Get ready! The Medicare Annual Election period begins on October 15th. Every year from October 15 – December 7th people enrolled in Medicare Advantage plans have the right to dis-enroll from their current plan and select a new Medicare Advantage plan. Or, they can return to Original Medicare and purchase a Medicare Supplement plan. This is also a time when Medicare Advantage plans can discontinue their plans in an area, which leaves members searching for health coverage.

This is a VERY busy time for Medicare Supplement producers. We can help. We have access to may of the leading Med Supp plans and can steer you in the right direction.

Are you ready?

You’re probably familiar with the concept of estate equalization. It comes up most often with business owners who have some children who want to run the business and some children who don’t. Estate equalization uses life insurance to provide for those children who won’t be inheriting the business.

The typical product of choice in that scenario is usually Guaranteed Survivorship UL (GSUL). This type of product is used most often with the typical mom and pop shop where the surviving spouse will continue to run the business or the family farm. (ie: the transfer happens on the 2nd death).  GSUL premiums are likely lower than what the cost of separate policies might be and more importantly each of the children will receive their portion of the inheritance when the time is right.

Sometimes, the equalization should occur at the 1st death. In those cases we typically use single coverage for the parent who is in control of the business and the beneficiaries are usually the spouse and the children depending on who is in the business and who is not. Sometimes this can leave a hole in the estate plan when the 2nd death occurs. What if:

• Things haven’t worked out as planned for the heirs
• They want to help grandchildren who weren’t even born yet at the 1st death
• They want to make a charitable donation at that time, when they will no longer have to worry about needing the money

GSUL still has a place in that scenario as it gives the family a 2nd opportunity to put insurance funds to their best possible use. Even if they don’t need an equalization do-over, the money can be used to pay settlement costs, replace wealth lost at the end of mom and dad’s lives, or just to provide a little more inheritance than was expected.

When planning for the future the most important idea is to have OPTIONS. Keep that in mind when planning for estate equalization as even if there is only one parent leaving the business behind, a GSUL policy could give them additional options in the future.

Indexed vs. Variable Annuities

I received this email today from my Genworth Long Term Care rep. I thought it was a good idea to share this with you all as the turmoil in the LTC world continues to confuse and confound us all.

Dear Jeffrey,

Life insurance can help you make certain that the goals you hoped to accomplish for your family or others happens whether you’re alive or not. In order to leave your funds to a specific person, you name them as a beneficiary to your life insurance policy. If you have a trust, you can also name the trust and let it pay for the things you felt were important.

Insurable Interest

When you first apply for a life insurance policy, you name a beneficiary. According to life insurance law, that beneficiary must have an insurable interest. This means, they could suffer a financial loss if you die. Business partners, corporations that depend on your work, family members and life partners all have that type of interest. If you name anyone that doesn’t have an insurable interest, the life insurance company can’t accept it. Once the insurance company issues the policy, however, you can change the named beneficiary to anyone you select, even Rover.

Incontestable

You can’t contest a named beneficiary of a life insurance policy, unlike the heir in a will. The insurance company has an obligation to pay the named beneficiary. Even if the insured wrote his desires elsewhere, such as in a will, or told other people the life insurance company only acts on the written instructions sent to them and pays the person named as beneficiary.

Per Stirpes vs. Equally with Rights of Survivorship

You can divide the life insurance proceeds by percentages or equally when you have several beneficiaries. If you want the family of a deceased beneficiary to have his share of the funds, use a “per stirpes” designation and his share passes to his lineage. The terminology “equally with rights of survivorship” means only the surviving beneficiaries divide the funds.

Bypass Probate

Naming a beneficiary, rather than your estate helps to avoid state inheritance or state estate tax in some states. Some states don’t include life insurance proceeds that go directly to a named beneficiary in the taxable estate. The funds are still subject to federal estate tax, however. Life insurance policies allow you to name one or several primary beneficiaries and secondary beneficiaries. If the primary beneficiary dies before you do; the secondary or contingent beneficiary receives the funds. If you don’t have a beneficiary, the money goes to your estate and becomes a probate asset, taking valuable time before distribution.

Children

If you name children as your beneficiaries, word it correctly and include unborn children as well so you don’t accidently omit a child born later. Be aware that the state in which you reside may not release funds to children until they are the age of majority. Don’t leave the funds to a trusted adult family member and simply hope they’ll use it for the children. The funds become theirs to use in any way they choose. Some states allow you to name a custodian for the funds in your beneficiary designation so the money is available for use when the children are young. The court has to approve the expenditures, however. A life insurance trust with a named trustee directs the use of the money according to your wishes.

Spendthrift Clause and Protection from Creditors

Life insurance companies often write the spendthrift clause automatically into the life insurance beneficiary wording. The clause prevents creditors of the beneficiary from attaching the proceeds by taking legal action to secure the funds. The life insurance proceeds also receive protection from attachment by debtors of the insured. They go directly to the beneficiary, regardless of how much money the insured owes others.

Thanks for everything Melissa!

