FINANCIAL PLANNING 101
Courtesy of Milan J. Torres, CFP ® , CRPC ® Financial Planner
Lincoln Financial Advisors Corp. 18400 Von Karman Avenue, Suite 550 Irvine, CA 92612 949-623-1764
Milan Torres@LFG.com www.MilanTorres.com
MISCONCEPTIONS ABOUT LIFE INSURANCE Why Too Many People End Up With Bad Policies
ife insurance is an important piece of financial planning, but I often find that it’s one of the most misunderstood. There’s no question that insurance
companies provide valuable services that all of us need in case of an emergency, and life insurance is no exception. The problem is that insurance companies also don’t have a fiduciary responsibility to do what’s in the best interest of their clients. They market aggressively, and if you don’t do your homework, you can end up with a policy that doesn’t make sense for you. Life insurance comes in two major categories: term and permanent. There are many subtypes under the permanent umbrella, including whole life, permanent, variable, and universal. Regardless of the specific type, many people promote permanent insurance as an investment. These policies come with a cash value benefit that looks like an attractive way to make some extra money. But when you take a hard look at the numbers, a different picture emerges. For example, let’s take a look at a permanent life policy that costs $500 per month and carries a death benefit of $750,000. Of the $500 you pay, one-third goes to your insurance, one-third goes to fees, and the final third goes to the cash value. This final third will grow at a steady rate, but it will never be enough to justify the third you lose in fees. Too many clients I talk to are saddled with these old policies that are providing them with little benefit at all. A much simpler and easier way to grow this money is to buy term life insurance for a third of the cost and invest the remaining two thirds
yourself. The advantages of this alternative are numerous. First, you get to invest your money in the same way as the permanent life insurance policy would have, but at a lower overall cost . Second, your investments will be more liquid, and you won’t need to worry about preserving your cash value to pay for premiums down the road. On top of all of this, you can convert almost any term policy to a permanent if it makes sense at a later point in your life. Now, there are a few situations where permanent life insurance is a better option. Here are three scenarios that are pretty common: 1. You’re an older couple who relies on Social Security benefits and are invested purely in the death benefit.
Everyone’s situation is different, but in general, these cases are the exception, not the rule.
If you’re reading this and feeling the hairs on your neck stand up, don’t panic. Even if you’re currently in a policy that makes little sense, there are ways to alter your strategy. As many couples age, they find they don’t even need life insurance at all anymore. The best way to move forward is to give me a call and talk about a plan that makes sense for you, your family, and future generations. Life insurance may be complicated, and there’s no denying that talking about unexpected death is scary. If you plan analytically and crunch some numbers, though, you can demystify this overwhelming concept.
2. You have a pension and are employing a strategy to maximize its value.
– Milan Torres
3. You have a huge estate and want to avoid probate and taxes.
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TIPS FOR BUYING A CAR DURING RETIREMENT
aybe your decades-old car finally bit the dust. Maybe your ride got totaled by a teenager on a smartphone. Or
Third, could you just pay cash? Most of us don’t have buckets of the stuff lying around, but you can always tap into an IRA or other account for the money to buy a car. Try to do half in December and half in January to split the tax penalty between two years. You could also sell off two cars and use the money they generate to buy one, which will cut down on other car-related expenses as well. The last question is, what are the hidden costs? Maintenance and repairs are just par for the course, but they don’t tell you that as you age, your insurance premiums could go up, especially after that texting teenager T-boned you. Your retirement planner should have a big-picture idea of what you should plan and watch out for when you buy a car.
maybe you just want a new set of wheels. There are a lot of reasons why you may find yourself looking to buy a car, and there are a lot of questions to answer before you do. The first question is, did you plan for this expense? The average American buys a new car every seven to 10 years, so if you plan on 20 years of retirement, you need to factor in at least two car purchases during that time — and possibly more. The second question is the biggest one: Where’s the money going to come from? Most people, including most retired people, will finance their new car and trade in the old one. This is a good option for people with steady retirement income, such as those drawing a pension. But it might be harder to get a loan if your income is less consistent, say, if you liquidate investment assets every month to pay the bills. If you’ve been planning for retirement for any substantial period of time, you know that the market fluctuates. No matter how smartly you invest, everyone is susceptible to the overall trends in the market. Capitalism, by its very nature, is not a static economic system. We’d all like for the market to grow year over year, but that’s just not how things work out. Because of this, you need to alter your investment mix in accordance with the market in order to meet your goals. As we’ve said in this newsletter before, if you’re not updating your retirement planning, you’re not planning at all. Every aspect of your plan is subject to change based on your investment mix, the current stage of your life, and the overall shape of the market. Maintaining proper ratios of financial products within your portfolio is crucial for limiting risk. As you near retirement, you probably want to move into more conservative investments because you’ll have less time to recover from any losses. All of this advice, though, rings hollow
ALTER YOUR GOALS AS THE MARKET CHANGES Financial Planning Isn’t a Static Target
if it isn’t refracted through the state of the market in a given year.
capitalism is cyclical. For every boom, there is a bust. Looking at the investment world through rose-colored glasses will only lead to disappointment when markets slow down. Luckily, no matter how the market is doing, there is a strategy to meet your needs. Adaptability and regular communication with your financial planner are the best ways to make sure your plan will achieve your retirement goals.
