$1.6 billion reasons to be careful

Here’s a question? What has a 70% bankruptcy rate with 44% of people spending all the money within 5 years….that’s right “winning the lottery!” National Endowment for Financial Education

Now in the true confessions department, I admit to playing the Powerball or Mega Millions some times when it gets above $200 million. Candidly, I have found myself daydreaming of what I would do with the money if I won. I further justified my lottery purchasing by feeling good that my $4 investment in (2) $2 tickets, ultimately benefits education or charitable causes! Hey, at least it sounds good!!

It’s easy to see why people play because the largest Powerball ever won was $1.6 Billion, which was split 3-ways at $528.8. The largest Mega millions was $656 million for a lump sum pay-out of $474 million. You could do a lot of great things with all that money.

However, I quickly come back down to earth realizing that the odds of winning a jackpot lottery are 1 in 195,249,054, or to quote line from the movie Dumb and Dummier, “what you are saying is that I have a chance?” So with the population over 300 million, you basically have 2/3’s of the entire population competing against you. Lightening hitting me is greater!

Then, it’s starts to get very scary when you realize that 21% of people feel that the only way they can afford to retire is winning the lottery. Or that recent data has suggested that many more people are turning to the Lottery for their financial solutions  Consider this:

The average Lottery regular spends $206 annually, which at:

5%= $36,623.60

7%= $67,870.22

10%= $179,626.92

This is especially enlightening when you consider that roughly half of Americans have nothing saved for retirement, or a Forbes report claiming that roughly 2/3’s of people couldn’t put their hands of $500 for an emergency! So, rather than dropping money on Lottery tickets consistently, consider these sure fire ways to financially get a head:

  • Pay Down credit card debt, you get a guaranteed savings on interest charges
  • Put money in a 401(k) retirement plan, especially if the your employer matches
  • Add money to your mortgage payments against principal to save mortgage interest
  • Invest in a mutual fund or stock dividend reinvestment plan
  • Put the money aside for a rainy day or emergency
  • Donate it to charity and feel good!

Buying lottery tickets once awhile isn’t the end of the world unless you really need the money. It’s a game and it’s about playing for fun, not out of financial necessity. It’s doesn’t solve financial problems because according to the National Endowment for Financial Education, 70% of Lottery winners are right back to where they were 5 years later..that’s not financial security!

THE LIFE INSURANCE RETIREMENT PLAN – REPORT (LIRP)

 

At American Financial Literacy Institute we’re always looking for ways to better educate our people. In particular, we created a report called the Life Insurance Retirement Plan. In this report we compare some of the differences of using life insurance as a retirement planning alternative unlike a traditional 401k or something of this nature. In particular with Life Insurance, we get some benefits that we don’t get in a traditional 4o1k or IRA. In particular, we can have tax free distributions on the back end, meaning that when the money comes out we don’t pay taxes. Unlike a 401k or IRA, we have to pay taxes on the back end, we don’t get a tax deduction upfront, but we do get the ability to have the money grow tax deferred and then have it come out tax free so it could be a really powerful story. The other thing we talk about is how Life Insurance; the investment component of it can be done in an indexing type concept. What do I mean by indexing? In particular, it’s a strategy that allows you to target the SMP 500 or a multi-asset index (there is many different investment options). As you invest in this, you don’t get 100% of the upside, but what you get is none of the downside. Meaning that if the market dropped five or ten percent, you would get zero. We joke and say “zero is your hero”. But over the last ten or fifteen years, this would’ve been a very powerful way for you to invest, protecting yourself, and actually outperforming a traditional buy and hold type strategy. On the back of this report, we explore specific examples of using a $10,000 contribution to your 401k every year, comparing that to a $10,000 contribution to a Life Insurance plan. While you do get a tax savings upfront with the 401k, because you get a tax deduction, when the money is growing in the 401k, you pay taxes coming out. With the Life Insurance example, you don’t get the tax deduction upfront, but what you do get is the money coming out tax-free! This can be a huge difference in the way of returns. In a traditional 401k, using a 7.5% growth rate (Warren Buffet cited from 1950-2011). That money would’ve grown to $268,000, meaning $10,000 a year for 15 years, $150k worth of contributions, at 7.5% would’ve grown to $268,000. And we show you using that how the money in a traditional 401k would come out. You have to pay taxes on that money so we assume a 25% tax bracket coming out with the 401k, and we notice that over that time of getting income. If we do a 30 year time horizon, you basically are going to pay over $150k in taxes while that money has been coming out of your traditional 401k. With the Life Insurance, again, we don’t get that tax deduction upfront, but we get the tax-free distributions on the back end. What that means is the $150k of taxes that you would’ve paid, you don’t pay that with the Life Insurance. The nice thing too is that as it’s coming out of the Life Insurance, it doesn’t effect your social security taxes. Unfortunately, most people don’t realize that potentially much as 50 to 85% of your social security could be taxed in retirement, depending on how much income they make. With the Life Insurance Retirement Plan, you don’t have that. The other thing is that it doesn’t effect your Medicare B Premiums. The last concept that we talked about with the report is taxes. Where are we currently in taxes? You’re not going to believe this, but we are in the lowest tax environments we’ve been in for the last 70-80 years. Most people feel with a budget out of control and the big deficits that we’re facing that taxes have to go up over the long run, so the argument can be made that deferring today to potentially pay taxes down the road at maybe a higher tax bracket isn’t going to make as much sense as you think it is. So if you think that taxes are going to go up, a Life Insurance Retirement Strategy might make more sense to you. It’s our job to educate you as to what is out there, this might be a piece to a portfolio, there are great reasons to have a 401k like potentially a company match. There’s also great reasons to maybe have some money in a Life Insurance Retirement Strategy.

