More people are raiding their 401(k)s than ever before, but not for retirement. According to CNBC’s report of a HelloWallet study, one in four Americans are borrowing from retirement accounts to pay bills, such as their mortgage, college tuition, even credit card payments.

More than $70 billion is being withdrawn annually from retirement accounts. And the troubling trend seems to be on the upswing.

Citing a report from Wells Fargo, Bloomberg News noted in April of 2013, “The number of people taking loans from their 401(k) retirement accounts increased 28% in the fourth quarter from a year earlier as older workers tapped their savings.” According to the report, people in their 50s were the most likely to borrow against their retirement savings.

While noted as an alarming problem by financial experts, the rampant borrowing from retirement accounts is actually a symptom of two larger problems. The first is plain enough: American’s haven’t saved enough.

The second problem may be less obvious, but no less critical to understand and correct: Many people lack financial flexibility -  including (and perhaps even especially) those who HAVE saved diligently.

In other words, we’ve saved “too much” – in the wrong places. And we’ve lost our financial stability by losing control of our cash.

“Financial Flexibility” is a term thrown around in academic papers in economics and financial analyses of corporations. Defined as “a firm’s ability to take advantage of unforeseen opportunities or their ability to deal w/ unexpected events depending on the firm’s financial policies and financial structure,” the significance of financial flexibility is described this way in a wiki answers forum:

“For example, a firm w/ high debt obligations and weak solvency (ability to pay obligations as they come due) and liquidity (ability to turn assets into cash quickly) is not very financially flexible.”

In the corporate world, financial flexibility affects a company’s valuation because it affects its stability, its long-term viability, and its ability to respond effectively to change.

In your personal economy, financial flexibility has exactly the same benefits. Similarly, a lack of financial flexibility brings vulnerabilities.

Too Many Accounts, Too Little Money

The problem is this: when people do save diligently, they tend to save in many different specifically-niched or “designated” accounts. A function of the financial marketplace, products, plans and accounts arise for every specific financial need. Congress provides a new template, financial institutions develop new products, and consumers/investors divvy up their income into smaller and smaller pieces.

Pretty soon, our “financial plan” looks like this:

• Got your 6-9 months of emergency expenses set aside in a savings account? Good.
• Now max out your 401(k) and IRA to save for retirement.
• Do you want to purchase a home? Save diligently for that down payment!
• Current (or anticipated) medical expenses? Save in your HSA and your FSA.
• Future college costs for your children? Start saving in a 529 plan or Coverdell account before your children get to kindergarten.
• Prepared for an income-losing injury or disability? Don’t forget disability insurance payments!
• Don’t want to pay on your mortgage forever? Better make additional mortgage payments.
• Time for a vacation? Either save for it beforehand, or you’ll be saving to pay off your credit cards afterwards!
• Of course, don’t forget your permanent life insurance as an essential part of your financial strategy.
• Concerned about the rising costs of long-term care? Start paying into long-term care insurance coverage by your 40′s.
• Etc. etc. etc….

Taken by themselves, many of these products and strategies make perfect sense. But a financial approach that simply adds another account each time a new issue arises usually doesn’t work well. Dividing up money into various accounts means that the flexibility needed to face life’s challenges and opportunities may be simply lost.

In trying to find the perfect solution to each financial challenge, it’s possible to undermine the effectiveness of your whole financial program. Here’s why:

Things change. Your income may be interrupted, your house might suddenly require a new sewer system, your daughter could decide not to attend college, or a big down payment might be needed to seize an opportunity. If (and when) change comes, accounts that perfectly addressed an old financial issue may not be well-suited to handle today’s challenges. If making changes to accommodate new financial realities results in surrender charges and/or additional penalty taxes, reconfiguring those “perfect” plans can be a costly process.

There’s not enough money to go around. When people have many issue-specific accounts, some programs may never be fully funded. Under-funding may lead to under-performance, financial sabotage, or outright failure.

As an example, when individuals seeking a permanent life insurance benefit choose a minimum-premium universal life policy, they run the risk that the coverage will expire before they do. The result: a lot of premiums paid, and no benefits.

Likewise, there might be just enough money in that education account to disqualify a student from receiving financial aid, but not enough to pay for a degree.

It costs more in the long run. The shortcomings of the issue-specific approach are evident in the way employees focus their accumulation efforts on their 401(k)s, then end up borrowing from the accounts. Using a 401(k) before retirement is costly from a tax standpoint, limited in regard to amounts that can be loaned, and can result in another debt that must be added to the monthly budget.

In short, it’s financially inefficient. Retirement accounts work best when they aren’t accessed until retirement. But when career changes, health problems, or financial emergencies crop up, those who maximally fund their 401(k)s find themselves tapping the account and paying the penalties.

Why not “under-commit” one’s 401(k) contributions, and instead establish a “multi-purpose” accumulation account that wouldn’t be so costly or restrictive to access? This flexible approach recognizes the realities of change and limited resources, and gives you options to better respond to whatever comes up.

Sometimes, it takes money to make money. As we reported in our article on “Necessity Entrepreneurs,” many former employees have discovered that starting a business is the best way to guarantee steady, profitable work for themselves. But what happens when funds needed to start a business have been socked away in retirement accounts, or given as extra payments to a mortgage company? In the former case, you’ll be paying taxes and penalties to free up funds, and in the latter, selling your house is the only way to recover those additional payments.

While it may seem counter-intuitive at first, give thoughtful consideration to putting LESS money towards specific-purpose accounts in order to build up substantial “multi-purpose” savings.

How to Fund a Flexible, Multi-Purpose Account

“Wait a minute…” you might be thinking… “Isn’t this multi-purpose account just one more thing to save for!?” Not necessarily! You can actually re-allocate some of the money saved elsewhere in order to increase the flexibility and USE of your assets. Some places to find money for a multi-purpose account might be:

• Extra (or extra large) mortgage payments. Instead of opting to pay off your home loan with a 15-year mortgage or additional payments, it might be to your benefit to choose a 30-year term and accumulate the difference.
• Retirement account contributions above the employer match. Instead of making the maximum 401(k) deposit from each paycheck, consider limiting contributions to a qualified retirement account and saving elsewhere to diversify your assets as well as ensure access to your assets.
• “Education expenses only” accounts. It might be prudent to hold your accumulation outside of these for-education-only accounts until your children are sure about their higher education plans.
• FSA accounts funded over and above basic healthcare expenses. As FSAs are “use it or lose it” accounts, over-saving simply leads to overspending at the end of the year.
• Disability and long-term care. It may make sense to utilize “living benefits” from a substantial permanent life insurance policy that can function as a multi-purpose flexible accumulation account, rather than risk underfunding life insurance, disability, and long-term care.
• Insurance premiums. Most consumers come out ahead by reducing premiums, raising deductibles, and saving the difference.

It is impossible to predict exactly WHAT you’ll need or want to use your savings for. The solution is to save money in accounts that can be used for unlimited purposes.

What’s the best way to save money? There are many possibilities. We often recommend cash value accounts that are:

• tax-advantaged
• liquid
• easily collateralized
• safe from market fluctuations
• not controlled by employer or government rules, and
• earn reliable rates of return.

In a previous article, we described these multi-purpose accounts as “opportunity funds” and gave further details about how they can be used to store cash and build wealth.

The Best Financial Plan is a Flexible one. We urge our clients to re-think how they save money, and to be ready for anything, whether “anything” turns out to be a new roof, a new business, a medical emergency or a college degree.

Are you saving too much in the wrong places? We can help you diversify your savings and take back control of your money.

Has Single Become the New Married?

The U.S. is becoming a nation of single people. Whether unmarried, divorced, or widowed, more Americans are living alone, and functioning as individual financial units; they are households of one.

It’s a demographic trend that’s been consistently building for the past 50 years, but still mostly under the radar of most Americans. The reasons are many:

• Fewer people are getting married.
• People are getting married at a later age than 50, 30, even 20 years ago.
• As the divorce rate has climbed, fewer people are staying married.
• The average age of widowhood is just 57, yet 57-year old women lives an average of 26 more years.

