Mac’s Blog

Two New Jersey hunters go hunting. After a while, one of the hunters clutches his throat and falls to the ground, his eyes roll back, and he’s lying there motionless. The other one picks up a cell phone, dials 911, and says, “I think my friend is dead! I don’t know what to do!” And the operator says, “Just relax. Calm down. The first thing to do is to make certain your friend is dead.” There’s a pause — then a gunshot. And the hunter gets back on the phone and says, “Okay. Now what?”

Certificates of Deposit (CD) are debt instruments issued through banks or credit unions.  Most CDs, but not all, are insured by the FDIC or NCUA which is their principal value for most CD holders.  Standard CDs normally earn interest at stated amount and terms at a stated frequency (monthly, quarterly or annually).  If the CD is issued by a bank and insured by the Federal Deposit Insurance Corporation (FDIC) or from a qualified credit union protected by National Credit Union Administration (NCUA) there is no credit risk as with money market certificates as long, as you stay within the deposit insurance guarantees.  Only bank accounts and Treasury bonds share the FDIC valuable feature of government protection.

As mentioned in this blog previously, CDs (Certificates of Deposit) do have a place in investment planning and development but should be limited to a temporary parking place for assets in transition or short term CDs for FDIC protection of assets marked for liquidity.

The principal value of CD investment is that most or under the protection of FDIC, but for this protection there is a price to pay which may be quite heavy with long term CD investment.  CD’s have traditionally provided lower increases in value, interest rates, than other investments except regular saving account.  At the end of 2009, banks offering standard CDs at higher rates offered 1 year CDs at an average interest rate of 1.614% and 5 year CDs at an average of 2.804%.  But this low interest rate is not the significant disadvantage or penalty of CDs used long term.

First and foremost penalty of using CDs as a long term investment are the tax consequents.  CDs are not tax efficient unless placed in a tax-deferred account.  Interest on CDs maintained in taxable accounts is taxed as ordinary income for federal income tax when received (added to the CD principal).  This means that once the interest is paid, regardless of where the CD is or if it is rolled, income tax is due.  Other tax may be added based on state of location.  This tax, of course, reduces the actual rate of return compared to assets invested with tax deferred investments or accounts, such as annuities.

A less obvious penalty is inflation risk!  While you are guaranteed to be paid back principle plus interest there is no guarantee that future value will be worth as much as present value.  Because of traditional low interest rates, high income tax rates for most investors and inflation risk most CDs return negative asset growth.

Currently, FDIC or NCUA provides protection for amounts up to $250,000 within a particular institution unless it is labeled correctly such as POD (Payable on Death) labeling.  Most institutions will help with correct labeling if asked or information is available from FDIC Insurance Electronic Deposit Insurance Estimator (EDIE).  Banks and Credit Unions do fail an over the last year there have been even a larger number of failures so it is critical to take these rules seriously.  Even if offered slightly higher rates it is not worth the risk of forgoing these valuable government guarantees.  If you have a large sum to invest and you desire to maintain it in CDs, you should investigate private CDARS services which automatically distributes your money (up to $50 Million) across a large number of instaurations.

Hubert W. McMinn Jr.

[Addition information and/or help is available from Hubert McMinn; please email hmcminn@plannedassets.com or additional planning information and help may be found at www.plannedassets.com]

As we move quickly toward the New Year, Tax Planning will change; several issues to be aware of : 

1. Estate Tax is supposed to terminate on January 1, 2010 whether it does or does not is open to debate and will most likely be continued by the Democratic Congress using a bill retroactive to January 1, 2010.  However, the Estate Tax’s demise was to do away with one significant favorable tax provision.
   1. Step up in basis for property passed due to death will terminate and Capital Gains will then be based on the original property cost.  This will cause significant problems for long held family property.
2. On January 1, the Generation-Skipping Tax will terminate.  But will Congress leave it alone?
3. Does any one believe that All Tax Rate will not be increased in 2011?  2010 may be the last year for the current lower rates.
4. So far there has been no attack on Roth IRAs and 2010 allows individuals with Adjusted Gross Income above $100,000 to convert from traditional IRAs and other qualified plans to a Roth and then pay the tax over a 2 year period.  At present this is a benefit having limited life and may not be renewed now or made available ever allowed again.
5. AMT; is not indexed for inflation and in previous years law makers have provided some help to mitigate this problem.  So far there is no such fix and millions of taxpayers will fall prey to this parallel tax system.
6. With the Obama proposed increased levy on capital-gains and dividend tax rates, current planning is required.
7. Deferring income has been profitable for many especially those in higher tax brackets.  Deferring past 2010 may not be a good idea give the potential for much higher taxes.  However, were possible delaying deductions you might be able to take in 2009-2010 might be more valuable in 2011.
8. Some Bush era tax cuts have not phase out yet but will soon.  One; reduction in value of itemized deductions for individual in higher tax brackets,  has progressively reduced and higher-income individuals now may take full advantage of itemized deductions and exemptions without facing this reduction.  This benefit will end after 2010 and the tax will be back to full force.

