Morbid Life Investments

February 11, 2020

Investors have found unique and interesting ways to grow their wealth through numerous investment vehicles. One of the more grotesque investment opportunities is known as life settlements. Not to be confused with Viatical Settlements (policyholders who have less than two years to live), life settlements apply to any individual who wants to sell their insurance policy. Effectively, investors are betting on an insured individual dying sooner rather than later after purchasing their life insurance policy. Purchasing an insurance policy comes with a set of benefits for the insured and purchaser, but the idea of life settlements as a whole is morbid.

Life settlements refer to the sale of life insurance policies to a third party investor to retain the death benefit of the insured. These types of investments are transacted for the purpose of giving the policyholder cash which is valued higher than the surrender value on their contract, but less than the value of their death benefit. In exchange, the investor who purchases the insurance policy reserves the rights to the death benefit when the insured individual dies. In order to maintain the death benefit however, the investor must keep up with the premium payments.

There are multiple reasons why a policyholder may look for an investor to purchase their policy, the most common reason is that the policyholder can no longer afford the premium payments. In some situations they can choose to let the policy lapse or find an investor willing to purchase the insurance. If the policy is not properly valued and the life expectancy of the policyholder is misleading, the investor faces the risk of losing money on their investment. This is where Life Settlement investments turn morbid.

Once the investor purchases the life insurance they take ownership of the policy. The death benefit is dependent on the original policyholder’s death. Therefore, the older the individual, the more valuable the policy. Additionally, the faster an investor can cash in the death benefit, the amount of premium payments they would have made in order to keep the policy alive are reduced. Since the death benefit is more valuable than the surrender value that was used to purchase the policy, it presents itself as a significant return.

Overall, Life Settlement investments are beneficial for the individual receiving the cash on their policy because they are receiving more than what they would have if they surrendered the policy. Granted, they and their beneficiaries lose the rights to the death benefit, but they are no longer required to pay a premium on a life insurance product. It is also beneficial for the agent who transacted the sale of the insurance policy due to high commissions.

On the other hand, it is not always a beneficial investment to make for an investor. If the life expectancy of the policyholder is not reported properly, an investor may be stuck making premium payments for a much longer period than expected. There have been some lawsuits to the effect that brokers were misrepresenting policies to get more people to invest. Another common problem is that hidden fees find their way into the cost of a Life Settlement investment in which a portion of the investment goes towards paying the agent’s commission and other processing fees. Therefore, a policy may be valued at $200,000, but the total investment may cost $275,000 to cover the agent’s commission and other fees associated with the purchase. In many cases, the investor does not know that the extra cost goes towards covering those items. Further, on top of the extra charges, when the investor receives the death benefit from the investment, the money is considered taxable income. Of course, there are ways around having the return taxed as income, such as holding the money in an IRA.

In the end, the risk versus reward of life settlements does not seem to weigh beneficially for the investor, so much as it does for the policyholder and the agent, or firm. Similar to investments in Merchant Cash Advances and Litigation Funding, the process lacks transparency. What’s worse is that investing in life settlements is placing a bet on when the policyholder will die. This increases the risk on the investment and is extremely morbid to say the least. If the policyholder lives longer than expected, the investor could potentially lose money depending on the death benefit payout. Ultimately, life settlements feel more like purchasing real estate that can be flipped once the policyholder dies rather than an investment where the principal grows with interest.

What is a Merchant Cash Advance?

Phil Cannella

February 11, 2020

If you’re a small business owner you probably have been approached or at least have heard of a merchant cash advance. These advances are very popular in the small business community because of the quick access to capital and 48-72 hour turnaround from the advancing company. Specifically, these advances are beneficial for companies in the restaurant industry or food service industry that experience downtimes throughout the year. By having a cash advance it can help them get through slower periods.

A merchant cash advance is a small business loan – although it is not technically considered a loan – which is given to small business owners who have poor credit ratings and need a quick advance. Typically, individuals receiving these advances require the money in order to expand, purchase new equipment, have cash on hand during a slow season, or to make a bid on certain projects. The issue with these types of business loans is the amount of interest that is expected to be paid back on the principal advancement. Another issue is how certain businesses go about collecting payments.

Each lender of merchant cash advances operate by their own rules in terms of the interest rates that they set and how they obtain payment on those advances. That is because there is little to no oversight in the financial community for merchant cash advances, especially in Pennsylvania. According to the State of Pennsylvania’s Department of Banking and Securities, MCAs are considered as payments, not loans. Therefore, they state that no oversight is required unless they are made aware of a predatory issue. There is no federal oversight over MCAs either.