The shift is profound and dramatic. A few citations to illustrate:

“Americans are now within mere percentage points of being a majority single nation: Only 51% of adults today are married, according to census data. And 28% of all households now consist of just one person — the highest level in U.S. history.”
- Eric Klinenberg, “Solo Nation,” CNNmoney, Jan. 25, 2012

“23.8 percent of men, and 19% of women, between the ages of 35 and 44 have never been married. Tick back…to the people between 20 and 34​ and the numbers are even more startling: 67% of men and 57% of women in that group have never been married. When you total it all up, over half of the voting-age population in America (is) single.”
- Jonathan V. Last, Weekly Standard, Dec. 10, 2012

“In 1960, 65.2% of taxpayers were married, filing jointly or separately, and 34.8% were single filers or unmarried heads of households. Fifty years later – the most recent year analyzed on the IRS website – 61% of filers were single and just 39% were married.”
- Newsmax, May 5, 2013.

“Over the past 10 years (since December 2002), the number of singles is up 20.4 million, four times the increase in the number of married persons, i.e., 5.2 million!”
-Dr. Ed’s Blog, “Demography and Debt,” Jan. 15, 2013

The Financial Challenges of Single Households

Single-person households have most of the same financial tasks as married households. They have to earn income, secure housing and transportation, manage debt, protect against loss, and save for the future. But do they save as much?

According to advisor and syndicated radio host Ric Edleman, “Many singles are spenders, not savers, because they often don’t feel the same need to save as those who are married with children. (After all, no kids means no college or wedding costs.)” Research shows that singles tend to spend more money on restaurants and entertainment, and start saving for retirement later.

Singles can find it harder to build momentum in saving and investing. Living alone means that housing and utility costs aren’t shared, and there is only ever one breadwinner. Singles also can’t choose which spouse has the better health insurance plan, or rely on a spouse to pay the bills while the other starts a business.

On the bright side, singles are protected from a spouse’s overspending, gambling, poor credit, outstanding debts, or other financial failings.

While all households must balance income and expenditures, there is one significant difference: singles have to develop a non-standard financial support system.

Most married households have a default financial support system: their spouse. According to the Tax Foundation, 73% of married households have both spouses earning income. In most situations, spouses are partners, contributing to the same goals, assisting each other through degree programs, job searches, business start-ups, and financial ups and downs.

When emergencies strike, medical, or otherwise, the spouse is the primary contact person. And if a married person dies, even if they don’t have a will, probate and estate laws provide templates for distributing assets to a surviving spouse and children.

In contrast, a single household has no default support plans. If he/she encounters financial or physical distress, who (or what) is there to help?

Establishing a Financial Support System

Who’s looking out for you? A financial support system for singles should be comprised of trusted friends and professional guidance. In lieu of a spouse, singles may need others who will check up on them, and if necessary, make financial and health-care decisions if they become incapacitated.

The checking-up issue is often overlooked, but as one single said to Edelman, “Suppose I have a stroke and cannot reach the phone. Who would know?” It is helpful for singles to explicitly ask co-workers, neighbors, or acquaintances to contact them if they suddenly vanish from work, the gym, or church. Of course, parents and other family members may fill these roles as well, but proximity matters.

In addition, singles should establish relationships with financial professionals who can act to protect their interests. A trusted advisor, accountant, attorney, and insurance agent should be aware of the individual’s financial issues and aspirations. Just like a neighbor who agrees to check in occasionally, an advisor may be the only one who’s reviewing a single’s financial condition on a regular basis.

Assembling the needed support system is more than people; it also involves contracts. Because there is no default protocol for the care of incapacitated single adults, it is prudent to verify that someone is willing and ready to serve as a representative on their behalf. This information should be recorded in durable power of attorney agreements or health-care proxy documents.

There are two basic categories of contracts: legal and insurance. Durable power of attorney agreements for both financial and health-care decisions should be in writing and regularly reviewed. If a single adult has accumulated assets, beneficiary designations and disbursement instructions should also be put in writing, and kept someplace where the appropriate parties have access.

We can’t ever “plan” for an unknown future, but we can prepare! Here are some steps

Unless a single person can afford to retire, a strong disability insurance program is a vital support item. With only one source of income in the household, any disruption could be devastating – and a worker’s compensation program is not enough; singles must make comprehensive disability coverage a priority.

In addition, singles should weigh the costs and benefits of long-term care insurance policies or even a life insurance policy.  While they may not have financial responsibilities to a spouse or children, a life insurance policy with a long term care rider, a disability rider, and/or “living benefits” that can provide flexible protection against a variety of challenges and long-term health issues. These insurance contracts can provide an essential safety net for singles, with cash value that can be borrowed against or used in multiple ways.

Preparing for the inevitable. Even though singles fly solo financially, some may still have responsibilities to children or other family members. A family dynamic makes legal documents and insurance benefits even more critical. Some singles might leave some assets or a modest insurance policy for final expenses. Others have heirs they wish to leave an inheritance to. And other singles may not have children, but may desire to leave legacy gifts to fund the charities, institutions, and passions that inspire them.

Financial planning for singles? We think it’s impossible for anyone to “plan” for an unknown future, but singles can do their best to “prepare” for anything, and especially, to prepare for a future of sustainable wealth. Singles and money can make a great long-term match.

Checklist for Singles with Assets:

Make sure you have…

• A network of friends, acquaintances, or local family to keep tabs on your physical condition and assist when needed.
• Professional legal and financial assistance to help you manage your assets.
• Durable power of attorney documents for finances and health care.
• A legal will.
• A good disability insurance program (not an employer program that only covers “on the job” injuries.)
• Provisions for long-term care.
• Properly executed beneficiary designations.

Single? You don’t have to figure out your finances alone! We work with our clients in multiple ways. Some clients come to us knowing what they want, ready to take action. Perhaps they’ve been referred by a friend we helped with an alternative investment (outside of the stock market). Or maybe they’ve heard Kim Butler’s Palm Beach Wealth Builder Club interviews  and they want to set up an “Income for Life” cash value account. If this describes you, we can help you move towards your goals today.

Others come to us for comprehensive advising. They want to do an in-depth exploration of their personal economy. For these clients, we offer the Prosperity Pathway. The Prosperity Pathway is a five-session, fee-based, proprietary process that will help you discover and apply the Principles of Prosperity to your life and finances. This allows clients to choose financial strategies and move forward with confidence!

To explore working with us in either capacity, simply contact us to set up an initial complimentary consultation. You can also explore more about our philosophy by reading one of Kim D. H. Butler’s books.

What is a reverse mortgage? In a nutshell, it is a mortgage where, instead of making payments, home equity is converted into payments TO the homeowner. Payments can occur in lump sums, monthly payments, lines of credit, or a combination of the above.

Reverse Mortgages, also known as HECM’s or Home Equity Conversion Mortgages, have been the topic of much controversy and bad press, in spite of the many they have helped. Unfortunately, as with sub-prime loans, there have been overzealous loan officers willing to push loans that weren’t always fully understood.

Are reverse mortgages risky? Not in the ways you might have been led to believe. In this post, we aim to set the record straight about the myths and realities of HECM’s, and direct you to further resources where you can find reliable information.

Myth: Seniors are losing their homes because of reverse mortgages. Your house will be foreclosed on you if you “use all your equity.”

Fact: The only reason a home with a reverse mortgage on it can be foreclosed on are if the owner fails to pay their property taxes (required by cities and counties) and homeowner’s insurance, which protects the integrity of the asset, or allows it to fall into severe disrepair. The only rare but notable exception to this is when both spouses are NOT on the mortgage; it is essential for both to be on the mortgage if the surviving spouse wishes to stay in the home.

