Tag: Dying

What’s Your Life Worth?

Posted in UncategorizedTagged , , , , , , Leave a comment

I hate hearing stories about people dying young like Chadwick Boseman, John Candy, Gilda Radner, Pat Tilman, or Kobe Bryant. I could list hundreds of people who died early, including close friends and relatives. Of course, we will all die at some point, hopefully after a long, healthy life.

A common knock on financial planners is that we only want to sell life insurance. There might be some truth to the complaint, but why is it true? One reason planners recommend insurance solutions is because you probably need them, and insurance can turn a horrible situation into a better one. You likely own fire or car insurance, and, hopefully, you never have to use it. You might even insure a TV, computer, or iPhone. If we are quick to insure material things, why not our most valuable asset – ourselves?

In addition to life insurance, owning disability and long-term care insurance can protect your assets for generations. I consider these insurance policies the big three of estate planning.

Life Insurance

Life insurance is a must if you have a family with young children or own a home with a mortgage. Dying is hard, but dying without assets or life insurance to care for your loved ones is even more complicated. Insurance may appear expensive, but it’s cheap relative to the benefit it will provide to those you leave behind.

How much life insurance do you need? At a minimum, you need enough coverage to pay off all your debts. If you’re married, providing financial support for your spouse is recommended. If you have children, then paying for their college with life insurance proceeds is recommended. Let’s look at some numbers.

Let’s say your 30 years old, earning $100,000 per year, married with two kids age three and five, and you own a home with a mortgage balance of $250,000. If you die today, then you would need to provide support to your spouse for thirty-five years. Over a thirty-five-year career, you could earn more than $9 million in income, so the amount of life insurance required today is $1.6 million.

According to Money Guide Pro, the annual tuition for a four-year public college is $26,500, so paying for college for your children will cost $531,432; the amount of insurance needed today is about $255,000.

If we add spousal income, college tuition, and debt, the amount of insurance you need today is $2.105 million. As your assets grow, your children leave the nest, and you eliminate your debt, then the need for life insurance diminishes significantly.

Should you insure a non-working spouse? Yes, of course. Your “non-working” spouse is probably working harder than you are as they raise children, shop for groceries, clean the house, etc. If your non-working spouse died today, you must replace all the services they provide, and it won’t be cheap. Also, emotionally speaking, you might not want to return to work after losing the love of your life.

Disability Insurance

Disability agents are quick to tell you that you only die once, but you can become disabled multiple times. If you’re working, disability insurance is a necessity. Disability insurance provides you and your family monthly income if you become incapacitated. According to Guardian Life, disability insurance costs between 1% to 3% of your annual salary and covers 60% to 80% of your salary.[1] For example, if your income is $100,000, your projected premium costs about $1,000 to $3,000 per year, and your policy will provide an annual income of $60,000 to $80,000.

Long-Term Care Insurance

Long-term care insurance can protect your assets if you enter an assisted living facility or require home healthcare. According to Genworth Financial, the average monthly cost for assisted living last year was $4,300.[2] However, your expenses can climb significantly, and it’s not uncommon for payments to exceed $10,000 per month. According to Money Guide Pro, someone age fifty can expect to spend more than $750,000 for three years in a nursing home if they enter a facility at age 80.

Self-Insure

If you own substantial assets, you can self-insure to care for your family after your gone. After calculating your insurance needs, you can determine if it makes more sense not to purchase commercial insurance and self-insure. However, for a few cents on the dollar, you can protect your family and your assets and transfer the liability to an insurance carrier.

Next Steps

Completing a financial plan can help you determine the exact amount of insurance you need to protect you and your family. Your plan will review your assets, goals, wishes, wants, and needs to assess your situation.

In addition to insurance, don’t forget to create a family will or trust. Your estate documents will help distribute your assets according to your wishes. More importantly, the health care directives will allow your family to discuss your medical situation with your doctors while you’re incapacitated.

Discussing your mortality with loved ones is not easy, but it’s beneficial. Adding insurance to your investment and financial plan will bring peace and comfort to those you love.

Only the good die young. ~ Billy Joel

July 5, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.guardianlife.com/disability-insurance/long-term-disability-insurance-cost

[2] https://www.seniorliving.org/assisted-living/costs/, May 27, 2021, Scott Witt and Jeff Hoyt

Better Off Dead?

Posted in InvestmentsTagged , , , , , Leave a comment

Dr. Daniel Crosby is the author of The Behavioral Investor. In his book he highlights a story about Fidelity Investments and their attempt to identify their best performing retail accounts. They found that the individuals who owned these accounts had forgotten they existed, or the original account owner had passed away.[1] Fidelity was probably looking for an investment theme to duplicate. However, they discovered that these accounts weren’t being traded or tainted by human hands – living or deceased.