If the market is booming, you may want to stretch your legs a little and move into more aggressive options. These bull periods, however, don’t last forever. You should be in constant contact with your financial planner to ensure that you are never overexposed. When times are good, it’s easy to think growth will last forever. But
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Best and Worst IPOs of All Time Some Companies Soar, Others Tank
Starbucks The Seattle coffee giant is perhaps the best example of what an IPO can do for a growing company. If Starbucks hadn’t gained the infusion of capital that comes with going public, it would’ve taken a lot longer to put outposts in every American neighborhood. Groupon Often, a company’s success is based on the larger market environment. When Groupon launched in November 2008, American consumers dealing with a financial crisis were hungry for discounts. As a result, Groupon flourished. Groupon was so successful that it rejected a takeover bid by Google in 2010. When the company went public a year later, it seemed THE WORST:
The decision to go public is a turning point for many companies. An IPO signifies the end of one chapter for a company and the beginning of another. The advantages in terms of raising capital are clear, but some companies end up jumping the gun and ruining their momentum. Being publicly traded comes with a lot of added pressure and a mandate to keep shareholders happy. Sometimes, a company hits a home run with their IPO. Other times, they strike out. Amazon.com Jeff Bezos’ company had already begun to change the nature of retail when it went public in May of 1997. Investors didn’t have a hard time believing that Amazon was the future and jumped at the chance to acquire stock. The company grew 1,000 percent in four quarters, setting records at the time. THE BEST:
like a savvy move. Groupon went public at $20 per share. Just over a year later, it was trading at a quarter of that price, and hasn’t neared that initial price since. Pets.com There’s nothing like the spotlight of public trading to reveal less-than-profitable practices. You might remember the Pets.com sock-puppet mascot and advertising in the late ’90s and early 2000s. By all appearances, Pets.com was on fire. Turns out, they were actually closer to setting money on fire. The regulatory filings that are required for public companies revealed that Pets.com was spending money much faster than any company could sustain. Just 268 days after offering public shares, Pets.com was in liquidation.
The Best Steakhouse in Orange County A perfectly cooked steak and glass of red wine is a timeless pairing. There’s no better place to experience this particular pleasure in Orange County than at Vaca in Costa Mesa. When a restaurant takes its name from the Spanish word for cow, you can probably guess beef will be the featured attraction, but that is just one facet of Vaca’s extensive, authentic Spanish menu. From the first order of tapas to the last bite of postres, Vaca will transport you across the Atlantic. From the moment you open the wine and cocktail list, Chef Amar Santana’s vision is clear. Vaca is an ode to Spanish cuisine and dining culture without concession or compromise, and it’s all the better for it. Rather than a globe-spanning wine list, Vaca’s dives deep into Spanish wines, with a focus on cava, albarino, and tempranillo. The variety of the latter is particularly impressive, including multiple selections from the renowned wineries Bodegas R. Lopez de Heredia and Pingus. The menu is equally staggering, with more options than you could explore in multiple visits. There are more than two dozen tapas, including delicious croquetas de bacalao (cod fritters) and lamb meatballs that will disappear from your table. There are also menu
sections devoted to jamon (think Spanish prosciutto), cheese, and paella. It’s hard, though, not to order one of the many steaks available. All are exceptional, but the beef rib steak — aged for over 50 days — is otherworldly. For many restaurants, being the best steakhouse in Orange County would be enough. But for Vaca, it’s just one of many ambitions, and it delivers in spades.
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FINANCIAL PLANNING 101
Courtesy of Milan J. Torres, CFP ® , CRPC ® Financial Planner
Milan Torres@LFG.com • www.MilanTorres.com • 949-623-1764
Lincoln Financial Advisors Corp. 18400 Von Karman Avenue, Suite 550 Irvine, CA 92612 California Insurance License #0H1958 4
This Issue Misconceptions About Life Insurance Tips for Buying a Car During Retirement Alter Your Goals as the Market Changes Best and Worst IPOs of All Time The Best Steakhouse in Orange County The Origins of Fear
1. 2. 3. 4.
Milan J. Torres is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors, a broker-dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. CRN1722031-022817. WHICH FEARS ARE INSTINCTUAL,
and Which Are Learned?
Where does fear come from? As the jack-o’- lanterns show their grinning, glowing faces and skeletons, cobwebs, and gravestones adorn yards around the neighborhood, it’s a question hanging in many of our minds. When you recoil from the giant mechanical spider suspended above your neighbor’s garage, is that fear instinctual, or is it learned? Many people, spurred on by evolutionary psychology, believe that the fear of creepy crawlies, particularly spiders and snakes, is innate. Certainly, spiders and snakes are among the most common phobias in the world. But research shows that, though humans and apes may be predisposed to easily develop a fear of these poisonous animals, the fears are just that — learned. In a 2016 study, babies were presented with videos of snakes and other animals like elephants, paired with either a fearful or happy auditory track, measuring the babies’
physiological responses when the videos were interrupted by a startling flash of light. Though babies were more interested in the snakes, they weren’t more startled, indicating a lack of fear. According to the Association for Psychological Science, there are only two fears we inherit at birth: the fear of falling and the fear of loud sounds. A 1960 study, conducted by psychologists Gibson and Walk for Cornell University, sought to investigate depth perception in human and animal species. They suspended a sheet of transparent plexiglass about four feet off the ground and covered one half of it with a checkerboard-pattern cloth, creating a simulated cliff. Infants, both human and animal, were then encouraged by their caregivers, usually their mothers, to crawl off the “cliff” onto the clear half of the platform. Animals and humans alike avoided stepping over what they perceived as a sharp drop, and pre-crawling-age infants
showed heightened cardiac distress on the “suspended” side.
Coupled with this innate fear of plummeting to the ground is something called the Moro reflex, one of several involuntary reflexes healthy newborn infants have at birth. Often called the “startle reflex,” it occurs when a baby is startled by a loud sound or movement, especially a falling motion. The reflex usually triggers the newborn to lift and spread their arms as if grasping for support, followed by crying. Though the Moro reflex usually disappears at around 5 to 6 months of age, our instinctive aversion to sudden loud noises stays with us throughout our lives.
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