Some states have introduced legislation to provide more transparency in merchant cash advance funding, however, if there is no federal or state oversight, lenders can take advantage of the businesses that receive the advances. This includes charging interest rates in excess of 50% and using mob-like tactics when payment is due. Taking advantage of the businesses using the advances is not a reflection of all companies that provide MCAs, but research should always be done before approaching a cash advance lender.

Typically, lenders get their payment back by taking a portion of the borrowing company’s credit card transactions. This includes the principal on the advance as well as any interest owed – interest is generally set around 30%-40%. Depending on what organization is providing the advance, there may be a benefit to paying back the loan early, but this may vary between companies. In cases where paying off the loan early is not beneficial, interest rates on the loans will adjust for the increase and decrease in sales. Therefore, if a restaurant has a stretch of weeks where they do a considerable amount of business, the interest rate on the MCA will be higher over a shorter period of time. The opposite effect takes place when sales decline. The interest rate decreases as sales decrease and the payments get stretched out over a longer period of time. This ensures that no matter what, the institution that provided the advance is going to get every dollar back on the principal, plus the amount of interest on that loan.

To explain this process further, consider this example. Tom owns a restaurant and applies for a $100,000 cash advance from Capital Advance Group to purchase new equipment, with a rate of 35% interest. 35% interest on a $100,000 advance is $35,000. Therefore, Tom should expect that no matter what, he will be paying back $135,000 out of his business’s credit card transactions over a period of time in order to satisfy the terms of the advance.

These advances have become so popular that investors have taken notice. Some institutions now issue in the form of a debt security, a note for which an investor is guaranteed a certain payout over a 1-3 year period. The money that is invested is then used to provide MCAs to small businesses with the returning payments being used to pay off investors’ monthly interest. Unless those policies are insured, there is no way to protect the investor in the event of the MCA recipient defaulting on the advance. In other words, a system with no regulation, no oversight, and possibly no protection for the parties involved, can become very convoluted.

It is important to keep in mind that whenever making an investment, there needs to be a level of accountability. While some financial groups are responsible in the way that they engage in merchant cash advances, there is a high chance that predatory loan sharks are lurking in the industry. A system with no regulation and no oversight opens the doors for many small businesses to be taken advantage of if they don’t manage their expenses wisely. The same is to be said for investors potentially investing in a product that is knowingly or unknowingly taking advantage of small businesses for their own capital gain.

With any investment, there needs to be a degree of transparency. As long as these advances are not regulated in some fashion to provide oversight to protect the consumer, merchant cash advances pose as more of a risky investment than a rewarding one. If a business has no other avenue to explore and desperately needs capital in order to open their doors, applying for a cash advance is their own prerogative, but on the investor side of the coin it could lead to more harm than good.

Phil Cannella’s Expert Panel Discussion: The Retirement Crisis in America

Phil Cannella

February 11, 2020

Phil Cannella and Joann Small held a panel discussion with The Federal Employee who “Quarterbacked” Quantitative Easing, Andrew Huszar, and former Presidential Advisor and Political Insider, Dick Morris.

They tackled the question, “Is there a retirement crisis in America today?” Find out why this panel of financial experts agree; it’s imperative you protect your retirement savings from the the looming stock market crash.

Iowa Caucus Results

Phil Cannella

February 6, 2020

Results were finally tallied in the Hawkeye State days after the first-in-the-nation Iowa caucuses took place. A faulty software application deployed by the Iowa Democratic Party delayed results for nearly twenty-four hours after the caucuses had ended Monday, February 3rd. By Wednesday, February 5th, only partial results had been released, and two candidates took an early lead. In a statement, DNC Chair Tom Perez demanded that the Iowa State Democratic Party recanvass to ensure accuracy in the vote count. During the following weekend, all the results were tallied and Mayor Pete Buttigieg was declared the winner.

With 100% of the vote being reported, vote totals show Mayor Pete Buttigieg with a slim 0.1% victory over Senator Bernie Sanders. Both candidates have more than 25% of the vote and the only two candidates with double digit delegate totals. Elizabeth Warren earned eight delegates with 18% of the vote and presumed front runner, former Vice-President Joe Biden was awarded six delegates with 15.8% of the vote. Amy Klobuchar received one delegate with 12.3% of the vote in Iowa.