Often times when we are talking to clients about the idea of a safe guaranteed return in their minds they are comparing this idea to the returns of the market. And when compared the broker uses the typical “the market has averaged close to 10% over the last 30 years” sales pitch. So when comparing the upside potential of an Equity Index product to a 10% market return somehow the Equity Index product loses a bit of its appeal. We have often cited the volatility in the returns as a reason for looking at a Fixed Index product. But in this article by Craig Israelsen we can now have a good resource to discuss why the “sequence of the returns” does matter, especially when most of our clients are accumulating the funds for distribution.

Let me know what you think.

Does the Sequence of Market Returns Matter?

by Craig L. Israelsen

Absent investment chicanery, every portfolio is going to have positive returns at times and negative returns at other times. Does the order of these gains and losses actually matter?

The answer: Sometimes. Here’s why advisors should care.

To understand the impact of the market’s ups and downs, let’s examine the annual performance of 12 different asset classes over a 15-year period from Jan. 1, 1998 to Dec. 31, 2012. These asset classes are shown in two tables – Performance Sequence and Reversed Performance Sequence. They are the same numbers, but one table starts with the earliest performance data and works forward. The other starts with the most recent years and works backward, to highlight the role played by sequence.

The analysis also covers two portfolios: a balanced portfolio of 60% large-cap U.S. stocks and 40% U.S. bonds, and a multi-asset balanced portfolio in which all 12 individual asset classes are weighted equally and rebalanced annually.

The analysis leads to an important conclusion: For a lump sum investment that is allowed to grow undisturbed over a number of years, the sequence of returns does not matter mathematically. But it likely matters to clients prone to emotional reactions, just not in terms of raw math.

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DISTRIBUTION PORTFOLIO

Where the math gets interesting is in the performance differences within a distribution portfolio, in which money is withdrawn each year. For simplicity’s sake, assume the starting balance is $100,000, an initial withdrawal is 5% (or $5,000) and the annual withdrawal increases by 3%. A total of $92,995 is withdrawn over the 15-year period.

When comparing the results for distribution portfolios using the Forward and Reversed performance sequences, the largest differences in the internal rate of return and ending account value are generally associated with assets that have a high standard deviation of return.

This is particularly noticeable in emerging markets stocks and real estate. Within a distribution portfolio, the ending account values differed by almost $30,000, based on the sequence of returns. Negative returns in the initial years of a distribution phase are highly destructive to the portfolio account value. In the case of emerging markets stocks, the better result occurred when using reversed returns because the Forward Performance Sequence had negative results in four of the first five years.

This same phenomenon played out in real estate. The results were better when positive returns occurred in the first several years of the distribution period, as happened for real estate in the Reversed Performance Sequence.

The differences between sequences were less pronounced in fixed income, however. Three of the fixed-income assets (U.S. bonds, TIPS and non-U.S. bonds) had very similar results whether returns were forward or reversed.

Yet cash, interestingly, was quite sensitive to sequence of returns – as shown by the results using the Reversed Performance Sequence, in which the low cash returns in recent years (2009 to 2012) occurred at the beginning of the sequence. These anemic initial returns could not support the portfolio as money was withdrawn each year. When a portfolio is hurt in the early years, it becomes difficult to recover.

SEEKING STABILITY

The 60/40 portfolio and the 12-asset portfolio had very similar results whether returns were forward or reversed, suggesting that both have a return pattern that is more stable – as also shown by their relatively low standard deviation of return. This is a key and perhaps intuitive point: When a portfolio (or single asset class) has a more stable return pattern, its performance is less vulnerable to variation in the sequence of returns.

The overall results of the analysis are shown in the Performance Summary table on page 72. The first section of the table shows the standard deviation for all 12 asset classes as well as for the 60/40 portfolio and the 12-asset portfolio.

The next segment of the table shows the 15-year annualized return for the forward sequence of returns (1998-2012) and the reversed sequence of returns (2012-1998), assuming a lump-sum investment. The returns are identical, as might be expected. The last section of the table shows the results of an additional test: running the withdrawal portfolio (and its various components) through 15 randomized return sequences. The variation in ending account balances was astonishing.

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For large-cap U.S. stocks, the average ending balance was a bit more than $53,000, with a high balance of $96,586 (following large positive returns in the early years) and a low balance of $3,314 (after the initial years were marked by negative returns).

But the differential in U.S. large stocks was pedestrian compared with the differential in ending account value for emerging markets stocks. The average was $159,101, the maximum was $302,426 and the minimum was a loss of $33,925. Obviously, a negative balance is not possible – when an account hits a zero balance, it’s done – but this simulation was allowed to go into the negative to demonstrate how dramatic the difference can be in a distribution portfolio based solely on sequence of returns.

Once again, the fixed-income asset classes had much tighter results because their returns are less volatile and seldom involve negative annual results.

Across 15 simulations the 60/40 portfolio had an average ending balance of nearly $86,000, whereas the multi-asset portfolio had an average ending balance of about $148,000. In fact, the multi-asset portfolio had one of the highest minimum ending account balances in the randomized return sequences.

It proves that the sequence of returns matters when building a distribution portfolio for retirees, in which a client draws money systematically. It’s crucial to a portfolio’s longevity.

