How to Keep Your Kids Close Forever

Dec 21, 2020 David Kennon

I’ve harped on beneficiary arrangements in the past, but recently I’ve seen two more messes, and I want to re-emphasize what you need to watch out for.   It is incredible to me.  Someone will spend their entire life working to build up some savings.  They care for it, nurture it, and watch it grow.  But when it comes to deciding who will get the money – the decision lasts about five seconds.   For example:   Mary opens are IRA containing $500,000 of hard-fought savings.  She agonizes about how to invest it correctly.  She interviews several financial planners.  She works hard on a plan that will allow her to live a secure retirement.   When it comes to naming a beneficiary it looks something like this:   Advisor:  “So who do you want this money to go to when you pass away?”   Mary:  “I don’t know, I guess my husband first and then split it between the three kids.”   That’s it.  Thousands of hours creating her life savings.  Five seconds determining who gets the financial efforts of her entire life.   Let’s look at some real stories (obviously names and details are changed).   Story #1   Bill owns a turnip farm in Wisconsin.  He worked the farm his entire life.  Through acquiring adjacent acreage he was able to buy up nearly a thousand acres of land in order to increase his turnip empire.  While the property was worth nearly a million dollars, Bill would never dream of selling- he made a $50,000 turnip profit each year.   What would happen to the farm if he were to pass?  His will dictated that his wife would get the property, and next up were the two sons who would share 50/50.   Bill passes away.  Mom gets the farm.  She wasn’t really sure what to do- as her husband handled the demanding and complex turnip industry.   Suddenly there is some strife in the family.  Son #1 is a responsible parent of two and son #2 loves to spend money.  Son #1 wants to keep the farm in the family and collect the profits.  Son #2 want it sold immediately for a big payday.   So who is caught in the middle?  Their mother.  The stress it causes in the family creates rifts that might never be healed.  And their mother gets stuck being the judge and jury.   Story #2   A widow dies suddenly from a heart attack.  In her later years, she became very close to two specific nieces.  With no kids of her own, she began to think that maybe it would be best if they received the bulk of the money.  They were almost like the daughters to her.  It made her feel warm inside to know that all of her hard work could help make her beloved nieces’ lives easier.   Nobody even plans on dying suddenly.  At her death, her IRA beneficiary arrangements were examined.  The instructions hadn’t been changed in fifteen years.   Half the money went to a local political party and the other half was split among ten extended family members.  Most of whom she hadn’t spoken to in years.   Story #3   Mr. and Mrs. Smith named each other as the primary beneficiaries on their retirement accounts.  Several years later Mrs. Smith passed away.  After a few years, Mr. Smith began dating again and eventually married.  Mr. Smith just defaulted to his new wife as beneficiary on his accounts.  He just didn’t think about it at the time.  He was too in love.   Mr. Smith passed away ten years later.  The new wife got all of Mrs. Smith’s money even with several kids and grandkids in the picture.   Story #4   The parents of two daughters pass away.  On their beneficiary documents, 100% of the money was to go to daughter #1.  Why?  Daughter #2 was terrible with money and according to Mom, “She would spend it in less than a year.”   Her parent’s idea was that daughter #1 could give daughter #2 money slowly, over time.  This way daughter #2 wouldn’t blow the money.   This is a terrible idea.  The reasons are obvious.  At Thanksgiving, one daughter threw a turkey leg at the other.   Would you like it if your sibling could decide when you can get your inheritance?  As an aside, a trust could easily fix this situation.   ——————————————————-   Lastly, I wanted to share an email I received recently from a client.  She gave me permission to share and I hope it reinforces my entire retirement philosophy.   Hi Dave,    I hope you are doing well in the middle of these crazy times.     I’m writing you with a question but first I wanted to thank you for the wonderful advice you gave me to spend and enjoy the money that I have. You’ll be happy to know, I took your advice to heart. After Bob passed away in March of 2019, I decided I would travel somewhere each month. Between April 2019 and April 2020 I traveled to Paris, Copenhagen, Amsterdam, the Maldives, Dubai, California, Texas, New Mexico, Illinois, Michigan, and various places in Florida.   Then things came to a halt with the pandemic. Then for me everything changed drastically when I suffered a compression fracture in my back this summer followed by a diagnosis of multiple myeloma, a cancer of the plasma cells. Needless to say, my life has been turned upside down.   I’m going through treatment now and the doctors at Moffitt say the prognosis is good and people can now live decades with this cancer. I’m so thankful that I followed your advice and enjoyed my money because you never know when life will throw you a curveball.    So, thank you!     Be Blessed,   Dave