Democratic Candidates	Delegates	State Delegate Equivalents	Percentage of Vote
Pete Buttigieg	14	564	26.2%
Bernie Sanders	12	562	26.1%
Elizabeth Warren	8	388	18%
Joe Biden	6	340	15.8%
Amy Klobuchar	1	264	12.3%

Source: Associated Press

While the candidates on the Democratic ticket calculate total votes in the Iowa caucus, the winner is not necessarily chosen by popular vote. Instead, they use a State Delegate Equivalent, which is based on how candidates perform in each precinct. On the Republican ticket, the incumbent President Trump won handily with 100% of the vote being reported. President Trump captured 39 of the state’s 40 Republican delegates in his first step toward the Republican 2020 nomination.

Republican Candidates	Delegates	Vote Count	Percentage of Vote
Donald J. Trump*	39	31,464	97.1%
Bill Weld	1	426	1.3%
Joe Walsh	0	348	1.1%

Source: Associated Press

Aside from the chaos caused by the Shadow, Inc. app responsible for reporting caucus results, primary season is underway and full-speed ahead for candidates on both tickets. For the Democrats, a total of 1,990 delegates are needed to secure the nomination on the first ballot; a total of 2,376 if the nomination goes to a second ballot. President Trump needs a total of 1,276 delegates to secure the nomination for the Republican party.

Rules in the Democratic primary have been updated to reflect feedback from the 2016 campaign when many voters and party insiders expressed displeasure with the use of superdelegates in the primary – which heavily favored Hillary Clinton’s campaign. This election cycle, superdelegates still exist but they have limited powers. They will no longer vote on the first ballot at the 2020 Democratic Convention unless there are no candidates that secure the majority of pledged delegates – delegates that are awarded in each state primary. A contested convention has not taken place in many years, so the probability of superdelegates casting votes on a second ballot looks unlikely.

Next week, Democrat contenders set their eyes on the New Hampshire primary which is taking place on February 11, 2020. Senator Sanders currently has a commanding lead in New Hampshire polls with former Vice-President Joe Biden and Mayor Pete Buttigieg trailing by 10% or more. There are a total of 24 delegates at stake for the Democrats in New Hampshire, not including superdelegates. President Trump is expected to win the Republican New Hampshire primary with at least 20 of the states 22 Republican delegates.

State of the Union Address

Phil Cannella

February 5, 2020

On the eve of his impeachment acquittal, President Trump stood before both chambers of Congress to deliver his third State of the Union Address. A divided room cheered and jeered the President throughout the speech which touted his administration’s accomplishments during his first term in office. Despite the tension, President Trump delivered his remarks to the American people and touched on important issues for 2020 voters. Several of these issues were pertinent to seniors and those planning for retirement.

One of the issues in particular was that of Social Security. In 2019, a report released by the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund projected that Social Security is on pace to be depleted by the year 2035. At the same time, the report states that the payout for benefits would be reduced to 80% if no action is taken. President Trump exclaimed that Social Security will be protected while extending an olive branch to Democrats willing to work with him on ensuring the solvency of the program. Furthermore, Trump discussed healthcare and the cost of prescription drugs. One of the promises of his 2016 campaign was to reduce the cost of prescription drugs, as well as making healthcare more affordable. Trump made it clear that he was willing to work with bipartisan support to ensure that these two campaign promises are kept.

Another initiative President Trump went on to accentuate was in the medical care industry. By signing an executive order mandating price transparency, Trump believes that this will be more efficient for Americans than larger healthcare reforms. In doing so, he argues, Americans will have access to the care that they need without being blindsided by the cost – a significant benefit for Americans who live on a fixed-income. Trump continued by attacking plans to subsidize medicare for undocumented immigrants, which he claims would drain the system that American seniors desperately rely on for their care.

Early on in the address, President Trump highlighted the success and growth of retirement plans such as 401(k)s and pensions under his administration. Although the effects of the 2019 SECURE Act have yet to be seen, provisions in the new law seek to expand access to retirement plans for working individuals, even those who work part-time. The SECURE Act, which President Trump signed into law as part of a larger appropriations bill, further increased the cap limit on contributions an individual can make when investing in a 401(k) retirement plan.

President Trump further discussed the success of the economy, citing a “blue collar boom” due to renegotiated trade deals, tax cuts, and deregulation. All in all, his speech resonated around the idea that the United States has made a “Great American Comeback,” and the best years have yet to come. Throughout his speech, he made reference to several individuals in the gallery that have been impacted by his administration’s actions during his first term in office. These actions included his administration’s stance on illegal immigration, criminal justice reform, Iranian General Qasem Soleimani, and school choice.
The night was diverted when House Speaker Nancy Pelosi began ripping pages of her copy of the State of the Union Address as President Trump concluded his speech. There is no doubt that President Trump and House Speaker Pelosi have much disdain for each other as the two have had a myriad of contentious encounters since Pelosi regained the speakership in 2019. Pelosi, also known for her active role in the house impeachment of President Trump, stated that her actions were “courteous” adding, “considering the alternative.”

