Study Finds Half of Student Loan Borrowers Worry They'll be In Debt Forever...

Study Finds Half of Student Loan Borrowers Worry They'll be In Debt Forever...


Half of student loan borrowers worry they’ll be in debt forever, study finds.

A recent survey by Fidelity found 40% of graduates would make different decisions about their educations if they could.

  • Graduates’ regrets are mostly financial, Fidelity’s research found.

  • The good news is there are ways, even amid rising costs, to make college costs more doable.

Why volatility shouldn’t scare You

Why volatility shouldn’t scare You

Why volatility shouldn’t scare you — even close to retirement
Market volatility should not stop clients from investing for retirement, writes an expert on CNBC. A market correction "only becomes a real risk if investors act on these feelings, making buy and sell decisions to alleviate mental anguish today at the expense of tomorrow," explains the expert. "For most individual investors, the real risk is not saving enough and not having it grow enough to cover future expenses during retirement."

Traders work on the floor of the New York Stock Exchange (NYSE) during the Pinterest Inc. initial public offering (IPO) in New York, U.S., on Thursday, April 18, 2019. Pinterest's message to investors was don't compare us to social media or a search engine. The outcome Wednesday was that it raised about $1.4 billion in an above-range initial public offering. Photographer: Michael Nagle/Bloomberg

Michael Nagle/Bloomberg

Josh Brown: How to protect your nest egg in volatile times

One of the biggest misunderstandings about investing is the role that volatility plays in your portfolio.

Too much volatility, and you’re likely to panic and make disastrous decisions during the market’s roughest environments. Not enough volatility and you’re probably not taking enough risk to earn the returns you’ll need for later.

It’s counterintuitive to think about volatility as your portfolio’s best friend, but once you switch your mindset over to doing so, you’ll become a much stronger and better equipped investor.

Let’s start with the undeniable, incontrovertible fact: Risk and reward are inextricably linked. This is why stocks have returned almost double what bonds have returned over the last seven decades in the post-WWII era. This is in both nominal and real (adjusted for inflation) terms.

Stock investors are taking more risk of drawdowns and volatility than investors in Treasury bonds, and the market’s way of compensating them for that risk is long-term returns that are substantially higher. But they’re not free. Investors must endure much greater uncertainty in the stock market as the price of this outperformance.

The right portfolio strategy is typically a mixture of enduring uncertainty for high returns and enjoying less uncertainty but lower returns. A financial plan can help you figure out what blend makes the most sense given your long-term goals and short-term needs.

Let’s also consider the fact that Wall Street makes most of its money convincing investors that they can either completely contain risk or even remove it from the equation. This is very difficult to do and most investors who attempt it end up disappointed with the results. Some version of risk must always be endured in the pursuit of returns. Risk cannot be eliminated, it can only be transformed into a different type of risk.

Speaking of risk, one of the biggest problems with the way investors think about volatility is that they equate it with risk. But seeing price fluctuations in the short term only feels like risk. It only becomes a real risk if investors act on these feelings, making buy and sell decisions to alleviate mental anguish today at the expense of tomorrow.

For most individual investors, the real risk is not saving enough and not having it grow enough to cover future expenses during retirement.

If running out of money is the true risk, then anything you do today that reduces your probability of growing your nest egg is causing that risk. This means not having enough exposure to stocks while you’re young, working and able to replace lost income.

The most important lesson I’ve ever been taught is that you’re going to have financial risk regardless, so when do you want it? You want it early, and not late, in your lifetime.

Risk is the source of long-term investment returns. Being able to bear the volatility that so many others can’t sets you up to reap the rewards that risk-averse investors have taken themselves out of the running for, by swinging to cash or fleeing into Treasury bonds or hedging away all of their potential upside.

Don’t take yourself out of the running. Stay in the game and remind yourself why you’re playing in the first place.

3 Ways to Legally Get Limit Your Tax Bill!

3 Ways to Legally Get Limit Your Tax Bill!

Let's face it: Taxes are a drag at any time in life. But in retirement, they can constitute a major strain on your limited financial resources. As such, it pays to find ways to lower your tax burden as a senior, and here are three ways to do it.

1. Save in a Roth IRA or Roth 401(k)

IRAs and 401(k)s come in two main varieties: traditional and Roth. With the former, contributions go in tax-free, and workers get an immediate tax break for funding their accounts. Withdrawals in retirement, however, are taxable.

Roth accounts work the opposite way: Contributions are made with after-tax dollars, so there's no immediate benefit to funding an account. Withdrawals, on the other hand, are taken tax-free in retirement, thereby lowering your taxes at a time in life when you could really use that flexibility.

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If your company offers a 401(k) plan with a Roth savings feature, you can sign up regardless of how much you earn. Roth IRAs, by contrast, prohibit higher earners from making direct contributions, but if your income is too high to fund a Roth IRA directly, you can instead put money into a traditional IRA and then convert it to a Roth after the fact.

2. Invest in municipal bonds

Seniors are generally advised to shift toward more conservative investments as they age, which generally means choosing bonds over stocks (though it's still a good idea to hang on to some stocks during retirement). If you're going to load up on bonds, then choosing municipal bonds over corporate bonds is a good way to keep your taxes to a minimum. That's because the interest you collect from municipal bonds is always exempt from federal taxes, and if you buy municipal bonds issued by your home state, you'll avoid state and local taxes as well. Corporate bond interest, on the other hand, is always taxable.

3. Hold investments for at least a year and a day

Whenever you sell an investment at a price that's higher than what you paid for it, you're liable for capital gains taxes. But the amount of time you hold that investment before unloading it could dictate how much tax you pay for selling it at a profit.