 

Why Do Dentists Love Retirees?

Dec 14, 2020 David Kennon

Unexpected Retirement Expenses   Joey and Jane Jenkins, ages 65, decided to retire after over 40 years of work and toil.  While their social security and investment income would more than cover their monthly expenses, they still felt financial anxiety.   “What happens if there is a big one-time expense we weren’t considering?” Jane lamented.  “You never know what might happen. Who knows? I read a frightening article on the internet explaining how many seniors are hit with unexpected expenses.”   Joey agreed.  “Well, I guess we should try to live on a strict budget.  That way we can save as much as possible… just in case. I guess we won’t get to live out some of our dreams in retirement.  We will probably have to watch our friends travel, dine, and spoil their grandkids. But for us? It’s spaghettios and spam for us.”   Joey and Jane fears came true, in a sense.  They ran into nearly every big “unexpected” expense a retiree could face.   Dental care.  Joey never listened to his Mom as a kid and didn’t brush and floss everyday.  At age 74, he needed a root canal and crown, and again at age 82. While Medicare doesn’t cover dental care, there are several options to reduce the cost.   If you have an iffy dental history, you should seriously consider supplemental insurance or a discount dental plan.  I would say teeth are the largest and most common unexpected expense retirees face.   Hearing Aids.  Joey also required a hearing aid at age 74.  While Medicare usually covers a basic pair, the more advanced versions can get up in the $6000 range.   Major Health Event.  At age 83, Jane needed complex surgery to remove some melanomas from her back.  The bill they received in the mail totalled nearly $80,000.   Luckily, as long as you receive Medicare and have purchased a supplement, the maximum out of pocket expense in any given year is $6500.  “That was a close one,” sighed Jane. “I didn’t realize how much Medicare actually covers.” (source)   Prescriptions.  Jane developed rheumatoid arthritis at age 68.  The injections she received each month were extremely expensive.  But, considering Jane was enrolled in both Medicare and an appropriate Medicare supplement, she was only liable for a maximum of $5100 a year out-of-pocket (source).   There are also a myriad of options lower-income retirees can utilize to receive deeply discounted medications. Surprisingly, in my experience, prescription costs are lower in retirement than most expect.   Car Repairs.  Joey and Jane, like most retirees, purchased cars far less often, and put on less miles (after a couple road trips around this beautiful country).  Considering the warranties only lasted five years, Joey was upset when his transmission blew at age 78. While the $3000+ bill wasn’t welcomed, it did not upset their financial lives.   Home Repair.  The Florida weather took a toll on Joey and Jane’s home.  During their retired years they needed to replace the air conditioner twice and get a new roof. The air conditioners cost them $4,000 a piece, and the roof set them back almost $15,000. This is one of the most common one-time expenses I see.   Helping Kids and Grandkids.  Joey and Jane’s third child, Jessica, had a messy divorce, leaving her and their two cherished grandkids in a tough spot.  “Joey,” pleaded Jane, “We need to help them. Maybe we can set aside $1000 a month to keep them on their feet. Maybe they can even move in for a while until things settle.”   While not common, in my professional experience, this can be the most expense “problem” once retired.  But it’s no reason to skimp and live small now. If it happens, it happens, and you adjust.   Some of you may disagree with my prices, as you may have a bigger roof or really bad teeth.  But I’m trying to make a point here. Hopefully as I lay out all the normal “unexpected” expenses, you might start to realize that there are fewer unknowns than you thought.   Beyond this list there isn’t much else to worry about. I’ve consulted with many retirees, and this is a pretty comprehensive list of surprise expenses.   The solution?  I always recommend my clients keep $20,000 to $30,000 in an emergency fund.  Keep the money in the bank and maybe utilize a short term CD or a money market.  This will allow you to absorb these kinds of expenses. So in addition to your portfolio of stocks and bonds, it makes sense to have a bit of a cushion.   You can always take out a little extra from your retirement accounts too.  Generally it doesn’t upset your long-term retirement income plan.   The other option is to finance these expenses as they come, and simply add the payments into your monthly budget.  While not ideal, as long as your monthly spending plan has room, you’re still in the clear.   Be Blessed,   Dave

