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre- or post-nuptial agreement, long-term care insurance, power of attorney and more.
Why not just a will? Did you know that your heirs could encounter legal hassles … even if you have a will? Basically, a will tells the world what you’d like to have happen, but proper estate planning is what provides the tools to make those things happen. While your will may state who your beneficiaries are, those beneficiaries may still have to seek a court order to have assets transfer from your name to theirs, and in such a case, those assets won’t lawfully belong to them until the court procedure (known as probate) concludes. Estate planning can include items like properly prepared and funded trusts, which could help your heirs to avoid probate.
Where do you begin? I would advise you to speak with a qualified legal or financial professional – one with experience in estate planning. A financial advisor can refer you to a good estate planning attorney and a qualified tax professional, and lead a team effort to assist you in drafting your legal documents.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
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These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
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Critical Illness Insurance
Monday 03/08/2010 - 10:53:33 am
If you can’t afford a long term care policy, this may be a good alternative.
provided by Jacob Warren
Are you familiar with critical illness insurance? Some people aren’t. It doesn’t get as much attention as disability insurance or long term care coverage. But if you face a serious health threat, a critical illness policy can help to ease a financial burden.
A tax-free lump sum at a crucial time. That is what critical illness insurance provides. If you have a life-threatening illness severe enough to prevent you from working, the money from a critical illness policy can be used to pay medical bills and even some costs not covered by medical insurance. While the insurance premiums are not tax-deductible, the insurance proceeds come to you tax-free.1
A few years ago, a Harvard University study determined that about half of all personal bankruptcies in the U.S. happened as a result of the debts incurred by a critical illness.2 Imagine having $50,000, $100,000, even $500,000 in tax-free cash to help you out in the event of a heart attack, a stroke or cancer. That is the kind of coverage we’re talking about. In 2007, the average payout was $100,000 with the average recipient being just under 50 years old.3
What illnesses does a policy cover? Critical illness insurance can cover two dozen or more health circumstances. Nearly all policies cover most forms of cancer, heart attacks and strokes, renal failure, multiple sclerosis, and operations such as heart bypass surgery and major organ transplants. The tax-free lump sum comes to you within 30 days of a diagnosis of a life-threatening disease.4
Critical illness insurance doesn’t cover everything. For example, early-stage prostate cancer and less lethal forms of skin cancer aren’t usually covered. Some policies don’t provide coverage if you have lymphoma, or Kaposi's sarcoma related to HIV. If you have already beat back a serious health threat or if cancer or heart disease runs in your family, then you are undoubtedly going to have to pay more for this coverage – and a disease you fought into remission may be excluded from the policy.
Who buys this coverage? Well, it is often sold in tandem with life insurance – but not always. There are a few different scenarios in which critical illness insurance can be a great help:
• You have a major medical problem and you don’t have health insurance.
• You have health insurance, but it won’t pick up the cost of the treatments you need.
• You face a major health scare, and you are unable to pay your bills and your mortgage because you can’t work.
• You worry about winding up in a nursing home or an assisted-living facility someday, but you can’t afford to pay high premiums for long term care insurance.
Sometimes you can guarantee the premiums on a critical illness policy so they won’t rise with time.
You don’t have to be employed to collect the benefits from a critical illness policy. You don’t have to be disabled to collect the benefits either. You don’t even have to spend the lump sum on medical expenses – you can spend it as you wish.5
Critical illness insurance has been around since 1983 – it was first offered in South Africa, became popular in Canada and Europe, and has become an option more people are exploring in the U.S. A 2010 study from the nonprofit American Association for Critical Illness Insurance found that 89% of those opting for the coverage were under age 45.6
If you’re self-employed, in a high-risk line of work, or just want to have little more protection in case a serious illness strikes, take a look at critical illness insurance. Ask your insurance agent to show you some options. You might be very thankful for it someday.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 criticalillnessinsuranceinfo.org/learning-center/critical-illness-insurance-information.php#deductible [3/5/10]
2 advisortoday.com/200611/criticalillnessins.html [11/06]
3 investopedia.com/terms/c/catastrophic-illness-insurance.asp [3/5/10]
4 investopedia.com/articles/pf/08/critical-illness-insurance.asp [3/1/10]
5 insure.com/articles/healthinsurance/critical-illness.html [2/26/09]
6 prlog.org/10539837-first-national-study-examines-us-buyers-of-critical-illness-insurance.html [2/19/10]
[Permalink]
provided by Jacob Warren
Are you familiar with critical illness insurance? Some people aren’t. It doesn’t get as much attention as disability insurance or long term care coverage. But if you face a serious health threat, a critical illness policy can help to ease a financial burden.
