9 Things You Need To Know About Life Insurance

August 15, 2018
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A quick look at the different types of policies.  

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.

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.

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.  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.    

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. 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 cancellation of the policy.     

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.

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.

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.

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.

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 professional who can help you examine these factors, so you can determine which type of coverage may be appropriate.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

Watch for These Insurance Blind Spots


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There are some incidents that standard policies may not cover.  

No insurance policy will protect you from everything. Even the most comprehensive umbrella liability policy has shortcomings. A good auto, homeowner, or renter policy will insure you against what the carrier believes to be common threats. There are other risks, however, that you might need to address.

Earthquakes. A typical homeowner policy offers no earthquake protection, and that can present a serious coverage gap in certain states.

Floods. In some regions, houses may be more at risk for flood damage than their owners believe. Last year, tens of thousands of Southeast Texas homeowners discovered just how vulnerable they were in the wake of Hurricane Harvey – neighborhoods well inland were inundated. Just 12% of U.S. homeowners have flood insurance coverage, which the average homeowners policy does not provide.

Sewage backups. The main sewer system in your city is the city’s responsibility – but the pipes that reach from the main sewer system in the street onto your property are your responsibility. If something goes wrong with those pipes, your homeowner policy probably will not cover any property damage. The good news is, you can get sewer backup insurance. 

Home business damage or mishaps. Are you a solopreneur with a home-based business venture? Are you a lawyer or therapist who hosts clients in a home office? You should realize that regular homeowners insurance usually won’t cover business-related liability and neither will the normal umbrella liability policy. At the very least, you need commercial liability insurance, which addresses risks your business venture may face inside and outside of your residence. It can cover property damage (to your home or another home you or your employees visit on business) and bodily injury claims. Commercial property insurance can cover business equipment you have at your house. A standard business owner’s policy includes both commercial property and commercial liability coverage.

An accident or theft involving a vehicle you lease. If a car you are leasing is stolen or totaled, there is a good chance that your auto insurance provider will not reimburse you for the full amount of your lease agreement. (This could also be the case for a vehicle you have bought with financing.) How can you mitigate this risk? You can purchase gap insurance from the auto insurance company you have a relationship with, the dealership, or a lender. This coverage can fill in the gap in value between the full lease or loan amount and how much the vehicle was worth at the time of the incident.

Disabilities. If you ever become disabled to the point where you cannot work, your income will disappear. You may end up spending your whole emergency fund and selling assets to make ends meet. Disability insurance focuses on this risk. Yes, some employers offer workers in high-risk occupations disability insurance coverage – but when paid out, those benefits may prove less than adequate.

Has this article made you think about certain things? Perhaps it has. Fundamental insurance coverage is often far ranging, but the above risks to your business, your home, your cars, and your income may need to be addressed with supplemental coverage. Ask an insurance professional about it, today.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

Can The Right Insurance Save Your Retirement?


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The right coverage might help to insulate you against a money crisis. 

Most people begin insuring themselves when they marry or start a family. They buy coverage in response to two potential calamities – disability during their working years, and death.

Somewhere between youth and death comes retirement, and in retirement, the role of insurance is often downplayed. Does a retired multimillionaire really need a life insurance policy? Now that he or she is not working, what is the point of having disability coverage?

Make no mistake, insurance can play a vital role in retirement planning. It may help to keep a retiree household financially afloat in a money crisis. It can also be used creatively to address other financial concerns.

What can life insurance do for a retiree before he or she dies? Many permanent life insurance policies accumulate cash value over time. Potentially, that cash value could be tapped to pay off medical expenses, education debt, mortgage debt, or debts owed by a business. It could fund a buy-sell agreement. It could go into an investment vehicle that could later pay out income. While the death benefit of a policy may be reduced as a consequence, the trade-off may be worth it for the policyholder.

What else can life insurance do for a retiree household? It can help the kids. Sometimes a retired dad or mom is 20-30 years older than his or her spouse, and the kids are minors. If the older spouse dies, the death benefit can help to provide for these minor children, who could have special needs.  There is also the matter of income replacement, even in retirement. When a retiree receiving a pension dies, the surviving spouse may subsequently get far less pension income. A life insurance death benefit may help to make up for it. In another scenario, a widowed spouse may elect to live on a life insurance policy’s lump sum death benefit for a year or two, as an alternative to drawing down tax-advantaged retirement savings accounts.