Reverse mortgages have SAVED many seniors from foreclosure, and allow many to stay in their homes for years, even decades beyond what they could previously afford. They can stay there as long as they live, with no more responsibility of making payments – EVER. Regardless of the home’s equity (or lack thereof), the senior is PROTECTED against foreclosure as long as they live in the home, maintain it, and pay their taxes and insurance (basic requirements for all mortgages.)

Myth: The lender can come after heirs for shortages in equity if the home is no longer worth what the homeowner has borrowed against it.

Fact: Reverse mortgages are non-recourse loans, and the lenders cannot seek any remedy other than selling the home to pay for loans against the home equity.

Myth: You lose control of what you can do with the property. Now the lender owns it and controls it.

Fact: The homeowner always retains the ability to live in the home or sell it. (They cannot, however, use it as an investment or rental home.) After the homeowner passes away or moves elsewhere, then the homeowner (or heirs) can decide to either pay for the accrued costs of the mortgage and keep the home, or have the home sold. In the latter case, any equity left in the home after paying the mortgage balance goes to the homeowner or heirs.

Myth: Your home must be free and clear for you to take advantage of a reverse mortgage.

Fact: The only qualifications for a reverse mortgage are ownership of a home with at least 50% equity, living in that home, and being at least 62 years of age. Currently there are no income, credit, or medical requirements.

Myth: The fees and mortgage insurance are unreasonably high, and are simply another example of how seniors are often taken advantage of.

Fact: The fees and PMI are higher than many mortgages, and for legitimate but often misunderstood reasons. In a reverse mortgage, all of the risk and most of the responsibility is on the lender, unlike a standard mortgage, where the homeowner takes the risk of the market going up or down. The lender also takes a risk of not knowing how long the homeowner will live or stay in the home.

For these reasons, lenders charge higher fees than on typical mortgages. For instance, the homeowner pays mortgage insurance in addition to the closing costs and interest typical for any loan. First-time homebuyer FHA loans, 203k rehab loans and VA loans are other examples of higher-risk loans that also require mortgage insurance.

Combine these myths with the following faulty assumptions, and you’ll see why reverse mortgages are so misunderstood and controversial.

Faulty assumption #1: “Seniors should just get HELOC’s (a home equity line of credit) or refinance if they need extra cash.”

While this may make perfect sense in situations where the homeowner has credit and income to qualify for a traditional loan or line of credit, the fact remains that many don’t. And even if they do, what happens down the line if they cannot maintain payments for the mortgage or line of credit? Or what if they wish to stay in their home, long-term, and they cannot do so without the extra cash flow that a reverse mortgage provides?

Yes, those options do have lower fees. They also require payments to be made. Yet even major media such as CNN.Money.com perpetuate nonsensical statements that suggest seniors “can’t afford” reverse mortgages… with no payments required… a mortgage that puts money IN their pocket instead of taking it out. (Hmm… what’s to “afford”?)

While traditional mortgages and lines of credit may make perfect sense in some situations, they can also increase chances for a future foreclosure by requiring new payments. They can even prevent a senior from acquiring a reverse mortgage later, when they need it most, if a traditional mortgage or HELOC leaves them with too little equity for a reverse mortgage.

Faulty assumption #2: “Seniors who cannot afford their homes should sell their homes and rent.”

True, if a homeowner is in the process of transitioning into assisted living, a short-term reverse mortgage (1-3 years) may make no sense at all. Of course, renting anywhere requires an ongoing outlay of cash, which will increase with inflation. And if you’ve checked prices for assisted living lately (most run between $3000 and $5000 a month or more, depending on level of care and location), you’ll recognize that there can be a financial as well as an emotional benefit to staying in a house as long as possible.

Faulty assumption #3: “Reverse mortgages are only for broke or desperate senior citizens who cannot make their mortgage payments.”

Don’t be led astray by of our examples above. While the reverse mortgage can be a great way to get or keep a senior out of a cash-flow crunch, they are also being used by many well-off homeowners as part of sophisticated strategies to spend some assets down while preserving others and lowering taxes. We discuss some of these strategies in our last post http://partners4prosperity.com/too-old-for-life-insurance and also in a recent interview with Tom Dyson of the Palm Beach Wealth Builder’s Club. http://files.csinvesting.com/files/IFL%20Webinars/iflwebinar29.html

We find HECM’s can be a powerful combination with permanent life insurance, especially if there is a concern to leave assets to surviving spouses or heirs. We also believe that the recent trend towards taking lump sums at 62 is a troublesome trend not likely to lead to sustainable wealth. (A reverse mortgage can only do so much to remedy a lack of assets.) Often we advise that clients to wait until their later years to get a reverse mortgage and to opt for payments instead of lump sums, as this will maximize their equity and provide a greater ongoing stream of income. Tax-wise, it also makes sense to use other assets first in many cases.

As Guttentag says in “What’s Right with Reverse Mortgages,”

While there is nothing wrong with using a HECM to meet immediate financial needs, there is something wrong with the very low utilization among seniors who aren’t desperate but who could enrich their lives and don’t. There are about 25 million homeowners 62 or older, and at least 10 million of them could significantly improve their lives by taking out a HECM.

Is a reverse mortgage is right for you?

No major financial decision should be rushed into. We recommend the following steps to make an informed decision:

Get the facts. Don’t make decisions based on hearsay or out-dated information. Some good sources are:

The HUD.gov website “Frequently Asked Questions about Reverse Mortgages”

The Frequently Asked Questions page of the National Reverse Mortgage Lenders Association website

A Wall Street Journal article about the 2013 revisions to the reverse mortgage program: “Reverse Mortgage Redo.”

You can also attend a HUD counseling session about reverse mortgages. (This is required to obtain an HECM, but in no way obligates you to get one.)

Discuss the facts with your family. Seniors who feel a pinch or fear “running out of money” (most do) may feel ashamed to discuss their finances with their children. But only through open communication can families avoid “if only I had known” regrets. Maybe Grandma thinks her kids will want to inherit her house, when in reality they would rather not deal with an asset that must be liquidated. Perhaps Grandpa’s memory is starting to fail, and he needs assistance in paying bills or maintaining the home. (And perhaps it’s time to sell the family house….)

Homeowners should seek advice from a financial advisor operating under the fiduciary responsibility platform This advisor should not simply be a stockbroker, insurance agent, or a “representative” of financial products pushed by a company. (i.e., they should be a bona fide financial advisor who can advise about a range of options, not a salesperson for one particular kind of product.) The advisor should be licensed to give advice for a fee (whether they actually charge or not) and be knowledgeable about reverse mortgage risks and benefits.

A reverse mortgage can be a dynamic part of a prosperous financial strategy. Unfortunately, opportunists do exist who will attempt to sell a senior something they may not need or isn’t in their best interest, using high-pressure sales tactics. If your loan officer is bundling a reverse mortgage with long-term care or an annuity, or suggesting leaving off a spouse to get more money, get qualified financial advice and find a different loan officer.

Could a Reverse Mortgage help you “stretch” your other assets or lower your taxes? We’ve helped many of our clients formulate financial strategies that keep them in control of their cash as well as their “castles”! Contact us to discuss your situation.

We also recommend Kim D. H. Butler’s Live Your Life Insurance book for a discussion about how permanent insurance can be used as a “permission slip” to spend other assets in retirement, including the equity in a home.

Note: Partners4Prosperity does not sell reverse mortgages nor profit from our clients obtaining reverse mortgages. We just wanted to set the record straight on this financial tool. If you have an opinion on this article or experience with reverse mortgages, we encourage you to share it below.

Recently, a Partners4Prosperity reader asked,

“How well do ‘income for life’ type programs work for people within 5 years of retirement? Are these programs more for younger people who have time to let them grow?”

(Note: “income for life” is the term coined by The Palm Beach Letter folks for utilizing cash value life insurance as a strategic tool. Similar strategies may be better known as “infinite banking,” “privatized banking,” “family banks” or “circle of wealth” strategies.)

This is a question we hear often, generally from people over 65, but we also get it from people in their 40′s and 50′s. They hear about the benefits of whole life insurance – the compounding of their cash value, the safety, the liquidity and flexibility, the cash value component as well as the death benefit, but they wonder, “Is it too late for me?”

