David Schlossberg, RFC, AIF's Answers and Guides

Danny, you asked a great question. Section 7702 of the tax code provides certain tax-advantaged benefits for life insurance contracts. Effectively earnings can be distributed without any taxation if done correctly. So in that sense, it can act like a Roth and is especially beneficial for those that don't qualify for a Roth due to income restriction. The downside is that unlike a Roth, there is an insurance expense for the mortality risk that the insurance carrier takes. If structured correctly the investment account will grow quickly towards the death benefit reducing the mortality expenses as the insurance company has less exposure. When this happens a detailed analysis can show that the mortality expense becomes far less than the tax alternative that would be suffered in a regular investment account. Most often these accounts are established with variable universal life products that have a myriad of mutual fund investment choices inside them. However inequity index product can be just as effective. The key to success in utilizing these products as a tax-advantaged investment vehicle is a key learning as much cash inside the product is you can without violating the codes that define life insurance.

As Evan stated, equity index products can be complex, but even more complex is the subject of using life insurance is a tax-advantaged investment. I recently was asked to teach a workshop to my peers at an industry conference in Las Vegas on this very subject (http://www.seniormarketexpo.com/conference/education-sessions/ 2:45 p.m). I had developed a PowerPoint and sample illustrations tell my peers determine when the tax advantages are worthwhile, and when they are not and how to articulate that to their clients. I would be glad to share that information with you. At this time, I would not give up on the contract, until you have an opportunity to fully understand both the pros and cons of the concept employed, and determine if the contract is being used in the most effective manner. Please feel free to reach out to me at 847-426-1077 and the glad to spend a little time with you to try to help you determine the benefits and the downside.

Willis, There is a industry/sector charting done within a website called Investools (http://www.investools.com/). They do advocate using their tools for stock picking, however I am not as much of a fan of that. That being said, they do a fantastic job of trending industries against all market caps if that is what you are looking for.

Some of these answers are not complete. For example, missing from the list is an RFC (Registered Financial Consultant) who has also taken an oath to serve in that capacity. But let's go one further. I would think your interest is not only one that is obligated to serve as a Fiduciary because of a designation or regulation, but one that actually does ACT like a Fiduciary (def: person bound to act for another's benefit, as a trustee in relation to his beneficiary), Just because someone is supposed to place your benefit before their own doesn't mean they actually do (a.k.a. Bernie Madoff). Don't be afraid to interview advisors and ask pointed questions about their fiduciary role, and what steps they take to ensure the clients interest comes first. Unfortunately, the regulators prohibit Registered Investment Advisors from using client testimonials, but that doesn't prevent them from articulating how they go about protecting your money, and what steps are taken to place your interests before your own. So my recommendation is not to rely on a label, but to interview, and to ask very pointed questions (such as: "What is your process used for selecting investment recommendations" and "What process is used to determine recommendation changes". Lastly, do not do business with anyone that does not use an IPS (Investment Policy Statement) for managed accounts, which is an investors written guidebook on how to manage those investments and how to test assets for consideration on inclusion or exclusion of portfolios. Best of luck with your advisor search.

Thanks for the question Marilyn. Of course the future of markets are impacted by many factors. Oftentimes, one factor may then impact another. The mortgage meltdown not only affected bonds which also impacted financials, but that then trickled into the housing market, that trickled into the building materials and appliance industries, which then trickled into just about every sector of our economy. The immediate impact of a default of the sovereign debt would be pain to the bondholders. Some of that would be mutual funds that hold foreign debt, but also it would hurt many financial institutions that place some of their holdings in sovereign debt. That would be larger banks of course that place some of their holdings there, but also insurance companies that place a good deal of their holdings in various bond components. It would seem consistent to think that banks that suffer losses would then be more guarded and/or have required reserves come into jeopardy again causing a banking crisis. The Euro would shrink in value, causing holders of Euros to have less purchasing power, but with the dollar getting stronger against the Euro, it would be a good time to plan your European vacation (as long as you can avoid the austerity riots!).

Going back to the mortgage meltdown in the US, the real answer to your question is determining where, and how deep do the tentacles reach. If inflation runs amuck in the Euro countries, that will hurt our exports there and impact US corporate profits to a small degree. The real question is can the US companies sustain the small amount of hurt on the heels of an attempted recovery. All things being said, at our firm we have routed our more conservative clients into a heavily defensive position poised first to protect capital. September and October 2008 came and went so quickly, we are looking to avoid a similar (but suspect lessened) meltdown. Hope this commentary is helpful.