Implications of the SECURE Act

Phil Cannella

January 27, 2020

A new year signals a new course for retirees and their retirement saving plans. As part of the 2020 government appropriations bill, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was signed into law. While the bill does include breakthroughs for some businesses and their employees, there are several setbacks for investments made by retirees.

Arguably, the biggest setback includes the elimination of the Stretch IRA in section 401 of the SECURE Act. Prior rules and regulations permitted the inheritance of an IRA from a deceased account holder to have its contributions distributed over the course of the inheritors life span. Effective December 31, 2019, the SECURE Act now places a ten year cap on inherited IRA’s and mandates that the inheritor withdraw the entirety of the funds by year ten. This could potentially lead to a tax nightmare for inheritors if the language of the trust or IRA is not reflective of the new law. Fortunately, for those who have already inherited an IRA before the law went into effect, the new rules will not apply.

Although the Stretch IRA has been replaced with a ten year rule, not all aspects of the law are detrimental for the retirement investor. Section 107 of the SECURE Act repealed the maximum IRA contribution age of 70 ½ and raised the age to take required minimum distributions to age 72. Seen more as a breakthrough for IRA investments, individuals can continue to contribute to their IRA as well as prolong their RMDs – a significant benefit for individuals 50 or older who saw their IRA contribution cap increased in 2019. Similarly to the changes made to the Stretch IRA, these rules will only impact individuals who did not reach the age of 70 ½ years old in 2019.

Small businesses received benefits from the new law. Starting in 2021, employers will have the opportunity to provide retirement benefits to their employees through a Pooled Employer Plan or PEP. As long as the PEP covers less than 100 employees, or in some cases fewer than 1,000 employees, employers with uncommon business interests will be able to band together to offer their employees retirement plans. This is a reversal of previous legislation that only allowed for closed Multiple Employer Plans and expands the opportunity for small business employees to receive retirement benefits.

The SECURE Act also put into place protections for part-time employees in the form of retirement benefits with a few minor stipulations. As long as the employee has worked a minimum of 500 hours for at least three consecutive years and is of age 21 or older, they are eligible to receive retirement benefits. The downside is that this part of the bill does not go into effect until January of 2021 and the hours accumulated for three consecutive 12 month periods will not be counted until the effective start date; which means part-time employees will not be able to accumulate retirement benefits under this law until 2024.

Changes were made to 401(k) investments as well, however it is yet to be seen how the legislation will impact investments. Currently, the IRS is still assessing how the legislation will specifically impact the inclusion of annuities in 401(k) plans. This also includes whether or not withdrawal rules or fee structures are going to be affected. Further, there are no indications about what types of annuities can be included, nor who makes the decision to include an annuity in a retirement plan. Annuities have been included in some 401(k) plans in the past, but with safe harbour regulations being included in the legislation, the SECURE Act may make it safer and more popular for annuities to be included. What can be seen as a benefit for 401(k) plans is that investors will have the ability to contribute more to their retirement plan due to the cap increase.

Ultimately, the SECURE Act heavily favors insurers, employers and their employees while falling short in protecting legacies typically left in the investments of retirees for their beneficiaries. On the other hand, the language of the law expands access to retirement benefits, which includes increases in investment caps into 401(k) plans, the allowance of PEPs, and the eventual insurance of part-time employees. The elimination of the Stretch IRA has the potential for a major tax nightmare for benefactors despite the burden of taking RMDs being lifted to age 72. Further, as new distributions rules set forth by the IRS plan to be enacted in 2021, holders of IRA accounts must take the time to understand how their retirement plans will be affected. No matter how close individuals are to retirement, this legislation set forth major implications on how investors will save and distribute their money in the future.

Distributions Decrease as Life Expectancy Expands

Phil Cannella

January 14, 2020

The Internal Revenue Service’s proposed updates to their Uniform Lifetime Table are set to change required minimum distributions starting in 2021. In 2018, the Trump administration signed an executive order directing the Treasury Department and IRS to revise their life expectancy and distribution tables. The purpose of this executive order was brought about due to increases in life expectancy among Americans and to ensure that IRA account holders will be able to stretch their benefits longer as seniors are expected to live longer.