 

 

**ACCESS THE REPORT HERE**
https://aflinstitute.org/wp-content/uploads/2017/10/AFLI-LIRP.pdf

AFLI | UNDERSTANDING YOUR MONEY

 

AFLI’s Mission is empower people to take better control of their financial lives. We do this through educational workshops giving unbiased informative information and ongoing content and materials. According to various studies as many as 90 percent of American’s site financial stress as the number one concern in their lives. In our four building blocks to financial wellness program we focus on understanding your money, solving the insurance maze, investing 101, and retirement planning basics. Block one, understanding your money, focuses on building a sound financial foundation and discusses how to maximize lifetime earnings, the importance of budgeting, managing your debt, having an emergency cash fund, and the power of goal setting and savings. By partnering with companies, organizations, and municipalities, AFLI is committed to reducing financial stress and giving people the tools they need to feel good about making decisions with their money!

 

 

WATCH THE VIDEO: https://www.youtube.com/watch?v=WXIb0S44hag

 

To Request a Block 1 booklet for FREE, please email info@aflinstitute.org

HEALTHCARE: HEART ATTACKS

Heart Attacks

 

Sometimes referred to as the “silent killer,” heart disease is officially the leading cause of death, claiming over 700,000 people a year.  A single EKG’s and MRI can cost over $5,000, hospital stays can average over $20,000, angiograms can be as much as $30,000, and a heart bypass can cost over $70,000. Drugs can be very expensive, not to mention rehabilitation and ongoing maintenance.  The CDC Foundation estimates that we spend over one billion dollars a day treating heart disease and strokes, with one out of every six healthcare dollars spent on heart care.  The U.S. spends more on healthcare than any other country, estimated by CNBC to total over $3.4 trillion dollars a year with an average of over $10,345 per person.

 

Over 155 million people are covered under an employer sponsored heath insurance plan.   However, the Kaiser Family Foundation reported that over 27 million Americans don’t have health insurance, with the Hispanic community making up the largest demographic without insurance.  The leading reason that people don’t have health coverage is that it was unaffordable, and with healthcare costs continue to increase at alarming rates, it will only become more prohibitive.

START NOW

We could go on and on with savings ideas, but starting small, and adding different savings ideas on a regular basis starts to make a big difference.  It’s about taking small steps to reach the bigger goal, and getting a few wins along the way keeps us motivated.
If we make savings a habit, it’s not difficult.  It’s also very important to set realistic financial goals that are achievable, and to make savings simple.  As we touched on earlier, writing down our goals keeps us accountable, and tracks our priorities to get meaningful results.  If we set saving goals that require big results, chances are we will fall short.  I have seen several studies that estimate only 8% percent of people actually achieve their New Year’s goals, because we make them too hard or unrealistic.  If we don’t know how to set reasonable expectations, or to build a goal plan that we can’t sustain financially, a wish list per se, we will fail. Let’s say that we set a goal of having a down payment to buy a house in 1 year, but it’s going to take $12,000.  Rather than focus on the larger dollar amount, break it down into smaller benchmarks along the way to help get this done, such as $1,000 every month
For example, make a goal to save the same amount every month for 12 months, or cut back on (2) monthly expenses, and put that in savings.  Maybe it’s a priority to pay off our debt; simplifying your approach can make it easier, like shrinking an overall debt down by 10% over the next 3 months, or paying off the highest interest rate debt first.  It becomes easier to stay on track, and to review our progress.  Most importantly, when we see that it’s working, it gives us a psychological boost.   The key is to have a plan, stay focused on your goals, implement better financial habits, and manage your money so you can get results!