In this post, we’ll offer some guidelines for determining “How old is too old?” And perhaps more importantly, we’ll suggest a couple strategies that readers can implement to “stretch their assets” in their later years, even post-retirement.

Many investors assume that there may be no time to build up cash value, that life insurance makes no strategic sense if there is little time for compounding, or that life insurance is not even offered to people over 60 or 65. Oftentimes, they are pleased when they find out the facts! However, there are also times when it’s not possible or advisable for seniors to purchase life insurance.

To answer the question more fully, Tom Dyson from the Palm Beach Letter’s Wealth Builder’s Club interviewed Kim D. H. Butler about this very question. This post includes a summary of some of the points discussed. You can also listen to the interview or read the transcript.

Yes, there is an upper limit, but it’s much higher than people imagine. Most insurance companies won’t write policies for anyone who is 85 years or older. Assuming you are younger than 85, there are two questions you must then ask:

Can you qualify for life insurance, from a health standpoint?

Not all people will. Sometimes people put off life insurance until it truly is “too late,” because you cannot get insurance when you are battling cancer or other serious diseases. However, sometimes people are pleasantly surprised. Even people who are in recovery or remission from serious health challenges sometimes DO qualify for life insurance.

In some cases, you may qualify for insurance, but at a higher rate because of health issues. We can help people do the math to determine if it makes sense for them. Obviously, sometimes the costs can outweigh the benefits.

Do you have the financial capability to purchase life insurance?

Of course, life insurance becomes more expensive the older you are. (One benefit of permanent insurance is that, unlike term insurance, your premium rates will remain level. However, the age at which you obtain the insurance, along with your gender, health, and medical history, determines that rate.)

You must be able to afford the premium and a paid-up addition, and if you do not have the cash to meet these requirements, life insurance is not a good fit for you.

If you can qualify and if you can afford it, then you are never too old for life insurance. Though there is an additional question that is relevant, from a strategic standpoint:

Do you have assets that you are afraid to spend down?

If so, then there are strategies that you can use to stretch your assets using life insurance. (Five of those strategies are outlined in Live Your Life Insurance.)

Can you take a policy on a healthy relative? Yes, that works for cash value, but not for death benefit! Generally, people in their later years want to USE the death benefit while they are living, and that strategy only works when you are insuring yourself.

The cash value accumulates at any age. In later years, the internal rate of return will be more like 3 or 3.5% than the 4.5% a younger person can reasonably expect. But cash value actually builds more quickly later in life, because the premiums are higher. Benefits of life insurance for seniors can be significant, such as capacity to:

1. Replenish, replace, or preserve assets. Almost any financial advisor will tell clients to try not to spend their principle. “Running out of money” is the top fear of many seniors, especially women, according to polls. Shockingly, a recent AARP poll found that running out of money in retirement topped fear of death for most seniors.

   With life insurance in place, seniors have more options. Permanent life insurance is like a “permission slip” to spend the assets they were intending to preserve and leave for heirs, such as homes and investment accounts.

   One strategy is to reverse mortgage your home, which actually turns your home into an income stream. And contrary to public opinion, your home does not need to be free and clear; you just need a good portion of equity in it (generally, around 50%). This helps seniors in several ways. First, if they had a mortgage payment, it disappears. Secondly, they are paid an income stream.

   Thirdly, the income is tax-free.Now, when you add life insurance to the mix, the asset can be preserved! Heirs can use the money to pay off the reverse mortgage, or they can choose to keep the money instead of the house, if that works better for them.Another strategy is to increase your distributions from investment accounts.

   While the “4% rule” has fallen into question lately (in March of 2013, the Wall Street Journal declared, “Say Goodbye to the 4% Rule” ), one thing is certain: you can spend your money faster if you have more assets, and if you are not trying to preserve your principle.

2. Reduce income taxes. Seniors “living off their interest” are often paying higher income taxes than necessary. Many can reduce taxes by sequencing their income streams to include non-taxable and tax-free sources, such as reverse mortgages or life insurance dividends.
3. “Repay” adult children for their assistance. Even when seniors have adequate assets and income to support their basic needs, they may find that as they age, they need help with driving, shopping, cooking, cleaning, or gardening. Hiring out and paying for these services can deplete assets quickly, as well as create other headaches. Adult children often step in to assist, when possible. Life insurance is one way to repay those who have given of their time or money to assist you.
4. Life insurance provides an old age “emergency fund.” What if you live longer than you expect? What if your liquid assets, a reverse mortgage, and your social security aren’t enough?With a whole life insurance policy, you’ll still have your cash value, which can be used, borrowed against, or annuitized. Still not enough? You can sell your life insurance policy. Not unlike a piece of real estate, policies are assets, and the death benefit can be collateralized or even sold.Selling your death benefit is typically known as a “life settlement.” Your health and life expectancy will determine how much your policy is worth. (Partners4Prosperity also works with high net worth individuals who wish to invest in life settlements.)

2. Live more freely and fully. Knowing that you have more options for income and more assets for your hairs allows a higher quality of life in your later years. Nothing produces more stress than feeling you’ve got to hang onto assets for both yourself and your children. And nothing is more freeing than knowing that you’ve got everything handled.

Have you always wanted to see the Sistine Chapel ceiling, cruise through the Panama Canal, or get that second degree? Go for it! If you only go around once, don’t spend your life nickel-and-diming yourself and your loved ones. Increase your financial options and opportunities by investing in permanent life insurance today.

Want to know more about how you can spend your own death benefit? You can find these plus additional strategies for using life insurance to strategically spend and replace other assets in Kim D. H. Butler’s book, Live Your Life Insurance.  It’s a short book, you can read it in a day, and you’ll want to pay particular attention to part II (out of III). Part II of the book is entitled, “Using Your Death Benefit While You’re Alive,” and the subtitle is “Spending Other Assets.”

Are you too old for life insurance? Unless you are 85, the decision is less about age and more about your situation. If you would like to personally discuss your situation with us, we’d be happy to arrange a time to explore whether or not life insurance makes sense for you. Just fill out our contact form, and Jill will be in touch to set up an appointment.

Should we prepare for an economic collapse or toast the recovery? While the stock market hits record highs and the jobs report is the best in years, observers are split as to whether this is a sign of a recovery or simply the calm before the next storm.

Major media outlets are decidedly optimistic, with a “consensus of economists” predicting an acceleration of the economy, according to a USA Today Economic Forecast. Meanwhile, internet bloggers and fringe analysts (who are sometimes correct) continue to lament that the financial sky is, indeed, falling.

Among the pessimists is Gerard Celente, founder of The Trends Research Institute. Back in 2011, Celente warned, “The whole system is going down. Pull your money out your Fidelity account, your Scwhab accout, and your ETFs.” Celente’s recommendation? Buy gold!

More than a little ironically, shortly after that prognostication, Celente himself lost more than six figures in an attempt to invest in gold futures. The money was taken from his account with Lind-Waldock, a commodities futures brokerage that was owned by MF Global, who filed for bankruptcy on October 31, 2011. (Famous for his financial predictions, Celente didn’t see that one coming.)

However, in March of 2012, the rating agencies downgraded the United States’ credit rating for the first time, raising questions as to whether the US would follow in the footsteps of Iceland and Greece.  And according to the FDIC’s list of bank collapses, bank failures escalated from a mere 24 in the seven years from 2000 through 2006, to over 480 bank collapses between the start of 2007 and May of 2013. (Not to downplay the seriousness of that alarming statistic, the rate of failures has slowed considerably since 2009-2010.)

Here at Partners for Prosperity, Inc., we get a lot of questions. Should people be concerned about a weakening dollar and the recent credit downgrade? Is the economy stable? What about the stock market? Do we recommend buying gold as a hedge against inflation? How might a zombie apocalypse affect the economy? (Just testing.)