Several adjustments have been made to the Uniform Lifetime Table. The first notable change is the increase in distribution factors when taking a required minimum distribution from an IRA retirement plan. In the current table, individuals who reached age 70 ½ during the year of 2019 would have been required to use a divisor of 27.4 years (3.649%) for their distribution. According to the newly proposed table, an individual who reaches the same age would have to use a divisor of 29.1 years (3.436%) for the distribution – an increase of 1.7 years in life expectancy. As seen in the tables, the distribution factors have been increased across the board. The tables also reflect the increase in life expectancy by raising the final age from 115 years old to 120 years old.

Current Lifetime Table for Required Minimum Distribution

AGE	DISTRIBUTION PERIOD	AGE	DISTRIBUTION PERIOD	AGE	DISTRIBUTION PERIOD	AGE	DISTRIBUTION PERIOD
70	27.4	82	17.1	94	9.1	106	4.2
71	26.5	83	16.3	95	8.6	107	3.9
72	25.6	84	15.5	96	8.1	108	3.7
73	24.7	85	14.8	97	7.6	109	3.4
74	23.8	86	14.1	98	7.1	110	3.1
75	22.9	87	13.4	99	6.7	111	2.9
76	22.0	88	12.7	100	6.3	112	2.6
77	21.2	89	12.0	101	5.9	113	2.4
78	20.3	90	11.4	102	5.5	114	2.1
79	19.5	91	10.8	103	5.2	115 and over	1.9
80	18.7	92	10.2	104	4.9
81	17.9	93	9.6	105	4.5

Source: IRS Required Minimum Distribution Worksheet

Proposed Lifetime Table for Required Minimum Distribution

AGE	DISTRIBUTION PERIOD	AGE	DISTRIBUTION PERIOD	AGE	DISTRIBUTION PERIOD
70	29.1	87	14.4	104	4.9
71	28.2	88	13.6	105	4.6
72	27.3	89	12.9	106	4.3
73	26.4	90	12.1	107	4.1
74	25.5	91	11.4	108	3.9
75	24.6	92	10.8	109	3.7
76	23.7	93	10.1	110	3.5
77	22.8	94	9.5	111	3.4
78	21.9	95	8.9	112	3.2
79	21.0	96	8.3	113	3.1
80	20.2	97	7.8	114	3.0
81	19.3	98	7.3	115	2.9
82	18.4	99	6.8	116	2.8
83	17.6	100	6.4	117	2.7
84	16.8	101	5.9	118	2.5
85	16.0	102	5.6	119	2.3
86	15.2	103	5.2	120 and Over	2.0
Source: Federal Register

To put these percentages into numbers, current regulations would mandate that if a 70 ½ year old has $150,000 in their retirement account, their first RMD would amount to $5,474.45. In comparison, if the proposed changes go into effect, a similar individual at age 70 ½ would have to take a minimum of $5,154.64. For the retiree, this means they will take $319.81 less in their first RMD if the proposed changes go into effect. This is a significant benefit for investors who only need to take the minimum distribution, or those who want to ensure that they maintain their benefits throughout retirement.

The IRS explains that to apply the new table, an individual who reaches the age of 70 ½ in 2020 would be required to use the current table for their 2020 distribution, which would be due by April 1st, 2021. For their 2021 distribution and all those that follow, they would be required to use the updated table. In tandem with the proposed changes to the Uniform Lifetime Table, the IRS also made proposals to update the Single Life Expectancy Table.

Beneficiaries of individual retirement accounts will also see changes to their distribution chart if the new table goes into effect. The changes made to the Single Life Expectancy Table and distribution periods were increased similarly to those in the Uniform Lifetime Table. The IRS proposal states that beneficiaries will have their Single Life Expectancy Table distributions reset when making their 2021 distribution. Therefore, when a beneficiary makes a 2020 distribution they will do so using the current life expectancy distribution rate, minus one year. Following their 2020 distribution, the beneficiary will be reset and the new table will be administered.

