Archive for the ‘Investment’ Category

The Top 2 Things You Can Do To Battle Market Fatigue

Monday, August 22nd, 2011


You need only turn on the TV, radio, or skim a newspaper to realize we are right in the middle of some challenging economic times. The BIG question is what can we do when our individual abilities to change the quagmire we’re stuck in is minimal? Here is the shortlist.


#1 Look at your personal situation and choose the best plan of action


If you are trying to accumulate funds for retirement, do you really want to retreat to the safety of CD’s or money market funds when returns are struggling to yield 1% on your money? Yes, you would at least have a guaranteed return of your money but at these rates, even the slow but sure tortoise would give up the race.


Historically, the market is a very predictable and much higher yielding place to be. That being said, the number one prerequisite of market investing will be your ability to weather the volatility that is inherent in equity investments. Simply put: don’t be a jack rabbit about it.


Investors who cycle through euphoria and misery only to jump in and out of the market typically do so at precisely the wrong times. The scenario plays out something like this:

When the market is doing well, investors feel renewed confidence it is the place to be. They plunge wholeheartedly in, at a point that reflects a price that is much higher after two years of outstanding returns. The market may or may not continue on its upturn for a while. However, at some point, the market will sour and begin a hasty retreat. These same people who got in at or near the top begin to panic. They decide they can no longer stomach the volatility and opt out after the market has been in a free fall for some time.


This is a recipe for disaster and one reason why we see such a roller coaster of reports in the news each day. If you lack the fortitude to invest in the market and weather the vacillations, don’t jump in and out – stay out. Buying high and selling low is not the way to go.


#2 Consider alternative strategies for investing in the market


An example of a strategy that may take some of the trepidation out of investing in the market is using the strategy of dollar cost averaging. This is already inherent in payroll deduction retirement plans. Since the funds are invested on an ongoing and regular basis, investors will automatically get the benefit of purchasing more of the investment when prices are low and less when they are high.


This same strategy would work in investing non-qualified money. Instead of investing it all at once, take the sum to be invested and invest a certain portion each month over a period of time instead of plunging it all in at once. This way, if the market does go down, you will be able to capture a lot more shares or units at the lower price.


Kurt Rusch CLU, ChFC

Segregated Planning for Life and Death

Thursday, June 9th, 2011


Death and dying is definitely one of those subjects none of us likes to talk about; equally so with funeral planning. I will admit, it hadn’t been on my radar until my wife and I recently went through the process of shopping for and pre-paying my in-laws’ funerals. It was an eye-opening experience both emotionally and financially.


Documenting our personal wishes is a gift to those we leave behind – for adult children, spouses, family and friends. This is but the first hurdle; an emotional ashes to ashes tug of war. Most people I have talked to have some inkling as to their parents’ burial wishes – not so much for themselves. Whether an actual plan is paid for, is entirely another matter. In our case, my in-laws had purchased burial plots; that summed up the wish part pretty well. So, what about the cost of funerals? In one word, ASTRONOMICAL!


The Billion Dollar Funeral Industry

Funeral Services are a ten plus billion dollar industry. It is also an industry that can expect a guaranteed raise in revenues over the next 30 years or so due to the boomer generation. How do you think the law of supply and demand will play into that?


To give you a feel for cost, the National Funeral Directors Association (NFDA) published a report of  national averages last fall. Here’s how the numbers played out in a five year period between 2004 and 2009 for basic funerals:



On the surface, these numbers don’t look too bad; $6,560 for an average funeral; $7,755 with a vault. (The vault is the cement box the casket goes in.) What these numbers don’t reflect are the following costs: Flowers, ($200 – $800), Hair Setting, ($75-$125), Death Notice in Paper, ($200-$275), Death Certificates ($15 for the first one and $5 for each additional – you’ll need 5-6), Opening & Closing fees per Grave, (we were quoted $2,085), Grave Markers, ($700-$1,800+, depending on what you want), Marker Setting Fees, ($200-$300+), Funeral Luncheons, ($500- $2,500+) and Sales Tax on the casket, vault and marker.


When these additional fees are added in (on the low end), the average funeral cost comes in around $12,000. Cremation can be cheaper, but if you want to have a wake before cremation, the cost is close to the same. (The Dignity Memorial funeral chain charges $1,400 to “rent” a casket for wakes before cremation.) You may also consider buying your “tangible property” items elsewhere than from the funeral home. Believe it or not, you can buy caskets online (by law, the funeral homes must accept these types of purchases), with free 24 hour turn around shipping at significant discounts. We investigated Best Price Caskets online and found that some $2,500-$4,000 funeral home caskets were available for $1,200 and less.


The biggest fixed amount reflected in this chart is the “non-declinable basic services fee”. This is where every funeral home starts their pricing – an arbitrary figure that’s non-negotiable – kind of like the sticker price at a car dealership. And, “car shopping”, is exactly what you’ll feel like you’re doing when you sit down and start banging out all the “extras” you’ll need to put together an entire funeral from start to finish.


Funeral Funding

The most glaring item in the chart above is the accelerated rate of inflation the funeral industry sustains – almost 18% on average – far beyond the national rate of inflation.


