Covering Your Bases on College Planning

There is a plethora of options out there in regards to college education, so when it comes time to pick the best option for your loved one, it’s important to make sure all of your bases are covered. Unfortunately, many college plans today fail to deliver the anticipated results for a couple of reasons: volatility or change. Since there is very little certainty in life, it is crucial to use a flexible college-planning tool that allows you to adapt to changes, while still providing the intended benefits. Flexibility is the key to funding your loved one’s college education. Without it, you may end up regretting it.

Traditional methods of college planning assume no other choice is available outside of going to college. These straight-to-the point products lack flexibility, which could cause the loss of key benefits should your child or loved one head down a different avenue other than attending a university. For example, if college ends up not being the preferred choice of your loved one, most traditional college plans will either default to taxable withdrawals or name another recipient of the money in order to reap the intended benefits. Although the latter is not likely to happen, either result could make you regret investing your money in a traditional college-planning vehicle should your child or loved one decide not to attend college.

A better option would be to invest in an indexed universal life policy. An IUL would allow you to fund your loved one’s education, while still reaping the benefits of tax free withdrawals, regardless of whether or not junior attends a university. This is because your tax exemption is not dependent upon your loved one going to a university like it would be under a 529 plan. This gives the owner peace of mind knowing that whatever changes they face, won’t cause them to miss out on the intended benefits. Instead, you will have added control and flexibility to adapt accordingly, without being financially penalized.

In addition to tax-free withdrawals, IUL ensures that no plan will lose money due to market conditions, which ensures the availability of the money once the time comes to use it. IUL policies adopt financial concepts that blend both annual reset and indexing allocation methods in order to guarantee that you won’t lose a penny due to market conditions. These concepts have averaged moderate returns over the last several years through the ability to bypass market downturns with capped earnings.

Flexibility is another key benefit for investors within an IUL policy. Deposits made into an IUL policy can be either structured or sporadic.  Meaning you can structure your policy to get favorable results through either lump sum deposits or consistent monthly deposits. 

Last, but not least, an IUL can bring peace of mind through total protection. For instance, if the bread winner of the IUL policy were to pass away, the beneficiary (often the potential student) would receive an accelerated tax free death benefit to ensure payment of the education.

If the past decade is any reflection of what is to come, protecting your money with underlying guarantees can minimize the stresses connected with providing an education for your loved one. Unpredictability and uncertainty have been more prevalent over the last five years than any other time in US history. If this pattern continues, what guarantees do you have in regards to your loved one’s higher education needs? Utilizing an IUL for your college planning needs is definitely a great way to bring security into an insecure financial world.

Why a $7.2 Billion Loss from the USPS This Year is Not a Concern

Just recently, the Federal Reserve System announced that first-quarter losses from the United States Postal Service stood at 1.8 billion dollars. At this rate, the USPS is on track to cost American taxpayers over $7.2 billion by the end of the fourth quarter. To put this into perspective, this amount is equivalent to a $20 million dollar loss per day, with no hope of any profit for quite some time, if at all. At first glance this may pose a concern, but once the numbers are dissected, you will see that it fails in comparison to the bigger picture. In fact, when looking at the numbers (with respect to federal spending), one might consider it irrelevant or even a waste of time to correct. In order to fully grasp this idea, it’s important to evaluate the bigger picture.

If these sustained losses of the USPS occurred any time prior to the turn of the millennium, it could have caused a financial scare bigger than that of the Lehman Brothers’ bankruptcy in 2008.  Looking back, and trying to comprehend the fall of the USPS, would have been practically impossible. We don’t have to worry about this however, because these aren’t the times we live in today. Today, we are in the third round of Quantitative Easement, known as QEIII. The monthly toll of QEIII comes to $35 billion per month indefinitely, or at least until the unemployment rate hits 6.5%. How long this will continue until unemployment reaches that percentage is a whole other conversation.

Our federal stimulus this year alone will be at $420 billion; an acceptable number, considering the total cost of the federal stimulus since 2008 exceeds $4 trillion. This is probably why the market shrugged off QEIII when it was announced, rather than questioning the necessity of additional stimulus.

No matter how you look at it, QEIII has quite a toll to be accountable for. This $420 billion stimulus is enough to bail out the postal service at a quarterly loss of $1.8 billion for the next 20 years. This year, the total amount of printed QEIII could cover the losses of the USPS until the year 2033. If we assume that QEIII will continue for the next four years, your great grandkids will not have to worry about issues when mailing a letter, all courtesy of the Federal Reserve (any takers on what the federal deficit might look like?).