Current Single Life Expectancy Table	Proposed Single Life Expectancy Table
AGE	Life Expectancy Factor	AGE	Life Expectancy Factor	AGE	Life Expectancy Factor	AGE	Life Expectancy Factor	AGE	Life Expectancy Factor	AGE	Life Expectancy Factor
0	82.4	41	42.7	82	9.1	0	84.5	41	44.7	82	9.9
1	81.6	42	41.7	83	8.6	1	83.7	42	43.8	83	9.2
2	80.6	43	40.7	84	8.1	2	82.7	43	42.8	84	8.6
3	79.7	44	39.8	85	7.6	3	81.7	44	41.8	85	8.1
4	78.7	45	38.8	86	7.1	4	80.8	45	40.9	86	7.5
5	77.7	46	37.9	87	6.7	5	79.8	46	39.9	87	7.0
6	76.7	47	37.0	88	6.3	6	78.8	47	39.0	88	6.6
7	75.8	48	36.0	89	5.9	7	77.8	48	38.0	89	6.1
8	74.8	49	35.1	90	5.5	8	76.8	49	37.1	90	5.7
9	73.8	50	34.2	91	5.2	9	75.8	50	36.1	91	5.3
10	72.8	51	33.3	92	4.9	10	74.8	51	35.2	92	4.9
11	71.8	52	32.3	93	4.6	11	73.8	52	34.3	93	4.6
12	70.8	53	31.4	94	4.3	12	72.8	53	33.3	94	4.2
13	69.9	54	30.5	95	4.1	13	71.9	54	32.4	95	3.9
14	68.9	55	29.6	96	3.8	14	70.9	55	31.5	96	3.7
15	67.9	56	28.7	97	3.6	15	69.9	56	30.6	97	3.4
16	66.9	57	27.9	98	3.4	16	68.9	57	29.7	98	3.2
17	66.0	58	27.0	99	3.1	17	67.9	58	28.8	99	3.0
18	65.0	59	26.1	100	2.9	18	66.9	59	27.9	100	2.8
19	64.0	60	25.2	101	2.7	19	66.0	60	27.1	101	2.6
20	63.0	61	24.4	102	2.5	20	65.0	61	26.2	102	2.5
21	62.1	62	23.5	103	2.3	21	64.0	62	25.3	103	2.3
22	61.1	63	22.7	104	2.1	22	63.0	63	24.5	104	2.2
23	60.1	64	21.8	105	1.9	23	62.0	64	23.6	105	2.1
24	59.1	65	21.0	106	1.7	24	61.1	65	22.8	106	2.1
25	58.2	66	20.2	107	1.5	25	60.1	66	22.0	107	2.1
26	57.2	67	19.4	108	1.4	26	59.1	67	21.2	108	2.0
27	56.2	68	18.6	109	1.2	27	58.2	68	20.4	109	2.0
28	55.3	69	17.8	110	1.1	28	57.2	69	19.5	110	2.0
29	54.3	70	17.0	111+	1.0	29	56.2	70	18.7	111	2.0
30	53.3	71	16.3			30	55.3	71	17.9	112	2.0
31	52.4	72	15.5			31	54.3	72	17.1	113	1.9
32	51.4	73	14.8			32	53.4	73	16.3	114	1.9
33	50.4	74	14.1			33	51.4	74	15.6	115	1.8
34	49.4	75	13.4			34	51.4	75	14.8	116	1.8
35	48.5	76	12.7			35	50.5	76	14.0	117	1.6
36	47.5	77	12.1			36	49.5	77	13.3	118	1.4
37	46.5	78	11.4			37	48.6	78	12.6	119	1.1
38	45.6	79	10.8			38	47.6	79	11.9	120+	1.0
39	44.6	80	10.2			39	46.6	80	11.2
40	43.6	81	9.7			40	45.7	81	10.5
Source: Fidelity Investments Final MRD Regulations: Life Expectancy Table	Source: Federal Register

For beneficiaries, when the new rules go into effect in 2021 for the Single Life Expectancy Table, they will have to recalculate their required minimum distributions. If someone began taking RMDs at age 50 in 2010 the distribution factor they would use in 2020 would be 24.2. When the new rules go into effect in 2021 the beneficiary will have to find the distribution factor for age 50 on the new table, and subtract one for each year that has passed until they reach age 61. Under the old table the distribution factor would be 23.2, however after recalculating using the new table, the distribution factor is 25.1.

Year	Deaths Before 2021	Deaths After 2020
2010	50	34.2	50	36.1
2011	51	33.2	51	35.1
2012	52	32.2	52	34.1
2013	53	31.2	53	33.1
2014	54	30.2	54	32.1
2015	55	29.2	55	31.1
2016	56	28.2	56	30.1
2017	57	27.2	57	29.1
2018	58	26.2	58	28.1
2019	59	25.2	59	27.1
2020	60	24.2	60	26.1
2021	61	23.2	61	25.1

Distributions for benefactors are calculated by first determining whether or not the beneficiaries life span is longer than the deceased account holder using the Single Life Expectancy Table. In this example, the benefactor was age 50 when they started taking RMDs in 2010. Therefore, the benefactor would have used the old distribution table through age 60, or the year 2020. Once the calendar year switched to 2021 and the benefactor turned 61, they would have to calculate what their distributions would have been at age 50 under the new table and subtract one for each year until they reached age 61. Rather than being grandfathered into the new system, all beneficiaries taking RMDs using the Single Life Expectancy Table will have to switch to the rules of the new tables effective January 2021.

