An often-overlooked risk in government-sponsored benefits, including tax-favored savings and retirement plans, is the possibility that the rules will change. In practice, the “possibility” is more likely an “inevitability”: the rules will change. A recent example of government “moving the goalposts” involved options for receiving Social Security retirement benefits. On November 2, 2015, President Obama signed off on legislation that eliminated three methods of payment permitted under rules passed in 2000. The most significant change was the elimination of the “file-and-suspend” strategy.
When it comes to interest earnings on savings deposits, there hasn’t been much difference between your local bank and your mattress. In September 2015, the posted rate online from a national bank for a basic savings account was 0.1 percent. Incentives for new accounts, higher balances, and longer holding periods bump the rate a bit, but even the best offers for short-term, FDIC-insured accounts rarely exceed 1.5 percent.
A frequently overlooked topic in discussions about personal finance is how to best purchase durable goods. Durable goods are products that don’t have to be purchased frequently, usually last for longer periods, and are typically kept for five years or more. This definition encompasses a wide range of items such as automobiles, appliances, home and office furnishings, lawn and garden equipment, consumer electronics, tools, sporting goods, photographic equipment, and jewelry. Since purchase prices for some durable goods can be pretty steep, most Americans can’t simply pay for them out of their monthly discretionary income. So even if they involve economic essentials, like buying a car or replacing a furnace, decisions about how to pay for durable goods are rarely as simple as writing a check or swiping a credit card. Paying for durable goods usually requires some planning.
Most whole life insurance policies allow a policyowner to borrow against the contract’s cash value. Much like a home equity loan, this feature maintains the policy’s future value (i.e., the death benefit), while also providing immediate cash resources5. An August 2012 article in the trade publication LifeHealthPro notes how insurance policy loans have played a part in several modern business success stories.
Financial professionals can not only provide plans and products, but also offer positive reinforcement, management tools, and personal service to make these necessary changes happen. Getting better financially does not have to be a do-it-yourself project. Saving is not easy. It never has been. But it is worthwhile. No matter how poorly someone has saved thus far, any improvements will be beneficial. Look past the distortions to implement workable strategies that incrementally move you toward a better financial condition.
In financial circles, perhaps no debate generates more heat than permanent life insurance (PLI) versus buying term and investing the difference (BTID). It may be more of a Coke-vs-Pepsi discussion for consumers, but experts can really get worked up. So when an Investment News article titled, “New Life Insurance Study Debunks ‘Buy Term, Invest the Difference’ ” was posted on July 28, 2015, the comments section was perhaps more interesting than the article.