 

Using Artificial Intelligence to Maximize Investment Returns

Dec 7, 2020 David Kennon

I was in my car the other day when I heard a commercial on the radio that got my attention:   “Most investors took a huge hit with the Coronavirus crash. That pain suffering and financial loss didn’t have to happen, and we’ll show you how with a free demo of VantagePoint. Text the word FREE to 411411 to learn how we’ve applied artificial intelligence to protect your capital so you can navigate and thrive in volatile markets.”   You will hear my extremely emotional response in a moment, but before that I need to point out:  This is a criminal act. They are selling snake oil. They are scamming unsuspecting people.   I heard this on a reputable national station reaching untold numbers of listeners. I’ve heard it several times since.   I don’t know exactly where to begin.   1. If I were to make these kinds of claims I would be stripped of my license. If you are registered with the SEC as a registered investment advisor you can NEVER—never, ever, ever—make claims like this. These yahoos get away with it because of a loophole in the system.  They are not selling “investment advice;” they are selling software.   2. When was the huge crash with the Coronavirus exactly? The market was down a month and a half.   3. “The pain and suffering of financing loss.”  I see this tactic used quite often. These con men feed off of fear. It doesn’t matter if their “medicine” makes it much worse. They don’t care.   4. The part that completely floors me is where they say “We’ve applied artificial intelligence.”  What does that even mean?  It certainly sounds exciting and cutting-edge.  Maybe they do have some sort of algorithm they could use to help smooth out my portfolio, right?   No, they don’t.   Let’s think about this logically. If VantagePoint has this fancy software that will help you make all this money, why are they not using it for themselves? If their “artificial intelligence” can predict the movements of the market, wouldn’t the developers of this software be unfathomably rich?  Why would they offer it to the public? They would be making so much money by “navigating and thriving in volatile markets.”   Next, I went to their website. Front and center was:   “Created by world-renowned trading software pioneer Louis B. Mendelsohn, VantagePoint forecasts Stocks, Futures, Forex, and ETFs with a remarkable proven accuracy of up to 87.4%. Using artificial intelligence, VantagePoint’s patented Neural Network processes predicts changes in market trend direction 1-3 days in advance. With this information, traders can confidently get in and out of trades at the optimal time. With nearly four decades and more than $10 million dollars of research and development invested, VantagePoint helps traders preserve their hard-earned capital and create real wealth.”   This. Makes. Me. FURIOUS.   Making the claim of 87.4% accuracy is ridiculous. Again, I would probably go to jail if I ran around touting these claims. But these guys don’t go to jail. They are only selling software.   They use a “patented Neural Network process!” What could that possibly mean?  I mean, seriously.  It is just a bunch of fancy sounding words strung together.   What is especially sad about these scams are all the unsuspecting investors out there losing all kinds of money day trading using this worthless software. Remember, day trading doesn’t work over the long term.   Testimonials from the site:   Jeff S.   “In 2 months I was able to recoup my investment. I have since paid off my mortgage and car.”    Sam A.   “I started using VantagePoint 6 months ago and my account has tripled!”    By now you clearly understand that this is a scam. I don’t understand how it can be advertised on national radio. I don’t even understand how this is legal.   What is the total cost for the VantagePoint Software system?   A mere $4,900.   Be Blessed,   Dave