Overall, the proposed changes to both the Uniform Lifetime Table and the Single Life Expectancy Table will ease the burden of taking required minimum distributions, especially in the first couple of years. With that being said, the impact of the tables not being grandfathered with the old rules will be a nightmare for individuals taking RMDs and the financial institutions responsible for calculating these distributions. Specifically for those using the Single Life Expectancy Table, the retroactive switch beginning in 2021 causes a significant amount of confusion for anyone who isn’t aware of these changes. Individuals who are currently taking RMDs or close to taking them should meet with an adviser to discuss the specific details changing in their accounts. It should also be noted that the proposed IRS changes may be subject to further review with the passing of the SECURE Act in 2019.

Why Even Wall Street is Predicting a Recession

rminew

November 27, 2019

Economic Uncertainty Sign With Stormy Background and Copy Space — Economic Uncertainty sign against a stormy background with lightning and copy space. Dirty and angled sign adds to the drama.

While Federal Reserve Chairman Jerome Powell believes the U.S. economy is in good shape heading into the 2019 holiday season, top Wall Street firms beg to differ. Powell cited a strong labor market and consistent consumer spending as signs of a healthy economy, although the Fed’s move in October to cut its benchmark interest rate for the third time this year might seem to be at odds with that statement. Wall Street may have picked up on that, because they’re certainly singing a different tune; in fact, an advanced computer analysis of public statements made by companies in the financial sector has revealed Wall Street firms are talking about a recession much more frequently than companies in other industries. So what is it that has them so spooked, and what could it mean for your retirement investing future?

Policy Uncertainty

Potential policy changes are causing investors to feel uncertain about the future, not just in the U.S., but around the world as well. Chief among investor concerns are the outcome of Brexit and the ongoing trade war between the U.S. and China. Public announcements about these events have triggered fluctuations in global markets, and it stands to reason that investors will continue to feel uneasy about these and other upcoming policy changes until world leaders start making some concrete decisions about the future. Wall Street is no doubt picking up on the uncertainty in the air and tempering their expectations for a continuing Bull Market.

Slower Than Expected Economic Growth

Although the U.S. economy continues to grow steadily, it’s failing to measure up to the meteoric rise it experienced post-recession, which could signal a slowdown in the near future. 2019’s third-quarter GDP growth was down slightly from its second-quarter growth and declining business investment could indicate U.S. corporations are tightening their belts in anticipation of future economic troubles. While it’s currently too early to call these numbers an economic slowdown, they may predict a larger overall trend that could mean our seemingly endless Bull Market is reaching its conclusion.

Election Year Uncertainty

As we head into an election year, the stock market is bound to experience a series of shakeups. Election years are always volatile for the stock market, especially if investors anticipate a changing of the guard that could be a precursor to big changes in economic policy. With some candidates espousing a strict regulatory agenda and higher tax rates for the wealthiest Americans, Wall Street’s biggest players are likely starting to get nervous about the outcome of next year’s election. Only time will tell if their fears are well-founded, but for now, it seems they’re sounding the alarm regardless.

Whatever your opinion of Wall Street, there’s no doubt that they follow the economy more closely than almost anyone else in America. If they’re talking more about the possibility of a recession in the near future, it’s probably a good idea to listen up and adjust your retirement planning strategy accordingly. The stock market is always volatile, and those who are in or near retirement may not have the time to recoup their losses if the economy takes a nosedive in the next few years. If you’d like to hear more about alternative investments outside of the stock market that protect your principal in the event of a crash, head over to the Crash Proof Retirement Educational Events page and sign up for the event nearest you!

Tips For Social Security

August 30, 2019

WHAT YOU SHOULD KNOW

How much do you know about social security and its actual “fine print”, as they say? Believe it or not, Americans have a huge misunderstanding as to how Social Security works, from how taxes are collected to overestimating the average monthly benefit.

Let’s start with a bit of history first. Social Security is 84 years old and was signed into law by President Franklin D. Roosevelt in 1935 to help seniors have an income in retirement. It is funded by individuals’ payroll tax contributions.

Today, according to the Social Security Administration, more than 68 million people collected either Social Security, Supplemental Security Income, or both.

