Why Annuities, Why Financial Planners

Today, I want to discuss the financial problems in our community. I am on a personal crusade to help solve these issues. All I ask is that you listen, see if the concepts make sense and then if they are important enough, maybe you will want to join the crusade. I know I cannot do it alone and I need your help to really make an impact!

ANNUITIES

Many people look at an annuity and really don't know what an annuity is useful for. An annuity provides a viable way to get out of an expensive whole life insurance policy without being hit by a huge tax liability. Most third party advocates state that insurance and investments should be kept separate. An annuity provides a way to break the golden handcuffs of a whole life insurance policy, when the owner decides to separate the insurance and investment. There are also huge tax advantages as far as determining the cost basis in an annuity if someone had been ripped off by a whole life insurance policy for seven to ten years.

Other reasons, less common depend on the investor. For instance, a conservative investor may used a fixed annuity to guarantee income based on the financial stability of an insurance company. This was common historically when the stability of banks was questioned.

Another reason, would be to apply 10-25% of retirement money to hedge against longevity risk, which is the risk that you will outlive your money. Be careful not to dump your entire retirement money into an annuity contract, because unexpected events may occur in the future.

FINANCIAL PLANNERS

First off, let me say, I wish everyone would spend the time necessary to learn about their own finances. I wish they would read Suze Orman's books and take Dave Ramsey's advice. However, I know that no matter how important I think it is, only 15% of the population will ever learn how to manage their money wisely.

From these 15%, most of them will not even beat the S&P 500 index. Lipper and Dalbar did a 45 year study that showed that the average investor made 4% while the S&P 500 made 11%. This means that many of these 15% would gain more profit by using a financial planner. What's great is that these 15% will know what their financial planner is doing. This is extremely important. Those who do their research on dentists and ask the right questions, tend to get better care. It doesn't mean they start drilling on their own teeth!

Of the other 85%, some will start plans, most of which have not ever sat down to actually plan. Some will open their 401(k) plan at work and pick funds based on a dice roll. These 85% would definitely benefit from having a financial planner to encourage them to plan and start saving for retirment. Most people would also benefit from keeping their retirement plan separate from work, where they don't have to rollover every time they switch jobs.

Before people used to get matching in their 401(k) plans. However, over time as people became accustomed to naturally using these plans, the companies stopped matching. This is because the companies had little to no incentive to match. If your company does match, I would definitely utilize that savings.

Dedicated to Flo Scollan.

Izu's RIPOFF Acronym for Whole Life Insurance

This post has been moved to http://sizusfinlit.blogspot.com/2014/12/izus-ripoff-acronym-for-whole-life.html.

Applying Izu's 100-200 Property Valuation Rule

This post has been moved to http://sizusfinlit.blogspot.com/2014/12/applying-izus-100-200-property.html.

Spring and Fall Cleaning

Read on to see how I saved $845 in auto and home insurance costs!

I was recently talking to one of my friends about finances. He had mentioned that he was cleaning through his whole house and decided to take a look at some of his finances, following the same cleaning mentality.

I thought what an excellent comparison! This goes well with my belief that one should do spring and fall cleaning in their house. Now, I like the idea of spring and fall cleaning of your finances. Earlier this year, my spring cleaning literally found thousands of dollars by going through some of my finances. You can check that out in my history. This was inspired by Suze Orman.

I don't like to spend too much time fall cleaning, so I kind of build up a todo list and then crank everything out all at once.

AUTO INSURANCE

So I finally got my act together and called for the Auto Insurance quote. First of all, I had Progressive which I found to be really good in comparison when I first got them. One day, I received a letter in the mail to get a Progressive quote, so I called and received a quote about $100 less than I was paying. When I told them I was already a customer, they didn't give me the discount!

I believe that auto insurance companies classify people into several categories and try to give great rates in one of these categories. This way, if someone does some research and is offered a low rate, he or she will bring along friends, even if they are in another category with okay rates. In addition, auto insurance companies probably snag your business and then slowly increase the rate over the years without you knowing. This is why it is good to keep your eyes open and every few years checkup on things. This is true with your savings, checking and other accounts.

I was paying $324 every six months with Progressive and called Primerica Secure (see below). They compare several companies so I don't have to. I ended up getting a quote for $369 for the year! This saved $279.

HOME INSURANCE

I stayed on the phone and checked my home policies, reducing one policy from $558 to $239. This saved $319. I was underinsured and ended up getting more coverage for less! Whenever you deal with insurance, you should always try to get higher coverage for lower premiums.

My other policy was reduced from $613 to $373. This saved $240. Both policies were switched from Allstate to Halmark.

CHASE

So earlier in the morning, I called Chase which charged a $7.11 fee even though I paid the balance off in full. Notice that this is $10.94 pre-tax dollars if you are in the 35% tax bracket. It took less than five minutes to clear this up and get the fee removed. Evil credit cards, charging fees and not reversing them without your phone call. Although it is some stress, I saved post-tax dollars at a rate of $90 per hour. This is like saving pre-tax dollars at a rate of 138.46 per hour.

Saving post-tax dollars is a lot like spending pre-tax dollars, except the opposite. For instance, spending $90 pre-tax will save you $48.46 pre-tax dollars ($138.46-$90) which is $31.50 post-tax dollars, if you are in the 35% tax bracket. When you spend pre-tax dollars instead of post-tax dollars, the amount you save is based on the following formula.

AmountSaved = AmountSpent * TaxRate / 100

One should always try to spend pre-tax dollars or save post-tax dollars, but most people just spend post-tax dollars.

I recently spoke to an international business man who literally destroyed me in a financial debate. I still strongly believe in what I was arguing and absolutely believe that most Americans would benefit from listening to some of my advice regarding finances. However, I must admit some people are playing a whole different ball game and I should be learning from them. I learned one very important thing that day. I can only teach people to get to a place that I have already been.

If you are planning to call for quotes, please don't think ten minutes can save you ten percent or more on car insurance. This morning's fall cleaning took me a good two hours. However, as I am about to show you, going through the headache of paperwork can not only enlighten you to where you are headed, but spending a few hours can pay off dearly.

By the way, in general shopping around for mortgages and insurance along with other items related to buying an automobile or home, generally will save you thousands of dollars. Don't just take the referral of the person helping you buy. The extra paperwork is well worth your time. Also, I strongly believe that people should pay cash for their cars, but thats a whole other blog.

Here, I am advocating to clean up finances, when I hadn't done my own fall cleaning. Shame on me. In the end, I saved 845.11 for two hours of work, post-tax. Since I am in the 5% tax bracket. So really, using the formula above, its like I just earned $444.79/hour! By the way, this ignores state taxation and is really low because I am excellent at utilizing tax strategies. This year, it took several months to do my own taxes, but I learned quite a bit and the result was a huge stack of paper.

This two hours includes creating an new online accounts, performing the e-signing of documents and calling to cancel old policies. It also includes writing this blog. What do you have in your fall cleaning?

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.