While we don’t recommend putting our heads in the sand, neither do we feel that panic is the solution. Times of uncertainty are an excellent time to get “back to basics” – the fundamentals of saving, investing, and preparing for the unexpected. And so we offer those of you “seeking a financial strategy for the end of the world” (however close or faraway it may be) the following suggestions:

Reduce Debts and Liabilities.

Reduce and eliminate consumer debt while increasing cash flow. Don’t purchase cars, clothing, and other depreciating assets beyond what you need. Never use credit cards to finance consumer purchases and vacations. And always consider not only the purchase price, but the opportunity cost of your purchases. What future value is lost forever when cash is spent rather than invested?

If you have consumer debt that is stopping you from being able to save, invest, go back to college or start a business, get rid of it as fast as possible. Our subsidiary, Partners 4 Fiscal Fitness helps people get out of debt and into a positive cash flow position quickly. Most of our clients have been able to completely eliminate consumer debt in three years or less. If debt has got you down, we urge you to begin the Fiscal Fitness Journey today.

Diversify Assets; Create Value.

Some investors have been advised to trade in their cash for gold and silver. We think that having a small amount of gold and/or silver is fine, but don’t get carried away. While gold and silver can provide a hedge against inflation, physical gold and silver only has value when liquidated, and even then, the value is dictated by the price buyers are willing to pay. Gold and silver have the same problem as 401k’s and other accumulation accounts: commodities aren’t effective instruments for producing value, or cash flow.

Additionally, the value of gold, silver, and other commodities (whether physical or paper/digital, such as gold ETF’s) is speculative and determined by a market outside of our individual control. Therefore, we don’t recommend dumping all (or even most) of your cash to buy gold and silver.

Should you wish you have some gold or silver, avoid “collectibles” such as antique coins or silver-plated tea sets, unless you’re an expert in rare coins. The worth of physical gold or silver is determined by purity and weight. Collectibles are another thing altogether, and scams preying on investor fears and ignorance abound in this arena.

The principle to invest in “real” assets and not simply collect cash is a sound idea in any economy. When currencies fail or where hyper-inflation strikes, commodities like gold and silver do go through the roof in comparison. But we prefer assets that can produce cash flow… assets that do not have to be liquidated for value to be realized.

We think that better bets are investments like real estate, such as cash-flowing rental properties. Shelter will never go out of style because people will never stop needing it. This is why, in situations of very high inflation in other countries, bread, rent, and other necessities and consumables escalate in price when the currency weakens.

To prosper in any economy, don’t just accumulate or speculate – USE your savings to create and multiply value. Invest in businesses, properties, and short-term investments (life settlements, collateralized loans, etc.) where you can receive a timely return. Don’t be content to lock up your money for decades at a time in assets you have no control over.

Buyers Beware.

We have written at length about the risks and unpredictability of the stock market.  Stocks and mutual funds are nothing more than price speculation, and we don’t recommend gambling as an investment strategy. However, one historically dependable fact is that record highs are never sustained for long. Unfortunately, buyer psychology will make our current highs irresistible to many investors. We all know to “buy low, sell high,” but the crowd does the opposite.

If you cannot divest yourself of stock market holdings without paying unwanted taxes and fees, concentrate on companies that could survive an economic collapse; companies that provide necessities that will never go out of style.

Build your own Assets.

Only a tiny percentage of the rich build their wealth by investing in stocks. However, a majority of the wealthy own their own businesses. (Many are also real estate investors.) Businesses that produce value in any economy are virtually recession-proof and inflation-proof.

We also recommend building your own value in the marketplace through increasing your knowledge and skills. For instance, will there always be a demand for exceptional workers? We think so! Even if the dollar disappeared, value will always be traded for value in return.

Increase your Self-Sufficiency.

Start a garden. Grow your own fruits and vegetables. Consider raising chickens to produce eggs, or having other livestock (if your circumstances allow) to provide for your needs or add to cash flow. (A little known secret about our own Kim D. H. Butler – she raises Alpacas and crochets blankets from their fiber as a hobby! The animals as well as the fiber are valuable, as well as practical.)

As the movie Money & Life pointed out, we have not always been so dependent on currency. In the past, money supplemented our needs rather than providing for all of our needs. We are wise to increase our self-sufficiency so as to not be entirely dependent on a monetary system for every aspect of our livelihood.

Practice Emergency Preparation.

Whether you’re expecting an economic collapse or not, it is wise for everyone to be prepared for an interruption of “normal.” Do you have purified water and food supplies that won’t spoil and don’t require refrigeration? Could you purify water and keep warm without gas or electricity? Do you have a good first aid kit in your home? Do you keep water, blankets, flares, food, and at least a half a tank of gas in your car? These are best practices for emergencies and natural disasters that have saved lives in unexpected situations.

Build your Community.

Ultimately, it’s not dollar bills that get people through the tough times. It’s other people. It’s the family, friends, and neighbors who pull together to help each other. In these times of great mobility and short-term jobs, many of us have lost some of the “social assets” of previous generations. Strong relationships, neighborhoods, churches and communities are the building blocks of stability. Invest in people and you will never be destitute.

Is your portfolio prepared for an emergency? Do you want to go beyond accumulation and use your assets to create value and cash flow? Contact Partners for Prosperity, Inc., and we’ll show you how. You can also find out more about our philosophies and strategies by reading Kim D. H. Butler’s books, available in digital, audio, and paperback.

“If you do what you love, as the saying goes, will the money follow? One thing is for sure – if you don’t do something you love, you will not be happy, and trading money for happiness is not a very good deal! Here at Partners for Prosperity, Inc. we believe that prosperity isn’t just about money. Prosperity includes health, happiness, love, and meaning.

Wealth is usually related to one’s career or business through the income produced, but if you feel trapped working an uninspiring job “just for the money,” that’s not prosperity, no matter how much you’re making. Prosperity is living a life that is fulfilling to you, that utilizes your unique gifts, talents, passions and preferences.  It is only in living that fulfilling life do we find our “right livelihood”.

Fortunately, you don’t have to choose between money and fulfillment. It’s not an either/or proposition. People that do what they love (and what they’re good at) actually tend to be more financially successful.

As Schlesinger, Kiefer and Brown, authors of Just Start say,

“Based on the research we did for our book, we’re convinced that when you’re heading into the unknown, desire is all-important. You simply want to be doing something that you love, or something that is logically going to lead to something you love, in order to do your best work. That desire will make you more creative and more resourceful, and will help you get further faster.

“And, it will help you persist. When you’re trying something that’s never been attempted before — beginning an unusual project at work, or trying to get a new business off the ground — you’re going to face a lot of obstacles. You don’t want to be giving up the first time you encounter one.”

Hay House author Laura Leigh Clark describes 8 “Money Genius Profiles” in her book, Wired for Wealth, and notes that earning is more effortless when they are operating in their natural strengths. Assessments such as the Kolbe Index have long been used to help people increase their career success.

But not everyone feels their career or even their life is a “fit”. If you’re living a life or working in a career that’s less than fulfilling, how do you discover what really juices you? And how do you start to make that transition, career-wise, to that right livelihood?

We asked Tammi Brannan at Instinctive Life to give our readers some tips for doing just that. In this video, she gives some specific exercises for connecting with your true self, discovering what you really love, and some savvy advice for transitioning into a new career.

Tammi Brannan on How to be True to Yourself

Click here to view the embedded video.

Of course, finding the right career or business is only part of the challenge – often times you’ve got to have a way to financially bridge the transition! Partners for Prosperity, Inc. helped Tammi find funds to start her business, and she shares that story as well.

Does Your Life Fit You? Do you feel you are able to pursue happiness and prosperity simultaneously, or do your money-earning activities require compromises? Do you feel your life allows you to be true to yourself, or do you long for a change? If you are considering these questions, we invite you to contact Tammi. She has graciously agreed to offer a complimentary “right fit” exploration session for our readers who are ready to discover a life that feels more true to themselves.