Here’s how it works – the longer a person is in the workforce, the larger their monthly benefit will be. And, you only need 10 working years to qualify for the program. That said, there is a big funding problem on the horizon. Program payouts will exceed program income during 2020.

According to a FOX Business article, this year’s Social Security and Medicare Trustees Report showed that in 2035, reserve funds will be extinguished, which is bad news for retirees relying on Social Security for their primary income. At that time, retirees will only get 80% of their benefits.

Trustees are also worried about Medicaid, which is a government program that provides insurance to seniors below the poverty level.

SETTING THE RECORD STRAIGHT

Full retirement age is generally between 65 and 67, but when a person turns 62, they become eligible to receive benefits. However, if you elect to take Social Security income earlier than the full retirement age, what most people don’t realize is that a reduction in benefits occurs by as much as 25 percent.

Here are the numbers:

Age 62 – 25 percent
Age 63 – 20 percent
Age 64 – 13.3 percent

Also, people tend to think they’ll get more income from Social Security than what they’ll actually receive. The average monthly check is $1,408, but according to a reputable insurance institute’s report, the expectation is 28 percent larger, at $1,805.

That’s not too encouraging when the US Bureau of Labor Statistics estimates that Americans age 65 and older spend at least $46,000 a year in retirement – and that’s just for basic living expenses. They’ll get up to 40% of that amount from Social Security. The rest needs to come from retirement savings.

RETIREMENT SAVINGS PLAN

Obviously, you want to start saving as early as possible during your working years and put those savings in a retirement account. But first, it’s best to figure out how much you’ll need during retirement and work backwards to achieve that amount.

So, develop a budget, pay off any debt, look into traditional and Roth IRA’s, contribute to a 401K plan, seek out Crash Proof investments and consider a long-term care strategy.

Plan correctly and wait to take Social Security until your full retirement age. You’ll have more of a chance to enjoy retirement in the same lifestyle as you did in your working years.

Can Money Be Happy or Sad?

Phil Cannella

August 30, 2019

Money rain — Portrait of a very happy young man in a rain of money

MONEY AS ENERGY

Your personality drives your money choices. It sounds weird, but money has energy and it can influence your happiness quotient for better or worse.

In his book “Happy Money: The Japanese Art of Making Peace with Your Money,” personal finance and self-help author Ken Honda splits money into two categories:

Happy Money: Makes you smile and feel lighthearted. This comes from having a positive experience with money. People are joyful when they spend it, for example, like a small child buying an ice cream sundae with allowance money. Or picture a parent saving money for her daughter’s dance lessons. Even donating to a non-profit you care about gets the endorphins flowing.
Sad Money: Fueled by negative emotions such as irritation, annoyance, rage and upset. Think of a huge home maintenance bill, a parking ticket, or even taxes. Nobody likes to pay taxes.

Money can bring a lot of emotions to the surface when you’re actually in-the-moment dealing with money or much, much later when a situation with money triggers an event that happened years ago, such as hoarding money in a bank account or under the mattress because you’re afraid of running out of cash.

The key to money flowing in is appreciating what you already have. “If you appreciate what you have, it opens a door to happiness,” said Honda. “When money comes in or out say ‘thank you’. Remember, an attitude of gratitude is worth a pound in gold.

It’s best to look at money from a holistic viewpoint. Consider your feelings and examine your entire relationship with money to keep its energy high.

A GOOD THING

Did you know that talking about money is a good thing?

What was once considered a social taboo is more and more seen as a necessity. Everything from chatting it up in online communities to old fashioned coffee talk with friends are great ways to get your finances in order.

Talking helps accomplish a big task when it comes to spending and saving – becoming accountable for how you manage money. It’s also a great way to learn about financial topics you always wanted to know but were perhaps, too intimidated to ask, which is the case for some women. That’s why one woman started a movement.

Alicia McElhaney is the founder of SheSpends.org, a website featuring a newsletter, Facebook community, and blog to empower women with financial tools and information.

In an article on CNBC, McElhaney states, “The goal is to get more women to use their financial power.” This applies as much to improving budgeting and retirement planning, as it does to social issues like closing the wage gap between men and women and obtaining board seats.

In either case, SheSpends.org helps women develop relationships by fostering a learning environment for an open and transparent dialog in a safe space.

Sometimes learning from one’s peers is much less formal than dealing with an expert. Experts are great when it comes to financial planning, but there’s value in anecdotal advice woman-to-woman.

We hope we’ve given you a new twist on money – it’s not just an IOU promise to pay by the federal government, it’s what’s behind it that really counts.