After 2010 election we may see draconian tax-reform (Change) impacting not just those above $250,000 but all of us either through direct taxes or indirect taxes.  Each tax payer must be aware of change taking place and just because the change doe not currently affect you don’t think it will not later on, directly or indirectly.

Hubert McMinn Jr.

Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area. To better understand how to develop a better retirement foundation, contact Hubert McMinn by email at  hmcminn@plannedassets.com  or  for retirement planning ideas and concepts, visit him at: www.plannedassets.com.

Like most, I often receive faxed unsolicited information concerning Health Insurance and offers to provide my family coverage.  No matter what I do, I can only get these fax or email stopped for a short while and then they start again.  Since I am in the insurance business and provide my clients with individually designed coverage, I sometimes request additional information concerning these offers. 

Never have these been offers for Major Medical insurance or significant health coverage to be counted on for any significant illness or major accident.  Most advertisement is discount or limited benefit plans purported to provide more coverage than they really do. Generally these advertisements will not address themselves as “insurance” unless regulated by a State Insurance Agency, which most are not. 

If a fax or an internet advertisement appears interesting and you make the call, your first question should be is this product regulated by my State Board of Insurance and the second, is this a Major Medical product?  If the product is not regulated by your State Board of Insurance, hang up.  Obtaining this type coverage puts you at risk with no real legal support.  Discount plans are not insurance, are not regulated by any State Board of Insurance and generally not effective when you most need them, if they work at all. 

On the other hand, if you receive an advertisement like I did the other day from “Reformed Health Care Plans” it may turn out to be a limited benefit plan.  When I ask, I was told the product was regulated by the Texas State Board of Insurance, which I doubt because the ad did not meet specific requirements of the Texas State Board for advertisements of this type and they would not/could not tell me who underwrites the product.  At this point I should have hung up and reported the ad, but I was interested because the “Summary of Benefits” looked so good.  Remembering that if it looks too good to be true it normally isn’t and it is always to expensive in the end, I got as much detail as the telemarketer could provide.  

The product had/has the same cost for all, based on number in family.  For a family of 4 it was $580 or $420 per month with a $125 application fee.  Based on premium the product covers either 90% or 80% to maximum benefit of $7,500 per incident.  No deductibles but a series of co-pays and like I have already said, a very interesting list of benefits.  If the product met requirement of a legal and honest offer and is in fact regulated by the Texas State Board of Insurance, at best it might be a very interesting but very expensive supplement to the Major Medical policy I have. 

My point: Every State has a State Board of Insurance or an agency that over sees all insurance; most agencies, like the Texas Board are very easy to work with and welcome email or phone calls.  Consult with your agency or a qualified agent before making a decision you most likely will regret. 

Hubert W. McMinn Jr.

For additional information or questions, email hmcminn@plannedassets.com.

Titling of a CD may affect how much of the CD is actually insured.  Titling these supposed simple investments can be misunderstood when selecting owner and beneficiary.

If you are parking assets in a CD or any other bank account; given the state of the economy and what has happen to several banks over the past year it may be a very good idea to actually become familiar with the meaning of FDIC insurance.  A reasonable amount of information may be found at www.fdic.gov and is quite readable. 

The current maximum amount of insurance for an individual titled ownership category is $250,000.  This limit has now been extended to 2013.  At expiration of this extension, insurance coverage could quickly revert back to $100,000, be further extended at $250,000 or even increased. 