How about disability insurance? In some households, one spouse retires, but another spouse keeps working well into his or her sixties and earns a large income. A couple or family would definitely miss that income if it went away. Keeping disability insurance coverage may be very wise in such instances.

Long-term care coverage is expensive, but not compared to the cost of eldercare. Imagine paying for a semi-private room in a nursing home. Outrageous? Financially speaking, that kind of expense could break the back of a retiree household. Medicare and disability insurance will not absorb the cost – one that could deplete a retiree’s entire savings, with the next step being Medicaid or turning to adult children (who will be retired or approaching retirement themselves). When eldercare is needed, the daily benefit from long-term care coverage can feel invaluable. That benefit can also fund home health care and assisted living services.  

Liability insurance may come in handy. In certain states (such as California), retirement accounts are not protected against creditor lawsuits. So if a judgment against a retiree in one of those states is large enough, retirement account assets may be seized to satisfy it if liability limits on an auto or homeowner policy are too low. This is why an umbrella liability policy may have merit for some retirees.

Insurance should not be a “missing piece” in your retirement plan. You may need life, disability, long-term care, or liability coverage more than you think.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

What Determines Car Insurance Rates?

August 3, 2018
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Driver history is just one factor; there are many others.

 Your auto insurance payment is not just based on your driving history. Assorted variables come into play that have nothing to do with your accident record or your experience behind the wheel.

Where you live counts. If you reside in a congested big-city neighborhood with an unyielding traffic stream, that could push your premium higher. Certainly, the accident threat is greater there than in a rural area. In addition, high-density neighborhoods may see more vandalism, break-ins, and auto theft than lower-density communities – plus, more car insurance fraud schemes.

The vehicle you drive factors into the calculation. Yes, a luxury car will commonly cost more to insure than an economy car, but vehicle price is not the only factor. Certain makes and models are stolen more than others: the Honda Civic, the Nissan Altima, and the Toyota Camry are prime targets for auto thieves. If you drive a 4×4 SUV, the insurer may factor in some off-road use, even if you just want to drive it to work, the beach, and the mall. Engine horsepower could also affect your rates.

If you own a home, your auto insurance premium might be less than that of a renter. Renters are perceived to have more trouble with their household finances than homeowners. Whether this is true or not, the status of being a homeowner is a positive element in auto insurance rate calculation.

Are you married? That is a plus when it comes to auto insurance rates, because some insurers think married people lead less risky lives than single people. This belief was reinforced when the National Institutes of Health released a study that concluded that single people were twice as likely as married people to get into car accidents. Like it or not, this presumption affects rates.

If you are an older male, your rates might be the lowest. A Consumer Federation of America white paper looked at the rates set by some companies and found that older men (at least in ten cities) paid less than older women. On the other hand, younger men are thought to be the most reckless drivers (and drivers from that demographic are most often the drivers in fatal wrecks).

Bad credit can mean higher premiums. It can elevate premiums even more than an accident in some states. In three states, this does not apply: California, Hawaii, and Massachusetts. All three bar insurance carriers from hiking auto insurance rates due to personal credit histories.

Your job (and how you commute to work) may matter. If you drive a long way to and from work, that is a negative factor. If you commute during peak hours or between 12:00-2:00am, that can be another negative factor.

Insurers run these variables through their own refined algorithms. This is another reason car insurance rates vary so much from carrier to carrier. Compare and contrast and shop around, for one company may give more weight to some factors than others – and the savings found through thorough shopping could be significant.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

Travel Insurance – What You May Want To Know


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Soon you’ll be on your way, taking that trip you’ve looked forward to for ages, but suppose something happens. If you get sick, lose your suitcase, or have to cut your trip short, will any of your existing insurance policies cover your expenses or reimburse you for your losses? If not, you might want to purchase travel insurance – available from insurance companies, travel agents, tour operators and cruise lines.

If you can’t make it after all or have to cut it short — trip cancellation/interruption insurance
You’re ready to go, but the cruise line has gone under financially. Or perhaps you’ve arrived at your hotel only to be handed a telegram informing you that Uncle George is seriously ill and you must return home immediately. If your trip is canceled or cut short, will you be able to get any of your money back?