He tells of another story from the book Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory written by Greg B. Davies and Arnaud de Servigny. The authors discuss a study about how often people check their investment accounts and their corresponding performance. They found that people who check their account balances daily experienced a loss 41% of the time. Individuals who checked their balances every five years experienced a loss about 12% of the time and those who checked it every 12 years never lost money.[2]

Stocks have never lost money during a rolling 20-year period according to multiple studies. From 1926 to 2018 there have been 74 rolling 20-year periods and stocks have made money 100% of the time.[3] The most recent period, 1998-2018, finished with a positive return. An investment in the SPDR S&P 500 ETF (SPY) on 1/1/1998 generated an average annual return of 7.10% through 1/1/2018. However, during this 20-year period you would’ve experienced significant losses on several occasions. From 2000 to 2002 the market fell 43.07% and in 2008 it dropped 36.81%. As I mentioned, if you checked your balances daily, your chance of a realized loss was high.[4]

It’s hard to ignore your accounts especially if you’re connected to Twitter, Facebook, and other social media sites. Custodians and brokerage firms also have apps allowing you to check your accounts 24/7. Investment firms offer trading alerts and other notices to keep you in the know. It’s a fast-paced world and reacting to headline news stories may wreak havoc to your long-term wealth.

To protect your wealth from irrational reactions turnoff your account alerts and notices. Rather than reviewing your balances daily, try extending it to a month, then three months, and so on. Extending the time frame for reviewing your accounts will reduce your anxiety and potentially increase your returns.

You don’t have to die to generate solid returns. Rather, incorporate a buy and hold investment strategy with a balanced portfolio of low-cost investments. A diversified portfolio of low-cost mutual funds will reduce your dependence to constantly check your accounts. In doing so you’ll be able to enjoy your life while you’re living.

And lead us not into temptation, but deliver us from the evil one. ~ Matthew 6:13

February 11, 2019

Bill Parrott is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

[1] The Behavioral Investor by Daniel Crosby, Ph.D. – Kindle Edition, location 2673, accessed 2/10/19.

[2] Greg B. Davies, Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory (McGraw-Hill, 2012), p. 53. The Behavioral Investor by Daniel Crosby, Ph.D. – Kindle Edition, location 1423, accessed 2/10/19.

[3] Ibbotson® SBBI® 2015 Classic Yearbook

[4] Morningstar Office Hypothetical – SPY, 1/01/1198 to 1/1/2018.

Did You Die Today?

Posted in UncategorizedTagged , , , , , Leave a comment

Few people like to ponder their mortality, but what if you didn’t make it home from work today? Is your estate set up to handle your passing? Is your family? If they walked into your home, would they be able to find your important documents? What would you leave behind? What are your final wishes? A sudden death may leave a lot of unanswered questions.

Now that you’re deceased, your estate is in the hands of a loved one who will become the executor or executrix of your affairs. They now have the task of honoring your wishes and settling your estate, and, depending on the size of your estate, this may take a few months to several years.

First, do you have a will or living trust? These items will make life easier for your loved ones. If you have spent time addressing your wishes in a will or trust, then your administrator will be able to honor them in a timely fashion.

Of course, if you don’t have a will or trust, it will be a headache (nightmare) for your loved ones. They’ll be left to figure out your final wishes – no easy task.  Dying without a will or trust may also expose your estate to a hefty estate tax, today this rate is 40%.

Do you own pets? Pets need to be fed and cared for daily. Do you have a caregiver for your dog or cat? Who will inherit your animals? If you have more exotic pets like horses, birds, or reptiles, then finding a caregiver for these animals may be a bit more challenging.

Have you updated your beneficiary designations? Will your ex-spouse benefit, financially, from your death? Updating your beneficiary data is easy, so spend a few moments reviewing your retirement accounts and life insurance policies to make sure you have the correct loved ones listed. If you die without listed beneficiaries, your assets will flow to your estate.

Do you own life insurance? Is it enough to pay off all your debts? Carrying the necessary amount is prudent and recommended so that your love ones are not saddled with your debt burdens. If you don’t carry life insurance, or need more, purchase a term policy. It will be your cheapest and most efficient insurance option. Credit cards, mortgages, car loans, and other obligations need to be paid off and this can be done with cash or life insurance proceeds.

Have you thought about life after death? Do you use Facebook, Twitter, LinkedIn, Instagram, Snapchat, Match.com, etc.? Your social media accounts will last forever, and forever is a long time. Your estate documents should reflect your social media accounts and passwords, so your administrator can shut them down. This is also true for your email accounts.