Diversification is a key element in stabilizing the sequence of returns, while also producing a level of return that can sustain a retirement portfolio for several decades.

Craig L. Israelsen, Ph.D., is a Financial Planning contributing writer in Springville, Utah, and an associate professor at Brigham Young University.

The times they are a changing. So wrote Bob Dylan back in the 60’s in his iconic song but the words are as relevant today as they were then. Change today means the internet. And the changes happen fast. Social media is the rage today and if you don’t jump in you can get left behind. Many of our reps have been slow to make the move or if they made the move they have just done the minimum. I am here to tell you…the time is now to get involved. Linked In is my most favorite ally and in a business sense has been vital to my networking process and recruitment efforts. If you are not yet a linked-in connection with me then I hope after reading this you will be.

Why Linked-In:

1. An Impressive Membership

Consider the demographics of the average LinkedIn user:

• The average household income is $92,000
• 50% are college graduate (another 30% have attended college)
• 50%+ are decision makers in their companies
• Demographics exceed those of  Wall street Journal in most categories

If you’re looking for a financially qualified prospect you’ve come to the right place.

2. Expand and Enhance Your Networking

Networking has been a staple for most business people throughout the years. LinkedIn doesn’t replace face to face networking but it can enhance it. When I first started getting serious about using LinkedIn I used my offline networking to drive new connections.

After each event I attended I went online to LinkedIn to invite those that I met to connect. This allowed me to add a new dimension to the people I was meeting.

I took it a step further by inviting those that I did not get a chance to speak with to connect as well. This allowed me to connect with someone who attended the event even though we didn’t have a chance to meet or have a conversation. If they never attended another chamber event I still had the opportunity to connect online and then decide if they were someone I wanted to meet offline.

3. Identify Prospects or Potential Employees

Most businesses rely on sales people to develop new prospects. The difference between a failing business and a successful one is often the ability to find and develop new prospects. LinkedIn allows youYou have the ability to search for members that fit specific criteria. If you want to find a Purchasing Manager in AtlantaGeorgia you can search for this specific person. Looking to fill a business development position with software sales experience in Denver, you can identify individuals to target. You can even add keywords to narrow your search for instance if you need someone with Oracle experience.

It gets better. Once you identify the individual that you are looking for you have access to their profile. You can learn a lot by reading a person’s profile. Where did they go to school? Where have they worked in the past? Who recommends them? Who do they recommend?

In the old days you might walk into an office and look at the photos and items on a shelf to get a feel for the person you were meeting to find common ground. Now you can learn a lot before you even meet.

4. See How You Connect Into an Opportunity

Having the ability to conduct research on a prospect is important. Being able to identify how you connect to an opportunity is even more valuable. When you look at a person that is a 2nd or 3rd degree connection LinkedIn shows you the people that connect you to the person. It’s no longer about whom you know; but who do the people you know, know!

You can also choose to connect directly to the prospect or potential employee establishing the beginning of a relationship

You also have the ability to join up to 50 groups. Groups on LinkedIn are usually created based on a single factor that the group members have in common. It could be an industry, a geographic location, a concept, an alumni group, or based on current or former employees of a company. You can leverage memberships in groups to identify and connect to prospects.

5. Identify Companies and Employees

Since introducing their Companies section LinkedIn has continued to make changes to add value. These profiles offer a great resource to identify potential prospects. You can learn a lot about a company reviewing their profile including seeing a list of employees that have LinkedIn profiles. This allows you to identify employees that you can connect to in order to network your way up the ladder to gain access to decision makers.

If your sales or business development people are not utilizing this resource they’re leaving a valuable tool in their toolbox.

Its also a great way to promote your company with the ability to feature products and jobs.

6. Communicate Your Message in a Cost Efficient Manner

Over 90% of the people on LinkedIn utilize a free account. With their account they can contact their direct connections or fellow members directly, they can communicate a message through the “Status Update” feature, they can poll their connections, engage in discussion conversations in groups, and post press releases or news articles in groups. All done at no cost.

You can build your community and communicate with it on a ongoing basis for the simple cost of the time to implement. Talk about a valuable resource in a time of financial constraints.

Getting Started

It all begins with creating an account on LinkedIn and learning the various features and functions. LinkedIn may have 90 million members but only 24% of members are considered active users. This gives you and your sales people an opportunity to establish a foothold while most of your competitors are looking the other way.

LinkedIn has built the community, they’ve provided tools to engage and interact, you simply need to take the first step and invest the time to make it productive.  How are you putting LinkedIn to work for your business?

Those of you who have been to my office know that I have a poster of Martin Luther King Jr. standing in front of the crowd in Washington DC on August 28, 1963. The full text of his “I Have a Dream” speech is written just below his image. For me, it is a true inspiration to hear the vision and courage of the man as he stood up for what was right.

On this 50th anniversary of that day, lets take a moment and reflect on how far we have come, how much farther we need to go and the lessons we can learn along the way.

Here is the speech…enjoy!

“I Have a Dream” – August 28, 1963