Titled or Ownership Categories for individuals and business are as follows:( www.fdic.gov)

1. Single Accounts: All single accounts owned by the same person, sole proprietorship, decedent’s estate or any account that fails to qualify for coverage under another ownership category at the same insured bank.
2. Certain Retirement Accounts: IRAs, Section 457, Self-directed defined contribution plan accounts and Self-directed Keogh plan Accounts (or H.R. 10 plan accounts) listed by the same person in the same FDIC-insured bank are added together and the total is insured up to $250,000.
3. Joint Accounts: Deposits owned by two or more people.  All co-owners must be people to qualify.  This category has specific requirements to qualify and correct information must be obtained before affecting this time title.
4. Revocable Trust Accounts: This titling becomes more complex and is based on the beneficiaries.  As with 3 above this category can become complex, even more so if a beneficiary should die before the grantor.
5. Payable-on-Death Accounts: See 4 above.
6. Irrevocable Trust Accounts: See 4 above.
7. Employee Benefit Plan Accounts: Coverage for a plan’s deposits is not based on the number of participants, but rather on each participant’s share of the plan and is insured up to $250,000 for each participant’s non-contingent interest in the plan.
8. Corporation/Partnership/Unincorporated Association Accounts: Deposits owned by these entities are insured up to $250,000 at a single bank, but insured separately from the personal accounts of the entities. (Stockholders, Partners, or members)

The concept of titling or ownership categories to obtain FDIC coverage can be more complex than you might think.  How you title a deposit or investment under FDIC coverage and requires more than just knowing you are working with an FDIC insured bank or credit union.

Hubert W. McMinn Jr.  

 For additional information or advice, email: mcminn@plannedassets.com

Titling of a CD may affect how much of the CD is actually insured.  Titling these supposed simple investments can be misunderstood when selecting owner and beneficiary.

Investment in Certificates of Deposits remains one of the most popular forms of investment among retirees because of supposed safety.  However, based on how the CD is titled can and in a lot of cases will affect basic FDIC insurance coverage.  The point; not all CDs will have expected full FDIC insurance coverage because of titling.

When adequate attention and consideration is given to what a CD really is and does, it becomes apparent CDs are misrepresented and not suitable as true investments.  The major value of CDs is to position or park assets safely, while maintaining cost effective liquidity. 

Titling of a CD should be based on the individual’s retirement plan and requires coordination with the plan.  Retirees often make the mistake of titling CDs opposite of what they have worked so hard to eliminate in retirement planning.  If you register your CD in your name there is no real problem as long as you are receiving principal and interest at maturity.  However in the event of death, titling the CD in this manner moves the CD into probated assets before your heirs can reach it.  This could result in a delay of months and will make the transaction public.

Advice often given to avoid probate is registering the CD as Joint Tenants with the heirs.  However, CDs titled as such become exposed to claims of the heir’s creditors even if you are still alive. 

For example, consider the heir is responsible for an auto accident and is sued for damages above limits of his insurance coverage.  Given this situation, all available assets including your CD may be attached!  Proving the CD was your money will incur legal expense and can result in full loss of the CD.

 Two possible better ways of titling CDs and coordinating with the retirement plan is “pay-on-death or the use of a living trust.  Pay-on-death makes the CD immediately available to those named upon death of the CD holder.  While using Living Trust designation and ownership avoids probate and allows you to place restrictions on distribution.

Even if you’re just parking assets in a CD until you can move them at the right time it is important to be sure they are titled to coordinate with your retirement plan. 

Hubert McMinn Jr.

Information concerning titling as well as other CD concerns is available by emailing hmcminn@plannedassets.com.

Recently the first comprehensive study of individual annuitant mortality since 1983 indicated a projected mortality improvement for both males and females.  Data indicates that longevity improved during the five years of the current study and there is no reason to expect improvement to stop with average life expectancy at approximately 85 for males and 87 for females.  This is great news for all of us and as it is an average there is no reason not to expect to live well past these ages.

Retirement Concern Surveys place the number one concern of individuals age 55 and up as “Outliving our Money”.  The problem is most retirement planning only addresses income needs through average life expectancy.  This is planning pretending there is no longevity risk, while there is a significant and growing probability of living to age 90, 95 or even 100 or more.

Entering or currently living within the retirement zone, the question is how will my income hold up for the future?  We all know Social Security has its problems and building a retirement plan depending on receiving SS full or even partial benefits in the future may be risky at best.  Even if full SS benefits are received, is it enough to maintain the life style desired.  Social Security was not designed and is not adequate to meet most life style income requirements.  SS for most of us will be, should be or is a supplement to other retirement income assets and should best not be considered for basic retirement income needs.  Regardless of how you project the possible receipt of SS benefits the point is other assets will have to be available for any number of reasons.  Can you or your retirement planner actually guarantee your investment program to provide the basic income you need to structure a successful retirement program regardless of how long?