Two weeks ago we asked the question, “Should you borrow against your life insurance policy?” Today, we continue the topic by looking at the advantages and disadvantages of borrowing against a life insurance policy.

The Advantages of Borrowing Against Life Insurance

1. It’s simple and relatively quick. There’s no need to fill out an application, qualify for the loan, or brace yourself for high fees and taxes (in most situations, see below exceptions.) You’ll have your loan in 5-10 business days for most companies, and occasionally they have faster options.

2. It’s flexible. You can borrow about 95% of the cash value amount of your whole life policy from most mutual insurance companies. And when you borrow against your insurance policy, you can design your own repayment schedule, modify it as needed, or even continue down the path of life without repaying it if your circumstances require. In contrast, most types of non-insurance loans have strict repayment schedules that may or may not work well for you.

3. It’s cheaper than you think. Life insurance policy loans are running in the 4 – 8% range right now. But that does not equate to a bank loan for the same amount. This is because you’re borrowing against an account that likely has an internal rate of return of 4-5%, depending on your age. And since you are borrowing against your cash value, not borrowing the cash value itself, your cash value continues to grow and earn dividends, which offsets the interest on the policy loan.

4. It’s (probably) not a taxable event. Although there are exceptions, typically the IRS will never know that you borrowed the money. Like taking a second mortgage or line of credit against a rental property, a policy loan is not considered “income” in most situations.

What happens to the interest that you pay?

There is a misunderstanding with borrowing against your life insurance. Sometimes people say that you’re “paying yourself interest,” which is not exactly accurate. You’ve neither borrowed from yourself nor are paying yourself interest. You’ve borrowed from the insurance company, using your cash value as collateral. The interest is likewise being repaid to your insurance company.

However, in a roundabout way, the interest benefits all policyholders because in a mutually-owned insurance company, policyholders are paid dividends which represent profits. In a nutshell, interest on loans made to policyholders become earnings that later become dividends.

As the Truth Concepts blog states in a post entitled, “Life Insurance Loans: Where does the interest go?”

“This is a good deal for everyone because the insurance company earns money, the owner of the policy gets use of the money while at the same time their cash value keeps growing, and all the other policyholders know the insurance company is investing their money properly, since the interest charged is reflective of the rates in the marketplace.

The Disadvantages of Borrowing against Life Insurance

1. Fewer assets for yourself. One disadvantage you always have when borrowing money from a life insurance policy (or a property) is that you’ll have fewer assets to use or borrow against (unless you are leveraging your asset to acquire a greater asset), plus of course interest to pay. So you always want to evaluate whether the loan is needed or not, or whether you can simply reduce your spending and avoid taking the loan in the first place.Always take the time to talk with your advisor or agent to understand the impact that borrowing against your policy will have. And don’t assume that just because you have “permanent life insurance” that you can or should borrow against it. Some forms, such as Universal Life and Equity Indexed Universal Life (EIUL) operate very differently from whole life insurance.(We’ll cover EIUL in another post soon. If you want to make sure you get updates, please opt-in here to receive our Prosperity Pack, and you’ll receive a periodic newsletter of our most recent posts, as well as some great resources to help you accelerate your prosperity.)

2. Fewer assets for heirs. Although you don’t “have to” replay loans against your cash value, unpaid life insurance loans (and their interest) reduce total benefits to beneficiaries.One solution to this quandary is to fund some Paid-Up Additions, or PUA’s, as you begin to repay the loan. With a PUA, approximately 95% of the money goes to cash value, and about 5% or so goes to incrementally increase the death benefit. PUA’s raise the cash value amount available to you for use in future years, while also raising the death benefit for heirs.

3. Potential taxes. Outstanding loan balances may trigger a “tax event” (typically the issuance of an IRS Form 1099) if you borrow more than you’ve saved (due to growth) and choose to cancel or surrender your policy at a later date.Certain types of “cash-rich” insurance policies have been designated “modified endowment contracts” (or MECs) by the IRS. Loans against MECs are not tax-free. If you suspect that your contract might be an MEC, be sure to ask about the loan’s possible tax consequences before you borrow. (A properly structured whole life policy will not be an MEC.)

4. Cash Value is your life insurance policy’s “emergency fund.” If a high percentage of the policy’s cash value is borrowed and premiums are not paid on time, the policy may lapse, resulting in the loss of coverage (the “death benefit” paid to the beneficiary) and possibly triggering a further tax event.

Is there a better option than borrowing against your life insurance policy?

That depends on the situation. In some cases, there could be better options that have even lower costs. For instance, it might make sense to borrow from your 401k at low interest to purchase a house, and it’s hard to beat a tax-deductable Home Equity Line of Credit (HELOC) at today’s rates of as little as 3% APR.

Of course, there are generally fees as well as interest involved in borrowing money against a property, and now many lenders are charging substantial prepayment fees for short-term borrowers. Since the real estate market crash, it has also become much more difficult to qualify for those loans. Both the borrower and the property must fit lending requirements, such as sufficient equity, a steady job with income several times any debt payments, and good credit.

Borrowing from or taking money from retirement accounts can generate fees as well as taxes, and due to employer plan restrictions, some investors find themselves unable to borrow against their 401k’s, even in emergencies. When they can borrow, they will be typically limited to $50k or 50% of the vested funds, whichever is less. And unless the reason is a down payment on a home, the funds must be strictly paid back within 5 years.

The rules for IRA’s are even stricter. They are typically not acceptable as collateral and you can only access your funds for a 60-day period in what is considered a “tax-free rollover,” and that time frame is firm. Beyond the 60 days, you’ll pay income taxes, a penalty, plus lose the ability to put the money back in your IRA.

Should YOU to borrow against – or begin – a whole life insurance policy?  At Partners for Prosperity, Inc. we use Truth Concepts™  financial software to compare different financial strategies. We show investors how to build wealth with safety, apart from market risks and instabilities. We can help you consider opportunity costs, taxation, risk and returns, and more. Contact us  to find out more.

“We can’t solve problems by using the same kind of thinking we used when we created them.”
-Abert Einstein

Money is one of the most powerful forces in our lives, both in our psyches and in our physical realities. Money makes the world go around. Life as we know it would grind to a halt without it. Yet it remains something of an enigma, largely unexamined.

We tend to either unconsciously embrace a contradictory, love-hate-relationship with money, or see it as a one-sided caricature. Money is heralded as the all-powerful solution to our problems, perhaps even the source of security, even happiness. Conversely, it gets blamed as the root of all evil, greed, and injustice.

In Money & Life, the groundbreaking documentary screening now in cities around the country, money takes center stage as a fascinating, fully-fleshed out yet still-evolving character. We learn of money’s birth as a brilliant piece of social technology, contemplate its evolution through the centuries, discuss society’s near-worship of it today, and examine its current incarnation in an unsustainable debt-based economy.

It’s a complex story, but the beautiful graphics, personal stories, and interviews from financial thought leaders provide many windows from which to view money. Filmmaker Katie Teague remains off camera, yet we are drawn into the conversation she has started.

We’re invited to confront the compulsion to consume with a dot.com multi-millionaire who, after an extended spending splurge, tames the “Greed Bug” with volunteer work in India. We come face to face with financial shame as we follow a woman through bankruptcy to a sense of inner abundance on the other side. We are challenged with the ways in which our corporations “liquidate the earth” for profit, and asked to consider how our man-made economy has moved away from the natural order of sufficiency and sustainability.

Covering all sides of the coin, Money & Life avoids sermonizing, demonizing, or new age assertions that the law of attraction will magically produce “an unlimited supply of money.” Resisting temptation to collapse “money” and “materialism,” (though both are examined), money itself is neither vilified nor exalted, but is viewed as both an instrument of generosity and a catalyst for scarcity.