Trip cancellation/interruption insurance protects you if you must cancel your travel plans before you leave or cut your trip short due to an unforeseen event. Covered contingencies can include bad weather, the financial failure of a service provider such as a cruise line or a travel agency, your illness or that of a family member while on the trip, or an illness or death at home. But coverage varies widely from policy to policy, so check the exclusion section carefully. Your definition of an unforeseen event may differ from that of the insurance provider. For example, some companies don’t recognize a recurrence of your pre-existing medical condition as unforeseeable.

Under the policy, you’ll be reimbursed for your nonrefundable prepaid expenses, such as tour deposits, airline tickets  or hotel rooms. To determine what the insurance covers, you may need to check the terms of your travel agreements and find out what guarantees are offered by the carrier, travel agent, or tour operator. Cruise lines, for instance, may refund most of your money if you cancel several weeks before your scheduled departure, but they’ll give you less or none back if you cancel a few days before you’re supposed to leave. In that case, you’d get nothing back unless you purchased trip cancellation/interruption insurance.

Trip cancellation/interruption insurance is different from cancellation waivers offered by cruise lines and tour operators. These waivers are not insurance; they’re simply company guarantees that your money will be refunded under certain circumstances. They usually won’t cover your last-minute cancellation and they won’t protect you if the company goes out of business.

If that fever isn’t just excitement—short-term supplemental health insurance
Your individual or group health insurance policy typically covers you if you’re traveling within the United States. Still, it’s a good idea to check with your insurance provider before you travel so that you fully understand the coverage conditions. If you’re traveling overseas, beware–your health insurance policy may not cover you at all. Even if it does, it may not provide the same benefits overseas that it does in the United States. Check the limitations of your policy carefully, and call your insurer’s customer service department if you have questions. If your health insurance doesn’t provide you with adequate coverage while you’re traveling, consider purchasing a short-term supplemental health insurance policy from an insurance company, travel agent, tour operator, or cruise line. These policies often combine accident and/or sickness coverage with medical evacuation coverage, which pays all or part of the cost of getting you back to the United States if you’re traveling overseas (something most basic health insurance polices won’t cover). The terms of supplemental health policies vary widely, so before purchasing this insurance, ask to see a copy of the policy and get the answers to the following questions:

  • Does the plan pay the cost of medical care needed for sickness, accidents, or both?
  • What procedures must you follow to see a doctor or go to the hospital?
  • Will you have to get approval before you receive care?
  • Does the policy pay for care upfront, or will you have to pay and wait to be reimbursed?
  • What are the deductible, co-payments, and/or coinsurance costs?
  • What exclusions and restrictions apply?
  • What is the maximum amount of coverage under the policy?
  • Are translator services available?

If you lose your shirt—baggage insurance
Baggage insurance reimburses you if your personal belongings are lost, stolen, or damaged while you’re traveling. Before you purchase it, however, find out if you already have adequate protection. For instance, airlines may be liable for damage caused by their negligence, and they’re liable for lost or stolen baggage after check-in, up to their stated limit per passenger. Some credit card companies and travel agents also provide supplemental baggage insurance at no charge to you. Your homeowners or renters policy may protect your personal belongings against theft when you travel, as well.

Purchasing baggage insurance may be appropriate when you want 24-hour protection, not just protection after your bags are checked in with an airline. Baggage insurance may also offer higher liability limits than those offered by an airline. However, check the policy’s fine print. If you carry expensive items, you may not be fully reimbursed if they’re lost or stolen, and benefit limits may apply to certain items like electronics (e.g., laptop computers) or jewelry. You also may not be reimbursed for anything covered under another policy; if your bags are lost or damaged by an airline, you may need to seek reimbursement from the airline first.

If you lose more than that–accidental death and dismemberment insurance
Accidental death and dismemberment insurance (AD & D) is inexpensive coverage that compensates you if you lose a limb or an eye, or that compensates your beneficiary if you die in an accident. You can purchase this coverage as a separate policy, as a rider to an existing policy, or as part of a travel insurance policy. You may also receive this coverage as a “free” benefit when you purchase airline, train, or bus tickets using your credit card. AD & D policies usually cover, up to certain limits, medical expenses associated with an accident. Before you purchase this coverage, make sure you don’t have duplicate coverage elsewhere. You may already have AD & D coverage if you have adequate life insurance, or through a group insurance plan sponsored by your employer or credit card company.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

The New Gradual Retirement

July 25, 2018
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Working a little (or a lot) after 60 may become the norm.