In my years as a Retirement Planner, my number one goal has been and is to guarantee the level of basic income and insure it will remain available regardless of economic or market conditions.  Understand this is basic income, which in the past has been fixed. Now with some of the newer products currently becoming available it may be possible to factor in guaranteed cost of living increases.  But even without use of these new products, with guaranteed basic planning in place market declines, bad economy or reduction or loss of SS benefits may be painful but not the destruction of the total plan.

Once the guaranteed basic plan is in place, the full retirement plan must incorporate other assets even SS benefits to fill out the plan.  These supplements could be other guaranteed income assets, flexible assets or even SS benefits.  The point is retirement planning is not a fixed program but basic retirement income is.  Total planning for retirement income must be flexible, consistently reviewed and changed in relation to economic opportunities or market situations.

Have you truly look at your plan and do you have a written Retirement Plan, incorporating guaranteed basic income lasting for as long as you live regardless of market or economic conditions?

Hubert McMinn Jr.

Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area. To better understand how to develop a better retirement foundation, contact Hubert McMinn by email at  hmcminn@plannedassets.com  or  for retirement planning ideas and concepts, visit him at: www.plannedassets.com.

Shelby J. Smith, Ph.D. in his June Newsletter wrote: “Most of us measure our retirement money by how “tall” it is rather than how “long” it is. It’s not how much money you’ve got that’s important, but how long it will last. Because of uncertainties like inflation, taxes, investment losses, emergencies and more, retirees don’t know how long they might live; thus, it is hard to determine how long the “tall money” will last. This is why retirees’ greatest fear is outliving their money, referred to as “longevity risk”. If the “tall money” is laid down over the retirement years it becomes “long money” and longevity risk can be managed.”

Right now we are seeing significant growth and revitalization of the stock market, tall money growth.  If you went through the crash of early 2000 you have been here before, as I have.  My old money never reached the high of 1999 before 2007 but my new money did very well until 2007.  Now in late 2009 it appears that we have the start of a new Bull Market but there is doubt at its ability to prevail long term.  10% and higher unemployment, fear by the employed that their job may be at risk, high government spending and forecast of higher if not much higher taxes/and or a value add tax as well as many others lends credence to doubt that this Bull Market can last. 

If you are in the Retirement Zone for planning or even retired, now is not the time to take risk with money you cannot afford to lose.  Should you have money in stocks, bonds, mutual funds, T Bills or other high risk ventures?  I think you should, but not your basic money you cannot afford to lose.  If you consider, an investment of $100,000 growing at 8% compounded each year for 5 years and then a loss of 30%, it requires 51/2 years at 8% annual compounded to recover to the former 5 year point.  While conservative products, such as an Indexed Annuity, with consistent guaranteed 6% *compounded growth could provide an income asset** with $32,000 higher accumulation and Guaranteed Income for Life without the worry.

* 6% is lower than most Guaranteed Income riders are currently providing.

** Rider providing Guaranteed Income for Life

Hubert W. McMinn Jr.

Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area. To better understand how to develop a better retirement foundation, contact Hubert McMinn by email at  hmcminn@plannedassets.com  or  for retirement planning ideas and concepts, visit him at: www.plannedassets.com.

November 2, 2009 the Wall Street Journal (WSJ) in the Money & Investing section reports “Dow Seesaws To an Advance of 76 Points.”  “Stocks finished higher, fueled by upbeat economic data, but trading was volatile amid uncertainty about the strength of the recovery.” 

The majority of Americans have money invested in “the Market” directly or through their 401(k), 403(b), IRA or other qualified account.  Of course “the Market” is the term used to identify investments in Stocks, Bonds, Mutual Funds and other securities.  With what has happen, is happening with the economy and “the Market” the question is should anyone have money in the market?  Answer, yes but it depends.  

Back 40 years ago when I was a lot younger I played poker and in one game, the last, lost $1,500.  The fact I had won $1,600 already was of little solace.  As with gambling, the immutable law of investing is: Risk and Reward always travel together.  The wise gamblers bet no more than they can afford to lose; if this is true in gambling shouldn’t it be true in investing?  Monday, Warren Buffett bought a railroad and commented he was “All In”.  Does anyone believe he is playing without a safety net? 