A tax-free lump sum at a crucial time. That is what critical illness insurance provides. If you have a life-threatening illness severe enough to prevent you from working, the money from a critical illness policy can be used to pay medical bills and even some costs not covered by medical insurance. While the insurance premiums are not tax-deductible, the insurance proceeds come to you tax-free.1
A few years ago, a Harvard University study determined that about half of all personal bankruptcies in the U.S. happened as a result of the debts incurred by a critical illness.2 Imagine having $50,000, $100,000, even $500,000 in tax-free cash to help you out in the event of a heart attack, a stroke or cancer. That is the kind of coverage we’re talking about. In 2007, the average payout was $100,000 with the average recipient being just under 50 years old.3
What illnesses does a policy cover? Critical illness insurance can cover two dozen or more health circumstances. Nearly all policies cover most forms of cancer, heart attacks and strokes, renal failure, multiple sclerosis, and operations such as heart bypass surgery and major organ transplants. The tax-free lump sum comes to you within 30 days of a diagnosis of a life-threatening disease.4
Critical illness insurance doesn’t cover everything. For example, early-stage prostate cancer and less lethal forms of skin cancer aren’t usually covered. Some policies don’t provide coverage if you have lymphoma, or Kaposi's sarcoma related to HIV. If you have already beat back a serious health threat or if cancer or heart disease runs in your family, then you are undoubtedly going to have to pay more for this coverage – and a disease you fought into remission may be excluded from the policy.
Who buys this coverage? Well, it is often sold in tandem with life insurance – but not always. There are a few different scenarios in which critical illness insurance can be a great help:
• You have a major medical problem and you don’t have health insurance.
• You have health insurance, but it won’t pick up the cost of the treatments you need.
• You face a major health scare, and you are unable to pay your bills and your mortgage because you can’t work.
• You worry about winding up in a nursing home or an assisted-living facility someday, but you can’t afford to pay high premiums for long term care insurance.
Sometimes you can guarantee the premiums on a critical illness policy so they won’t rise with time.
You don’t have to be employed to collect the benefits from a critical illness policy. You don’t have to be disabled to collect the benefits either. You don’t even have to spend the lump sum on medical expenses – you can spend it as you wish.5
Critical illness insurance has been around since 1983 – it was first offered in South Africa, became popular in Canada and Europe, and has become an option more people are exploring in the U.S. A 2010 study from the nonprofit American Association for Critical Illness Insurance found that 89% of those opting for the coverage were under age 45.6
If you’re self-employed, in a high-risk line of work, or just want to have little more protection in case a serious illness strikes, take a look at critical illness insurance. Ask your insurance agent to show you some options. You might be very thankful for it someday.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 criticalillnessinsuranceinfo.org/learning-center/critical-illness-insurance-information.php#deductible [3/5/10]
2 advisortoday.com/200611/criticalillnessins.html [11/06]
3 investopedia.com/terms/c/catastrophic-illness-insurance.asp [3/5/10]
4 investopedia.com/articles/pf/08/critical-illness-insurance.asp [3/1/10]
5 insure.com/articles/healthinsurance/critical-illness.html [2/26/09]
6 prlog.org/10539837-first-national-study-examines-us-buyers-of-critical-illness-insurance.html [2/19/10]
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