Do we really want to retire at 65? Not according to the latest annual retirement survey from the Transamerica Center for Retirement Studies which gauges the outlook of American workers. It found that 51% of us plan to work part-time once retired. Moreover, 64% of workers 60 and older wanted to work at least a little after 65 and 18% had no intention of retiring.   

Are financial needs shaping these responses? Not entirely. While 61% of all those polled in the Transamerica survey cited income and employer-sponsored health benefits as major reasons to stay employed in the “third act” of life, 34% of respondents said they wanted to keep working because they enjoy their occupation or like the social and mental engagement of the workplace.

It seems “retirement” and “work” are no longer mutually exclusive. Not all of us have sufficiently large retirement nest eggs, so we strive to stay employed – to let our savings compound a little more, and to leave us with fewer years of retirement to fund.  We want to keep working into our mid-sixties because of two other realities as well. If you are a baby boomer and you retire before age 66 (or 67, in the case of those born 1960 and later), your monthly Social Security benefits will be smaller than if you had worked until full retirement age. Additionally, we can qualify for Medicare at age 65.

How much control will we have over our retirement transition? In the Transamerica survey, 41% of respondents saw themselves making a gradual entry into retirement, shifting from full-time employment to part-time employment or another kind of work in their sixties. Is that thinking realistic? It may or may not be. A recent Gallup survey of retirees found that 67% had left the workforce before age 65; just 18% had managed to work longer. Recent research from the Employee Benefit Retirement Institute fielded roughly the same results: 14% of retirees kept working after 65 and about half had been forced to stop working earlier than they planned due to layoffs, health issues or eldercare responsibilities.

If you do want to make a gradual retirement transition, what might help you do it? First of all, work on maintaining your health. The second priority: maintain and enhance your skill set, so that your prospects for employment in your sixties are not reduced by separation from the latest technologies. Keep networking. Think about Plan B: if you are unable to continue working in your chosen career even part-time, what prospects might you have for creating income through financial decisions, self-employment or in other lines of work? How can you reduce your monthly expenses?

Easing out of work & into retirement may be the new normal. Pessimistic analysts contend that many baby boomers will not be able to keep working past 65, no matter their aspirations. They may be wrong – just as this active, ambitious generation has changed America, it may also change the definition of retirement.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

 

Retirement Questions That Have Nothing to Do With Money


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Think about these matters before you leave work for the last time.

Retirement planning is not entirely financial. Your degree of happiness in your “second act” may depend on some factors you cannot quantify. Here are a few of those factors we’ve seen come up as well as the questions they may end up provoking in your mind. 

Where will you live? This is a major factor in retirement happiness. If you can surround yourself with family members and friends whose company you enjoy, in a community where you can maintain old friendships and meet new people with similar interests or life experience that is a an advantage. If all this can occur in a walkable community with good mass transit and senior services, all the better. Moving away from the life you know to a spread-out, car-dependent suburb where anonymity seems more prevalent than community may be a bad idea. 

How will you get around in your eighties and nineties? The actuaries at Social Security project that a quarter of today’s 65-year-olds will live to age 90. Some will live longer. Say you find yourself in that group. What kind of car would you want to drive at 85 or 90? At what age would you cease driving? Lastly, if you do stop driving, who would you count on to help you go where you want to go and get out in the world?

What will you do with your time? Retirement is not about leaving your old life behind, it is about enhancing the life you have created. It is about writing a new chapter in your life, informed by wisdom and experience. What will that chapter look like? What narrative will unfold for you?  Too many people retire without any idea of what their retirement will look like. They leave work, and they cannot figure out what to do with themselves, so they grow restless. Certainly, you do not want this to happen to you.  If your life, identity, and social circle revolves around your work, then maybe you should ignore any received wisdom that tells you to retire at a certain age and keep working. On the other hand, if you have goals and passions in mind that you need to pursue – dreams you need to fulfill away from your career or business – then you definitely have the “raw material” to write that next chapter in your life story and retire with purpose.    