With this bigger picture now in perspective, it’s easier to understand why the $1.8 billion loss isn’t an immediate concern to Congress, and why it probably won’t be moving forward.  Could it be because the federal government only looks at the bankrupt state of the USPS as only 1.7% of the QEIII toll annually? Possibly. Think of it this way: if the fall of the USPS fails to pose a threat to the financial arena, what will?   More importantly, what will the final toll be when all the dust settles?

Total Protection Within a Stimulus Enviornment

Who would’ve thought the DOW Jones could creep above the 14,000 mark? Does this mean that we’re out of the woods and that our economic woes are behind us? Not likely. The numbers never lie, and across the board, several economic indicators are pointing to the contrary. Numbers on unemployment, gross domestic product, and housing, seem to reflect what constitutes a struggling economy, which is not typical of a 14,000 mark. Yet here we are.

Market optimism is stemming from austerity measures or financial bailouts, which can be argued as presenting an illusion of a healthy economy. Currently, Quantitative Easement III (QEIII) allows the Federal Government to pump $35 billion per month into bonds and mortgage backed securities indefinitely, until the unemployment falls below 6.5%, which is something that is easily several years away from happening. Year to date, since 2008, we have spent well over $4 trillion dollars in federal stimulus. This massive amount of federal spending has been necessary in order to battle the greatest volatility has encountered since the Great Depression. Unfortunately, the only weapon available to battle the challenging market conditions is the Federal Reserve’s printing press. Personally, I feel investors have become complacent in regards to the Federal Stimulus being a status quo to the market; a temporary solution at best. However, the last five years have shown us that this is an unlikely trend.

Throughout our global economy, it is no secret that austerity policies totaling several trillion dollars, has been the saving grace to a global meltdown. The numerous bailout measures, courtesy of the central bank, are the only things keeping the Euro from collapsing. Not surprisingly, there are even more drastic measures (other than government printing presses) being put into place, that contradict every known law of economic prosperity. For example, within the last couple of years, Spain instantaneously “erased” billions of dollars of debt obligations off their balance sheet. This was possible through collateralized debt swaps aimed at bettering their market conditions. Domestically, Freddie [Mac] and Fannie [Mae] still continue to struggle with the housing sector even with continuous support from Quantitative Easement III, and our GDP doesn’t even come close to supporting this recent surge in the market. Does this sound like a financial environment worthy of a 14,000 mark? The writing is on the wall. We are in a financial environment where the rules are literally set in opposition. Whether you are for or against austerity measures is insignificant. This is the reality and it is here to stay. The question is how do you protect against an unrealistic complacency in a struggling economy?

One way to protect your money from anticipated volatility is through a concept known as annual reset. Annual reset is a closely regulated concept that has protected hundreds of billions of dollars from volatility since 2001. This is the only financial concept around that can avoid volatility while locking in a portion of the market upside, year in and year out. Annual reset was first launched in the latter part of the 1990s, and has since evolved into a preferred way of business for some of the top financial institutions nationwide. Investors are warming to this concept after seeing some financial products averaging, and exceeding, a 6% [average] rate of return since 2001. One vehicle that has achieved this rate of return while providing total market protection is an indexed universal life (IUL) insurance policy. These over-funded life insurance contracts come equipped with favorable conditions with respect to cash accumulation. This, paired with annual reset, provides a perfect remedy to an unpredictable economy. Furthermore, if properly structured, IUL can include both tax-deferred growth, as well as tax advantaged withdrawals exempt from federal income taxes.

We know that the Federal Reserve has promised to intervene with aggressive austerity measures in order to avoid another financial collapse. What the final toll will be remains to be seen. I am in the opinion that the more we spend, the more we are obligated to repay. Once again, over the last five years, we have printed over $4 trillion dollars just to offset a financial collapse. This amount is over one-third of what the total US deficit was prior to 2008. I see the federal stimulus continuing for several years to come, which will increase this number substantially. Of course, this will not be without consequence. Today, our highest federal tax bracket is at 35%, which is well below the average marginal tax rate of 63% since 1913. An IUL policy can help protect against the threat of rising income taxes by allowing an investor to withdraw funds in the form of a loan against the cash value, exempting a taxable event on the policy’s gains for life. The loan (principle and interest) only becomes payable upon the death of the insured, with taxes then being paid through the cash value and accelerated death benefit of the policy. This strategy gives the investor piece of mind by ensuring that their quality of life will not be hampered by rising federal income taxes.

It is no secret that austerity measures used today are for short-term solutions only aimed at offsetting another financial collapse. Although the market topping the 14,000 mark on the Dow Jones is quite impressive, the past five years have shown us that this rally is not likely to last. The only way to protect your money with a moderate return exempt from all volatility is through vehicles such as IUL that uses annual reset to bypass all future market downturns. Without putting measures in place to protect your long-term retirement or financial goals, your end result could easily prove to be more unpredictable than our bailout ridden global economy.