Who will notify your friends and family? Establishing a calling tree is recommended to let your loved ones know you’ve passed away. Your contact list should be listed in your estate documents.

Were you in the military? Do you want a military burial? Will your family be eligible for veteran benefits?

Who has access to your house? Do you have a family member or trusted friend who has a spare key? You’ll need someone to retrieve your mail and tend to other household items like cleaning and yardwork. It’s important to continue to receive mail so your administrator can make sure they’re closing all your accounts like cable and utilities. If you don’t have someone close by, your mail can be forwarded to your administrator.

Who will write your obituary? Have you identified a loved one to write your story? Have you written your own? You want to go out on a high note, so pick someone who can make you look great!

Where will you be buried? Will you be buried? You might prefer cremation. In any event, do you have a family plot or resting place for your ashes?

Don’t leave your estate to chance. It’s imperative to spend a few hours addressing your death. Listing assets, wishes, and other important items in your will is imperative. It’s also important to talk to your children, relatives, or friends, about your estate. The more they know about your affairs, the better.

I also recommend leaving a love letter to your friends and family, so that if you died today they’d be able to start the estate process. What is a love letter? It’s a letter for your loved ones to let them know where your important documents are located and instructions on who to contact for help and guidance. It should be kept in an area where it can be easily found.

I pray you live a long, happy, healthy life free of strife and challenges, so you don’t have to deal with this morbid topic for many moons. Regardless of when you will die, it makes sense to let your loved ones know that you have a plan in place for your passing.

And the dust returns to the earth as it was, and the spirit returns to God who gave it. ~ Ecclesiastes 12:7

10/4/18

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

Handbreadth.

Posted in UncategorizedTagged , , , , , Leave a comment

A handbreadth is a unit of measure about the width of your palm, or 4 inches.  It’s also a measure of time as referenced in the Bible –  You have made my days a mere handbreadth; the span of my years is as nothing before you ~ Psalm 39:5. Meaning our time here on earth is short.

The Dash is an amazing poem written by Linda Ellis.[1]  She writes about how we live our lives between our birth and death dates which is represented by the dash.  Have you ever paid attention to tombstones? If you have, you’ve probably noticed that the dashes are all the same size – short.

My church recently held their annual men’s retreat and I asked my group if they could name their great-grandparents, most couldn’t.  So not only will we be gone but we’ll also be forgotten.

Knowing your time is limited, what can you do today to create a legacy?   Here are a few ideas:

  • A financial plan can help you define your legacy by aligning your investments to your goals.
  • Establishing a Donor Advised Fund (DAF) will allow you to contribute cash or assets to your account and then distribute your donations as you see fit. You’ll be able to deduct your contributions from your taxes.  The deposit is irrevocable, but you’ll be able to invest the assets inside the fund and you can control your distributions.
  • Create a private foundation to fund causes you support. You’ll need to establish a 501c3 organization which may be expensive and time consuming, but it may be worth the effort especially if you have the financial resources.   Some of the larger private foundations are the Bill & Melinda Gates Foundation, Ford Foundation and The Robert Wood Johnson Foundation.
  • Donate directly to your favorite organization such as your alma mater, museum, library, zoo or hospital. Your contribution, depending on the size, may also get your name on a building.
  • Legacies go beyond monetary gifts, of course, so donating your time might be a better option for you and your family. A good friend of mine has volunteered his time to read the Bible to a group of tenth grade boys. He’s been meeting with them ever since they were in the sixth grade.  He’s creating a legacy by giving these young men a solid foundation.
  • Using your professional talents to help others may pay dividends. Young people who are starting their career can benefit from a strong mentor. A good place to start is to take an inventory of your strengths to find out where you can serve best.
  • Procrastination is the enemy of wealth creation so start saving your money today. An investor who invests $1,000 monthly will see their money grow to $1.2 million after 30 years.  If he waited ten years to start, his account value would be worth $520,000, a difference of $680,000![2]  The sooner you start investing the more money you’ll have to fund your philanthropic efforts.

A popular Chinese proverb says that the best time to plant a tree was 20 years ago.  The second-best time is now.   If you’ve been waiting to start (fill in the blank) __________, I’d encourage you to do it today.  After all, were just a mere handbreadth.

“Goodbye Hobbes. Thanks…for everything…” ~ Calvin 

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

3/6/2018

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.

 

 

 

[1] https://www.linda-ellis.com/the-dash-the-dash-poem-by-linda-ellis-.html

[2] $1,000 per month at 7%, before taxes and fees.