Neither by itself would be good for retirement investing. Diversification is the key to risk management, and risk management is essential to proper management of investments. Having a portfolio that is up 10% one year and down 10% the next works out better than one that is up 50% is one year and down 50% the next. While they have an average return of 0% over the two periods, $100 invested in the first ends up as $99, while the same $100 in the later is only $75. Therefore, proper investment management cannot only be thought of in terms of return, but must also consider risk. Another way of looking at it, if I get an 8% return from a bond fund, that could be considered pretty good, but if I get the same 8% return from an emerging markets stock fund, I haven’t done so great. The differentiator is the risk taken to get the result. So risk, especially in retirement where we do not having earning potential any more, should be considered as well as return. A well-versed advisor should be able to help evaluate those components, but I will say this – any equity only positions (as in your two choices) without other types of investments is too much risk for the vast majority of retiree’s. that being said, and a direct response to your question: Which would provide the most return would depend on which index ETF as opposed to which Fortune 500 stock. If we narrow it down to specifics, we can give an answer in hindsight, but can only predict what will be in the future. Best luck in finding sound solutions…

Marvin, I think the best advice a financial advisor can give is to hire a financial advisor. After all, if we don't believe in the services we provide, perhaps we should seek another profession. But truthfully, not jsut any advisor, but one that can demonstrate that [1] he or she has the tools and processed to properly identify funds that are like to do well going forward (not hindisght), and [2] uses those tools and resources on an ongoing basis to continually monitor key mettrics to increase your opportunities for success, and indentify also when changes are needed. In my opinion, the theory of buy and hold is only effective if things move constantly in an upward line. My motto instead is to buy and adjust. After all, you should get a premium value for the "professional advice". Best wishes in your endevors. Feel free to contact me should you need additional assistance.

I have volunteered at my church in the budget counseling area, and there was a recommendation there that on the surface didn’t seem like the best method, but in the long run it did help with successful outcomes more. Logic would tell you to concentrate on the highest interest rate, but what seemed to work best was to pay the minimum amount on all cards except the one with the smallest balance. Take every extra dollar you have and apply it to pay off that card. Well, first things first, this will not help if you are increasing balances elsewhere – become a cash buyer! And then with money’s left over after paying cash for everything and minimum amounts on all cards except all the extra on the smallest card and don’t use that card anymore. Then pay all extra to the next smallest, until you are hopefully down to no balances at all.

There are a couple small items in this recommendation. First off, by paying cash for everything, we get a greater sense of its value. Even say gas in the car for example. When we have to use greenbacks, we might be more conscientious about how we are burning up the gas (visualizing our greenbacks burning up into the atmosphere!). Or on food, when using greenbacks, we tend to shop more wisely or even start using coupons. The second item is the use of paying all extra to the smallest card – it becomes a psychological win with each card we cut down. If we had 10 cards with a balance that is now down to 6 (and we are not using them anymore), we get more a sense of accomplishment than the dollar amount. There is just something magic in that.

Hope this helps…

Hi Parker, as a financial advisor that is also the parent of a special needs child, I want to first thank you for fulfilling the trustee role for the benefit of the beneficiary. I agree with Parker that the ability to use funds for various purposes will be spelled out in the trust. Usual the purposes are written in layman’s terms, but also usually fairly ambiguous so as to provide some latitude to the trustee. For example, in my son’s trust it states “for the beneficiary’s therapy, rehabilitation, training, education, quality of life, independent living, and protection and advocacy”. As you can see, there is some leeway. For example, how do you define “quality of life”? For example, music can certainly be expected to improve one’s quality of life.

So you should seek out the terms of the trust, but remember there are only two risks to be considered: [1] you get sued by the beneficiary (including someone taking action on the beneficiary’s behalf) for filing your duty to honor the terms of the trust, and [2] you fail your accepted obligations ethically or morally. Gifts for the beneficiary would almost certainly always seem to improve the quality of life of the beneficiary, while gifts to others may cause concerns depending on the recipient. A small gift to a caretaker shouldn’t be any big deal, big a car for your child would be (unless it was a vehicle specially adapted for the special needs beneficiary and used to transport the beneficiary) … You see where I am going – anything that can be deemed in the best interest of the special needs patient should pass scrutiny even if not very specifically mentioned in the document, as there are usually enough ambiguous terms to get you by provided you can demonstrate it is in the interest of the beneficiary.

(Please be advised that this is the opinion of David Schlossberg who is not an attorney, and this personal opinion should not be construed as legal advice. Please seek legal counsel on this matter).

Hello George. I get the sense they are not referencing a hardship withdrawal, but rather a normal retiree distribution. If you are working part-time and not full time, you are likely being considered retired under the plan guidelines. While about everyone knows you need to be age 59 ½ to withdrawal from an IRA and avoid the 10% early withdrawal penalty, what many don’t know is that if your distribution is coming from your company retirement plan, and NOT the IRA, you only need to be age 55 to make the withdrawals without penalty. In almost all cases we recommend clients move employer plan assets into IRA’s, but this one case being the exception. If you are not yet age 59 ½, but are over 55, and desire money’s from your retirement plan – leave it with your [former] employer and make your distributions from there. And then only transfer to an IRA when you either turn age 59 ½ or until you know you will no longer need funds until that age. Hope this info clarifies for you. Best of luck.

NO! That would create a very big mess. There are very specific rules in regards to IRA's inherited by anyone other than a spouse. You want to place those funds into an “Inherited IRA” account, and you MUST take Required Minimum Distributions (RMD’s) annually based on your age of inheritance. Failure to take the distribution will cause you to be taxed on the amount you should have taken as well as a 50% penalty (that is 50% of the amount you should have taken!). Further details can be found in IRS Publication 590 (http://www.irs.gov/publications/p590/ch01.html#en_US_2011_publink1000230753). Look for the section entitled IRA Beneficiaries.