Money & Life – Extended Preview: 

An essay-style film, the dialogue is carried forward through narration, personal stories, and interviews with an array of thought leaders, from economists and sustainability experts to reverends, rabbis, and a former JP Morgan executive. Among them:

• John Perkins, author of Confessions of an Economic Hitman, a former Chief Economist who once advised the World Bank, UN, IMF, heads of state and Fortune 500 companies, Perkins left that position after an epiphany and dedicated his life to righting the wrongs of the system he had been entwined with.
• Lynne Twist of the Soul of Money Institute, a former fundraiser and global leader in eradicating hunger and supporting social justice and environmental sustainability.
• Philosophy professor Jacob Needleman, author of Money and the Meaning of Life.
• Vicki Robin, co-author of Your Money or Your Life and co-founder of financial sustainability initiatives such as The New Road Map Foundation’s Financial Integrity Program.
• Currency expert Bernard Lietaur, author of The Future of Money.
• Financial reformist John Fullerton, founder of Capital Institute and former JP Morgan managing director.
• Futurist and sustainability consultant Hazel Henderson, author of Ethical Markets: Growing the Green Economy.
• Self-proclaimed “degrowth activist” Charles Eisenstein,  author of Sacred Economics.

(Hopefully, the forthcoming DVD will have a wealth of extended interviews, as I suspect much additional wisdom had to be left on the cutting floor.)

Money & Life unveils fractional reserve banking and exposes The Fed and the “global casino” created by unsound banking practices. But rather than descending into an angry tirade against wrong doers, the film proceeds gracefully, finding hope and even purpose in our economic woes. (As one expert suggests in the film, perhaps we need the sh*# to really hit the fan before humankind takes the opportunity to re-invent our systemically flawed monetary system.)

Rather than offer opinions or even “solutions” to our money mess, the film asks us to find our own answers to questions such as:

• What is real wealth?
• How can money serve people, rather than vice versa?
• What does it really mean to “make a living”, and how can we free ourselves from cycles of debt and consumption?
• How can we align our financial choices with our most deeply held values?
• What are the possibilities – and examples – of alternative monetary systems and currencies?

Money & Life reminds us that as the creators of money, “we made it all up” in the first place, and we can recreate it as well. We are invited to own our role as creator and envision new possibilities such as alternative economic systems, complimentary currencies, and sustainable financial solutions (as is already happening on micro-levels around the world.)

The final section on re-imagining money, initially struck me as too optimistic, almost naïve. I thought, “Do we really think the powers that be are going to let the 99% brainstorm a new monetary model?” But in retrospect, the film led me to realize how many of the solutions are already here, at least, in seed-form.

How many of us shop at co-ops, grow our own food, barter for goods or services, and have abandoned typical earn-and-consume models in favor of meaningful vocations and creative pursuits? I’m currently bartering marketing coaching for recording studio time. I’m using technology to carve a path as a “prosperity therapist” who works from home while caretaking an elderly parent. I’ve been self-employed for 18 years and have been “doing money differently” for a long time.

Filmmaker Teague practices what she preaches, modeling alternative means and creative solutions. Sidestepping typical means of funding for her excellent debut documentary (lots of debt or a few wealthy producers), she utilized Kickstarter, a “crowdfunding” platform to find financial support for her film. And rather than seek a wide theatrical release, she went on tour to debut the film in grassroot showings around the country designed to foster dialogue and engagement. (Currently, screenings are scheduled in Boulder, CO on April 28,  and Chicago, IL on May 9, 2013. )

I recommend this film wholeheartedly to readers of the Partners4Prosperity.com blog, out-of-the-box financial advisors, or anyone who is interested in “doing money differently.” As a matter of fact, the film, in many ways, lays a foundation that makes the Prosperity Economics model practiced by Partner for Prosperity highly desirable. (P4P’s Kim Butler coined the term Prosperity Economics for methods of saving and investing that utilize alternative investments along with co-operatively owned insurance to build wealth. No stock market, bank, or government required.)

To find out how you can watch Money & Life, go to the website to see if there are screenings in your area.  DVD and streaming versions are scheduled to be released May 1^st, 2013.

Have you seen Money & Life? What did you think? Your comments and reflections are encouraged below.

Kate Phillips helps people heal their financial wounds and make peace with money. The founder of Total Wealth Coaching,  she also coaches business owners and entrepreneurs to sustainable success.

One of the advantages of a Whole Life Insurance policy is the ability to borrow against your cash value, though the concept is widely misunderstood, even by insurance agents! In this post, we’ll explore exactly what it means to take a loan against your insurance policy, and we’ll look at some good reasons – and bad reasons – to borrow against your policy.

Do You Borrow Your Cash Value, or Borrow Against It?

A common misunderstanding is that people think they are actually borrowing the cash value itself, but actually, they are taking a loan against it. Your cash value is the collateral that the life insurance company lends against. So the real choice you have is to either reduce (or liquidate) your cash value, or borrow against it.

The cash value is your savings to take as you wish, but we recommend that you borrow against it rather than deplete it. Why? Just like with a house or other piece of real estate, it is usually more advantageous to keep the asset long-term and borrow against it (for example, with a mortgage) than lose the asset.

Just as with a rental home, properly structured whole life insurance policies allow you to retain the asset for future use. Real estate investors may borrow against and pay off mortgages several times against a long-term rental, and you have the ability to do the same with your cash value policy.

Just like real estate, cash value policies allow you to have a C.L.U.E., which stands for

• Control – you control the asset, not your employer or the government.
• Liquidity – it can be liquidated if desired, with no penalties and minimal taxes.
• Use – different from a retirement account, the money can be used as you please, including used as collateral.
• Equity – the asset grows over time and your net worth increases.

Good Reasons to Borrow Against Your Life Insurance Policy

Perhaps the most common reason people borrow money is in reaction to a cash flow crunch, perhaps caused by illness, divorce, or a temporary period of unemployment, But there are many good, strategic reasons why you might want to borrow against your whole life policy, even if you are not having a financial emergency.

For instance, it can be a smart way to leverage your savings to pay off or avoid consumer debt. It can be a way to increase your net worth or cash flow by providing capital to invest in real estate, or financial instruments with solid double-digit returns. It can be a brilliant strategy to use to supplement retirement funds or social security in later years when you are no longer working full-time.

Recently, Partners for Prosperity, Inc.’s own Kim D. H. Butler was interviewed for the prestigious Palm Beach Wealth Builders Club by Tom Dyson, the club’s Investment Director, about the use of whole life cash value insurance, coined “Income for Life” by the Palm Beach Letter crew. We’ve printed an excerpt below in which she discusses two of good reasons to borrow against your policy for strategic reasons:

Tom:  What do you think are the best ways that our subscribers, at least just to get started, how should they get going when they borrow money?  What should be some of the first things they think about when they’re getting to that point?

Kim:  That’s a great question.  There is going to be two schools of environments that they fall into.  One is going to be the school of handling debt like car loans and credit cards and things like that.  The other will be the school of investing.  So, I’ll address them both.

There will be people that can benefit from borrowing against the cash value of their life insurance to pay off credit card debt.  Maybe they have credit card debt at 18-20% or even 12%, and as you know the life insurance loans cost somewhere between 4-8% right now.  So, that will be a beneficial thing.  They’ll be able to borrow against the cash value, pay off their credit card.

Then, as you know, to be an “honest banker” as Nelson Nash talks about in his book and as you guys referenced in Income for Life, they’ll actually want to pay those life insurance loans back at the same interest rate they were paying the bank or the credit card company, which, of course, will get that loan paid back very quickly, and then they can go on and start a second policy….

The other group of people really doesn’t have debt as an issue.  They pay off their credit cards every month.  Yeah, they might borrow against it for a car, on occasion, but that’s going to depend on car loan interest rates at the time.

If car loan interest rates are really, really low, they may be better doing a car loan with a typical financing company.  If they don’t have a need for debt in the typical sense, then they can borrow against it to invest.  This has to be done very carefully, but it can be very effective.

We have clients all over this country that borrow against their policies at a cost of eight and invest in very solid things that earned 10% or 12% or 14%.  Sometimes they are things they have found.  Sometimes they are things that we have found.