How will you keep up your home? At a younger age, you can tackle that bathroom remodel or backyard upgrade yourself. As you age, you will probably outsource projects of that sort, whether or not you stay in your current home. Regardless of the size of your retirement residence, you will probably need to fund minor or major repairs, and you may need to find reliable and affordable sources for gardening or landscaping.                  

Will your relationships with family and friends change? Should you move nearer to your children or other relatives? If you have grandchildren, what kind of role do you anticipate playing in their lives? Your significant other may spend more of each day with you than he or she has in years; that may be welcome, or it may take some adjustment.

These are the non-financial retirement questions that no pre-retiree should dismiss. Think about them as you plan and invest for the future.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110. 

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

 

Will Baby Boomers Ever Truly Retire?  


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Many may keep working out of interest rather than need. 

Baby boomers realize that their retirements may not unfold like those of their parents. It’s suggested that perceptions of retirement have changed for this generation. A majority of boomers expect to work in their sixties and seventies, and that expectation may reflect their desire for engagement rather than any economic desperation.

Instead of an “endless Saturday,” the future may include some 8-to-5. When heads of U.S. households were asked how they envisioned retirement only a few respondents felt their retirements would be work-free. A slight majority said they would probably work in some context in the next act of their lives, possibly at a different type of job; and a few even said they had no intention to retire at all.

Debts aside, some people just like to work. Those presently on the job expect to stay in the workforce longer than their parents did.

How many boomers will manage to work past 65? This is one of the major unknowns in retirement planning today. We are watching a reasonably healthy generation age into seniority, one that can access more knowledge about being healthy than ever before – yet obesity rates have climbed even as advances have been made in treating so many illnesses.  Working past 65 probably means easing into part-time work – and not every employer permits such transitions for full-time employees. The federal government now has a training program in which FTE’s can make such a transition while training new workers and some larger companies do allow phased retirements, but this is not exactly the norm. Working less than a 40-hour week may also negatively impact a worker’s retirement account and employer-sponsored health care coverage.

Boomers who work after 65 may have to keep an eye on Medicare and Social Security. They will qualify for Medicare Part A (hospital coverage) at 65, but could consider signing up for Part B (doctor visits) within the appropriate enrollment window and either a Part C plan or Medigap coverage plus Medicare Part D.

Believe it or not, company size also influences when Medicare coverage starts for some 65-year-olds. Medicare will become the primary insurance for employees at firms with less than 20 workers when they turn 65, even if that company sponsors a health plan. At firms with 20 or more workers, the workplace health plan takes precedence over Medicare coverage, with 65-year-olds maintaining their eligibility for that employer-sponsored health coverage provided they work sufficient hours. Boomers who work for these larger employers may sign up for Part A and then enroll in Part B and optionally a Part C plan or Part D with Medigap coverage within eight months of retiring – they do not have to wait for the next open enrollment period. 

Are boomers really the retiring type? Given the amazing accomplishments and vitality of the baby boom generation, a wave of boomers working past 65 seems more like a probability than a possibility. Life is still exciting; there is so much more to be done.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

Mind Over Money

July 11, 2018
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Emotion often drives our financial decisions, even when logic should.

When we go to the grocery store, we seldom shop on logic alone. We may not even buy on price. We buy one type of yogurt over another because of brand loyalty, or because one brand has more appealing packaging than another. We buy five bananas because they are on sale for 29 cents this week – the bargain is right there; why not seize the opportunity? We pick up that gourmet ice cream that everyone gets – if everyone buys it, it must be a winner.  As casual and arbitrary as these decisions may be, they are remarkably like the decisions many investors make in the financial markets.

A degree of emotion also factors into many of our financial choices. There is even a discipline devoted to how our emotions affect our financial decisions: behavioral finance. Examples of emotionally driven financial behaviors are all around us, especially in the investment markets.

Behavior #1: Believing future performance relates to past performance. In truth, there is no relation. If an investment yields 8-10% for six consecutive years that does not mean it will yield 8-10% next year. Still, we may be lulled into expecting such performance – how can you go wrong with such a “rock solid” investment? In behavioral finance, this is called recency bias. Bullish investors tend to harbor it, and it may lead to irrational exuberance.  Similarly, investors adjust risk tolerance in light of past performance. If their portfolio returned spectacularly last year, they may be tempted to accept more risk this year. If they took major losses in the equity markets last year, they may become very risk-averse and get out of equities. Both behaviors assume the future will be like the past, when the future is really unknown.