Investments held for a year or less fall into the short-term capital gains category, and the taxes you'll pay on short-term gains mimic those you'll pay on your ordinary income. On the other hand, if you hold your investments for at least a year and a day, you'll be propelled into the long-term capital gains category, and you'll benefit from the lower tax rates associated with it.

Though long-term capital gains tax rates can change from year to year, in 2019, you'll pay nothing if you earn less than $39,375 as a single tax filer. And if your income is above $39,375 but less than $434,550, you'll pay just 15% on long-term capital gains, which is far less than what you'd pay in income taxes for earnings at the high end of that range.

The less tax you're liable for in retirement, the more money you'll have to pay your bills and enjoy your life. Therefore, think about the ways you might reduce your tax burden as a senior well before that milestone arrives, so that once it does, you're well positioned to keep more of your income away from the IRS.

Determining the Right Amount of Protection

Determining how much protection you will need from a life insurance policy can be tricky. There are a number of different factors that go into deciding how much you should be saving. Here is a quick little calculation device that you can use to get a general idea of your current standings.

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This isn’t all though. There is a lot more that goes into determining your retirement planning and our team at Endurance Financial would love to help you set up your strategy. Book a strategy session with us today!

Life Insurance Explained

Life Insurance Explained

When it comes to life insurance, there are many choices. Whole life. Variable universal life. Term. What do these descriptions really mean?

All life insurance policies have two things in common. They guarantee to pay a death benefit to a designated beneficiary after a policyholder dies (although, the guarantee may be waived if the death is a suicide occurring within two years of the policy purchase). All require recurring payments (premiums) to keep the policy in force. Beyond those basics, the differences begin.1

Some life insurance coverage is permanent, some not. Permanent life insurance is designed to cover you for your entire life (not just a portion or “term” of it), and it can become an important element in your retirement planning. Whole life insurance is its most common form.2

Whole life policies accumulate cash value. How does that happen? An insurer directs some of your premium payments into a reserve account and puts those dollars into investments (typically conservative ones). The return on the investments influences the growth of the cash value, which builds up according to a formula the insurer sets.3

A whole life policy’s cash value grows with taxes deferred. After a while, you gain the ability to borrow against that cash value. You can even cancel the policy and receive a surrender value. Premiums on whole life policies, though, are usually higher than premiums on term life policies, and they may rise with time. Also, beneficiaries only receive a death benefit (not the policy’s cash value) when a whole life policyholder dies.2,4

Universal life insurance is whole life insurance with a key difference. Universal life policies also build cash value with taxes deferred, but there is the chance to eventually pay the monthly premiums out of the policy’s investment portion.5

Month by month, some of your premium on a universal life policy gets credited to the cash reserve of the policy. Sooner or later, you may elect to pay premiums out of the cash reserve – so, the policy essentially begins to “pay for itself.” If all goes well, a universal life policy may have a lower net cost than a whole life policy. If the investments chosen by the insurer severely underperform, that can mean a dilemma: the cash reserve of your policy may dwindle and be insufficient to keep paying the premiums. That could mean the cancellation of the policy.5

What about variable life (and variable universal life) policies? Variable life policies are basically whole life or universal life policies with a riskier investment component. In VL and VUL policies, you may direct percentages of the cash reserve into investment sub-accounts managed by the insurer. Assets allocated to the sub-accounts may be put into equity investments of your choice as well as fixed-income investments. If you choose equity investments, you (and the insurer) assume greater risk in exchange for the possibility of greater reward. The performance of the subaccounts cannot be guaranteed. As an effect of this risk exposure, a VUL policy usually has a higher annual cost than a comparable UL policy.6

The performance of the stock market may heavily affect the performance of the subaccounts and the policy premiums. A bull market may mean better growth for the policy’s cash value and lower premiums. A bear market may mean reduced cash value and higher monthly payments to keep the policy going. In the worst-case scenario, the cash value plummets, the insurer hikes the premiums in order to provide the guaranteed death benefit, the premiums become too expensive to pay, and the policy lapses.6

Term life insurance is life insurance that you “rent” rather than own. It provides coverage for a set period (usually 10-30 years). Should you die within that period, your beneficiary will get a death benefit. Typically, the premium payments and death benefit on a term policy are fixed from the start, and the premiums are much lower than those of permanent life policies. When the term of coverage ends, you may be offered the option to renew the coverage for another term or to convert the policy to a form of permanent life insurance.2,7

Term life is cheap, but the tradeoff comes when the term is up. Just as you cannot build up home equity by renting, you cannot build up cash value by “renting” life insurance. When the term of coverage is over, you usually walk away with nothing for the premiums you have paid.7

Which coverage is right for you? Many factors may come into play when deciding which type of life insurance will suit your needs. The best thing to do is to speak with a qualified insurance professional who can help you examine these factors, so you can determine which type of coverage may be appropriate.

Charles West may be reached at 1-919-650-3928 or Charles@EnduranceFinancialOnline.com.

www.EnduranceFinancialOnline.com

Citations.

1 - thebalance.com/does-a-life-insurance-policy-cover-suicide-2645609 [6/5/18]

2 - fool.com/retirement/2017/07/20/term-vs-whole-life-insurance-which-is-best-for-y-2.aspx [7/20/17]

3 - investopedia.com/articles/personal-finance/082114/how-cash-value-builds-life-insurance-policy.asp [4/30/18]

4 - insure.com/life-insurance/cash-value.html [12/12/17]

5 - thebalance.com/what-you-need-to-know-about-universal-life-insurance-2645831 [5/8/18]

6 - insuranceandestates.com/top-10-pros-cons-variable-universal-life-insurance/ [9/1/17]

7 - consumerreports.org/life-insurance/how-to-choose-the-right-amount-of-life-insurance/ [3/30/18]