That can be a very effective tool to use their life insurance cash value.  Now, at that point, we always have a minimum that we don’t go below.

Let’s say they decide their emergency fund should be $50,000.  Okay, we’re going to leave $50,000 of cash value in there.  The internal return on that money right now is typically between 4-5% depending on the age of the person.

So, it can sit in there and do just fine absolutely doing nothing.  For the money above the $50,000 in this example, they could borrow against it and go invest and really get some amazing returns.

Tom:  Yeah.  I can see that.  It’s absolutely right.… Thank-you so much for coming on and talking to us today.

Kim:  You’re welcome. Happy to be here.

Some not so good reasons to borrow against your cash value:

Nordstrom is having a sale. You never want to borrow money for non-essential, depreciating consumer purchases. And living beyond your means is also not a good reason to take a loan against a life insurance policy!

You got a “sure fire” tip about a hot stock. Borrowing money to gamble is always a bad idea, whether it’s Vegas or Wall Street. You never want to borrow money on a prediction, a hunch, or a guess. When it comes to money, it’s important to deal with facts and truth. If you want to bank on your intuition, use it to choose a great financial advisor. 

Stay tuned for a follow up… Next week, we’ll look further at some advantages and disadvantages of borrowing against a life insurance policy. Until then, you can listen to Kim’s entire interview or read the transcript of her interview with the Palm Beach Wealth Builders Club here.

Can we help you evaluate your own life insurance policy?

We find that people have a lot of questions about their policies:

“Do I have enough insurance?”

“What will be the impact of borrowing against my policy?”

“Is this a ‘good’ policy with the proper riders, or is it the kind of permanent insurance that has gotten a lot of bad press?”

“How can I use my whole life insurance to benefit my family now?”

If you have questions, we can help you get them answered! Partners for Prosperity is once again offering complimentary policy reviews. Just click here if you would like to schedule a no-obligation appointment with us to review your policy.

Last week, our blog post was about common Money Mistakes that even smart people make. This week we would like to discuss in detail another common financial mistake:

Getting advice from someone motivated to make a sale rather than provide the best advice.

There has been a raging debate amongst financial professionals since the 2010 Frank-Dodd bill authorized the SEC to adopt a fiduciary standard, which means “the best interest of the client” versus the current suitability standard, which only means “appropriateness of investment.” Due to much lobbying and intense opinions on the matter, no change in standard has yet to commence, though we may see such a change in 2013.

Here’s what the fiduciary vs. suitability standard debate means and why it matters: 

The Suitability Standard 

People who advise and sell investments are held to one of two standards, based on their registration. Those registered as an agent or broker might be referred to as a “Stockbroker,” a “Registered Representative” or even a “Financial Planner.” Broker-dealers and associated persons are regulated under the Securities Exchange Act of 1934 and are held to a suitability standard that requires them to make recommendations that are appropriate for a client’s risk tolerance, investment objectives, time horizon and financial status.

In other words, a stockbroker can’t put Grandma’s nest egg in volatile tech stocks, but they can consider their own commissions, preferences, and company expectations. Notably, brokers and financial reps are often trained to sell the company’s managed funds, which charge fees and tend to underperform the market as a whole, or the indices the funds are mimicking.

According to a March 30, 2013 article in the Seattle Times, two-thirds of managers failed to beat the market in 2012. In 2011, 84% underperformed the market. An objective advisor who is paid for their advice would hopefully advise an investor a different direction, explaining the long-term impact of the fees, perhaps even questioning if the associated risks of such a fund are necessary or desirable.

The problem with the suitability standard? It puts investors at risk and tolerates conflicts of interest. Too often, brokers steer clients into investments that earn higher commissions rather than investments that best serve their clients. If an under-performing in-house fund pays a higher commission than a better similar fund elsewhere, they have no responsibility to recommend the better fund or disclose their conflict of interest. Frankly, there’s no incentive or reason for them to even be aware of  better investments elsewhere.

The Fiduciary Standard 

On the other hand, RIAs (registered investment advisors) and their IAR’s (investment advisor representatives) are held to the higher fiduciary standard under the Investment Advisors Act of 1940. This means they must recommend what is in the client’s best interest when providing personalized investment advice. They must place the interests of the client ahead of their own and act professionally with care, skill, diligence and good judgment.

The fiduciary standard imposes the highest duty of good faith, loyalty, and full and fair disclosure of all material facts, including potential conflicts of interest. If conflicts of interest cannot be avoided, they must be managed in the client’s favor. It’s been called the “golden rule” standard, because advisors must do for their clients exactly as they would want someone to do for them.

As a Registered Investment Advisor, we can also (and do) offer fee-based financial advice. And whether we are charging for advice in any given moment or not, we must always operate under the fiduciary standard.

Many financial advisors and firms do not have the proper education, certification and licensing to charge a fee for advice. Many who offer financial advice at large financial corporations (and never charge a fee for advice) are really financial reps, or salespeople for the company, not objective financial educators and true advisors. 

Hybrid Confusion 

Sometime around the dot-com crash, brokerages realized that in order to survive, they had to re-brand themselves as Financial Advisors. Rather than calling themselves “stockbrokers” or “Investment Representatives,” brokers started upgrading themselves to “Investment Advisors” and “Wealth Managers.” With some additional certifications, some even started offering fee-for-advice.

The problem? While pushing products remained the primary goal, advisors were now broker/advisor “hybrids” who wore two hats. They gathered information from clients, sometimes charging fees to produce a “financial plan,” (wearing a fiduciary hat). Next, they sold clients the same products they had always sold (wearing their suitability hat).

In a practice called “lunacy” by one financial blogger, the hybrid model led to a massive gray area fueled by the public’s lack of awareness and the “regulatory arbitrage” games that Wall Street insiders play so well. Depending on whether representatives were operating in an advisory capacity (selling advice to the customer for a fee), or simply performing brokerage transactions at the request of the client, their roles and responsibilities could change like the weather.

As one novice investor recalls, “I was charged $700 for a financial plan, then guilt-tripped when I asked them to look outside their network for products with lower fees and competitive costs. In the end, I realized I had paid $700 for a sales pitch.” 

What Role Is Your “Advisor” Playing? 

Independent studies and surveys have highlighted the (intentional) confusion produced by the double standards and changing titles. A recent survey of 2,000 American investors detailed in a Forbes.com article titled, “What is a Stockbroker? America Has No Clue”  revealed that the overwhelming majority of investors do not understand the difference between those who sell stocks and those who give financial advice. Furthermore, 2 out of 3 investors incorrectly assumed that stockbrokers are held to a fiduciary duty, and fully 76 percent of investors wrongly believe that “financial advisors” - a term used by brokerage firms to describe their salespeople’ are held to a fiduciary duty.

Consumer groups, the SEC, and financial planning communities support the fiduciary standard, whereas the broker-dealer and insurance communities (including NAIFA) have supported the suitability standard. This issue has created vigorous dispute between the interested parties because of the significant impact it will have on some segments of the financial services industry. 

Where Does Partners for Prosperity Stand? 

Clients have been asking us if we act from the fiduciary platform, and it’s nice to be able to answer “Yes!” Partners for Prosperity, Inc. is a Registered Investment Advisor, and our Investment Advisor Representatives can proudly say that they operate under the higher fiduciary standard.

We also believe in (and use Truth Concepts™ software that supports) complete transparency in the advisor-client relationship. Furthermore, we recommend safe, predictable investments and do not advocate that any investor gamble with their money.

We recommend to anyone to get advice from a Registered Investment Advisor who operates under Fiduciary Responsibility. Providers of fiduciary advice are bound to give advice that is the best for the client, regardless of whether it makes or loses them money. 

Who’s Giving YOU Financial Advice? 

We urge our readers to inquire as to whether those giving them financial advice are operating under the suitability or fiduciary standard. If you have ever wondered if the financial advice you received served your best interest, we invite you to contact us to explore financial advice based on numerical truths, the Principles of Prosperity, and the fiduciary standard.