Behavior #2: Investing on familiarity. Familiarity bias encourages you to make investment or consumer choices that are “friendly” and comfortable to you, even when they may be illogical. You go with what you know, without investigating what you don’t know or looking at other options. Another example of familiarity bias is when you invest in a company or a sector largely because you are attracted to or familiar with its “story” – its history, its reputation.

Behavior #3: Ignoring negative trends. This is known as the ostrich effect. We can ignore the reality of a correction or a bear market; we can ignore the fact that our credit card debt is increasing. Studies suggest that investors check in on their portfolios with less frequency during market slumps – they would rather not know the degree of damage.  

Behavior #4: Wanting decisions to pay off now. Patience tends to be a virtue in both equity investing and real estate investing, but we may suffer from hyperbolic discounting – a bias in which we want a quick payoff today rather than an even larger one that might result someday if we buy and hold. 

Behavior #5: Falling for a decoy. When given a third consumer choice, instead of two consumer choices, we may choose a different product than we originally would, and perhaps make a choice we would not have otherwise considered. Once, an ad in The Economist offered three kinds of subscriptions: $59 for online only, $159 for print only, and $159 for online + print. The $159 print-only option was an illustration of the decoy effect – the choice existed seemingly just to make the $159 online + print option look like a better deal.

Behavior #6: Seeing patterns where none exist. This is called the clustering illusion. You see it in casinos where a slot machine pays out twice an hour, and people line up to play that “lucky” machine, which has, in fact, just paid out randomly. Some investors fall prey to it in the markets.

Behavior #7: Following the herd. The more consumers or investors that subscribe to a particular belief, the greater the chance of other consumers or investors to join the herd, or “jump on the bandwagon,” for good or bad. This is the bandwagon effect. 

Behavior #8: Buying the amount of something that we are marketed. In our minds, we believe that there is an optimal amount of something per purchase. This is called unit bias, and when marketing suggests the ideal amount should be larger, we buy more of that product or service.

There are dozens of biases we may harbor, temporarily or regularly, all subjects of study in the discipline of behavioral finance. Recognizing them may help us to become a better consumer, and even a better investor.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

 

Beware of Emotions Affecting Your Money Decisions


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Today’s impulsive moves could breed tomorrow’s regrets.

When emotions and money intersect, the effects can be financially injurious. Emotions can cause us to overreact – or not act at all when we should.     

Think of the investors who always respond to sudden Wall Street volatility. That emotional response may not be warranted, and they may come to regret it.  In a typical market year, Wall Street can see big waves of volatility. This year, it has been easy to forget that truth. Daily retreats of this magnitude have been seen before, will be seen again, and should be taken in stride.

Fear and anxiety can also cause stubbornness. Some people have looked at money one way all their lives. Others have always seen investing from one perspective. Then, something happens that does not mesh with their outlook or perspective. In the face of such an event, they refuse to change or admit that their opinion may be wrong. To lose faith in their entrenched point of view would make them feel uneasy or lost. So, they doggedly cling to that point of view and do things the same way as they always have, even though it no longer makes any sense for their financial present or future. In this case, emotion is simply overriding logic.

What about those who treat revolving debt nonchalantly? Some people treat a credit card purchase like a cash purchase – or worse yet, they adopt a psychology in which buying something with a credit card feels like they are “getting it for free.” A kind of euphoria can set in: they have that dining room set or that ATV in their possession now; they can deal with paying it off tomorrow. This blissful ignorance (or dismissal) of the real cost of borrowing can dig a household deeper and deeper into debt, to the point where drawing down savings may be the only way to wipe it out.

How about those who put off important financial decisions? Postponing a retirement or estate planning decision does not always reflect caution or contemplation. Sometimes, it reflects a lack of knowledge or confidence. Worry and fear are the emotions clouding the picture. What clears things up? What makes these decisions easier? Communication with professionals. When the investor or saver recognizes a lack of understanding, shares his or her need to know with a financial professional, and asks for assistance, certainty can replace ambiguity. Emotions can keep people from doing the right things with their money – or lead them to keep doing the wrong things. As you save, invest, and plan for your future, try to let logic rule. Years from now, you may be thankful you did.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”