At any age having some money at risk is recommended but as we reach and enter the “Retirement Zone” our ability to recover from significant loss decreases.  Investing as with gambling, if there is difference, without a safety net is only for the young and foolish.   We all know “you don’t put all your eggs in one basket” and having all or a significant part of retirement funds at risk is counter to this word of wisdom.  If you cannot afford to lose it, it should not be at risk.  What is your safety net? 

WSJ November 3, Dow Jones Industrial Average (DIJA) reached 9789.44 which is an increase of 789 since July 09, but has been a very bumpy ride [WSJ 11.3.09 page C4 graph] with no assurance the market will get back to the high of October 2007.  If you feel you are now locked in “until”, “as soon as” or “when” the market comes back you may be no different than those before us.   Our great grandparents or grandparents may have said the same thing in 1929 but did not have a chance on average of breaking even until late 1954.   From 1969 to 1982 the DJIA remained about the same.  2000 the DJAI reached 11, 723 and then the bottom dropped out hitting the bottom in late 2002.  October 2007 the DIAJ reached another high of over 14,000 but by September 2008 it was at 11,500 and on the way down.  October 31, 2009 the DJIA clawed its way back to 9712 after falling 249 that week and as the WSJ announced “For October, Blue-Chip Stocks were virtually unchanged….”  Even so, some will make significant gains over the next several years in the market but most of these gains will be in new money.  As very well pointed out by the WSJ (11.03.09 page R1; The Cruel Math of Big Losses) recouping investment losses require big gains “a fall of one-third requires a rebound of 50%.  And if by half, you need double,” or a 100% return.”  

As we move toward, enter or have entered the “The Retirement Zone”, we must have a safety net absolutely guaranteeing income for basic necessities at the very least.   At this point in our life, common sense as well as practical and emotional health requires a safety net to guarantee our peace of mind and an absolutely secure retirement plan.  This does not mean not having money at work, just a more prudent investment strategy and a written plan to chart the course.

The question becomes; how do I resolve my investment loss without remaining in the market, riding it out and hoping, is there an answer?  Actually, with proper planning recovery, development of a guaranteed safety net and successful secure retirement is possible for most regardless of age.  David Reindel in his book, “Don’t Die Broke” writes that when you realize;” One, you need to avoid risk altogether to ensure funds for the necessities of a lifetime in retirement.  Two, when evaluating financial instruments associated with the marketplace, do the math and you will always seem to arrive at the same fundamental equation.  Trust me. It is always the same: risk-free necessities + care free retirement = annuities.”  

Regardless of what is often written in the financial press, today’s annuities are not the same as 10, 5 or even 3 years ago.  Is there another product that will help you recover assets, guarantee income you cannot out live, allow you to participate in the market without risk, provide long tem care benefits and provide benefit to your heirs?  If you and your financial advisor have not and are not considering annuities and their life time guaranteed income riders, WHY?

Hubert W. McMinn Jr.

Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area. To better understand how to develop a better retirement foundation as well as a guaranteed plan of life time income, contact Hubert McMinn by email at  hmcminn@plannedassets.com  or  for retirement planning ideas and concepts, visit him at: www.plannedassets.com.

Just a bit of change from the serious information I try to put out.

Speed Limit: 

Sitting on the side of the highway waiting to catch speeding drivers, a State Police Officer sees a car puttering along at 22 MPH. He thinks to himself, “This driver is just as dangerous as a speeder!” So he turns on his lights and pulls the driver over. Approaching the car, he notices that there are five old ladies-two in the front seat and three in the back-wide eyed and white as ghosts. The driver, obviously confused, says to him, “Officer, I don’t understand, I was doing exactly the speed limit! What seems to be the problem?” “Ma’am,” the officer replies, “you weren’t speeding, but you should know that driving slower than the speed limit can also be a danger to other drivers.” “Slower than the speed limit? No sir, I was doing the speed limit exactly …Twenty- two miles an hour!” the old woman says a bit proudly.

The State Police officer, trying to contain a chuckle explains to her that “22″ was the route number, not the speed limit. A bit embarrassed, the woman grinned and thanked the officer for pointing out her error. “But before I let you go, Ma’am, I have to ask… Is everyone in this car OK? These women seem awfully shaken and they haven’t muttered a single peep this whole time,” the officer asks with concern.

“Oh, they’ll be all right in a minute officer. We just got off Route 119.”