The funeral industry’s high rate of inflation is an extremely important factor to keep in mind for planning purposes. For example, let’s say I took out a $12,000 funeral policy today at the age of 51. In five years, at the industry average rate of inflation of 17.9%, the average funeral will be $14,148, a difference of $2,148 beyond my policy. In 10 years, my funeral would cost $16,680; another $4,680. In 15 years, $19,665; in 20 years, $23,185, almost double the original $12,000 I planned for.


Naturally, I’m hoping I’ll live to 91, at least. In that case, an average funeral 40 years from now could cost more than $45,000, making that initial $12,000 policy of little help to my loved ones. Pre-pay is the way to go – no pun intended.


Veteran Planning

Those familiar with Veteran benefits know there are reduced rate funeral programs. In Illinois, that means any honorably discharged vet (and their spouse) can get a complete church funeral and burial (net of a luncheon) for $3,985 at a “national cemetery”.  The closest ‘national cemetery’ in the Chicago area is Lincoln Memorial in Joliet.


In the Chicago area, the local Veterans organization provides alternatives for simple funerals at lesser costs, cremation and waking at a Vet sanctioned funeral home on the northwest side of the city. Though burial in Joliet was not an option for our family, we were still able to utilize cost reduction Vet benefits in our pre-payment plan.


NOTE: To receive veteran rates, you must go through the Chicago area website: Veteran funeral benefits also differ by state; search your “state name + veteran funeral benefits” to find local contact info.

Next Step

Funeral funding is executed through life insurance. Many people look at life insurance solely as an instrument to pay for their funeral; this can be a costly mistake. While there are some types of policies that factor in inflation, they do so at the national average rate of inflation – far less than the funeral industry standard.


There are several options you can take to secure a solid funeral plan. You can work directly with a funeral home to execute a pre-pay funeral in the form of a designated trust or funeral life policy. While this option would lock in today’s rates, it will not provide for your loved ones.


Alternatively, segregated planning may be your best option: work with a funeral home to lock in today’s prices with a small funeral specific policy (via payment plan) and work with your financial advisor to protect your estate and provide for your family. Boomers, in particular, should seriously consider this approach due to today’s extended work life and mortality rates.


Kurt Rusch, CLU, ChFC

College Saving Misconceptions

Tuesday, April 26th, 2011



Scholarship Relief Parents are often off base when planning for their child’s college education funding. For example, 56% of parents expect scholarships to help pay for college. In actuality, the largest percentage of students receiving scholarships in any year between 1999 and 2008 was 6.9% Therefore, if your plan is to have your child’s education at least partially funded by scholarship, chances are, you will be in for a big surprise.


Financial Aid Restrictions Another common misconception is that having a 529 college savings plan will severely restrict a student’s ability to qualify for financial aid. In truth, the financial aid formula assumes that a student will contribute 20% of their assets toward college expenses while parents will only contribute 5.6% of theirs. Since 529 plans generally have the parents as the owners, amounts saved in these plans will generally have a smaller impact on the financial aid formula.


Cost Estimates Expense estimates can also easily be misconstrued due to inflationary rates, tuition increases, type of schools, tax affects and other like criteria.

According to, the current average cost of tuition and fees at a private four-year college is $27,293 per year and the average for state schools is $ 7,605 – not including (in either case) the costs for: room and board, books, supplies, transportation, other living expenses and so forth.


Inflationary rates and tuition increases will further affect the mix. While there is some debate regarding this rule of thumb, the college inflation rate is roughly 2% higher than the average annual rate of inflation and the current average annual rate of tuition increases is 8% per year. If these rates hold true to form, parents with newborns today can expect to pay more than three times these amounts by the time their child goes to college: $81,879 and $22,815, respectively, per year.


Tax benefits will vary by the State you live in. Illinois residents will gain some additional benefits for  contributing to the Bright Directions Plan and can reduce their Illinois taxable income by up to $10,000 for a single person or $20,000 for a married couple filing jointly if they contribute to a Bright Start 529 plan. With the recent increase in Illinois personal income tax rates that became effective January 1, 2011, this could reduce the Illinois taxes owed on a married couple by up to $1,000 on a $20,000 investment. Furthermore, the Illinois law also allows the deduction for rollovers from other 529 plans into the Bright Start Program. Therefore, it may be in a friend or family member’s best interest to roll assets from out of state plans to the Bright Start program in Illinois to take advantage of the state income tax benefits.


Take Away


* Scholarship money is not a valid college planning tool.


* Parent owned 529 plans have a small impact on financial aid calculations.


* Inflationary rates, annualized tuition hikes and taxes should be included in cost projections.



Economic Rebounding: Use the Rule of 72

Thursday, March 17th, 2011


The economy is slowing turning around, albeit much slower than most of us would like to see. Rebounding from devalued investment, savings and/or retirement accounts  continues to be a challenge. Learning The Rule of 72 is one of the best tools you can embrace for help in putting a rebound plan together.


Simply put, The Rule of 72 is a quick and easy formula that will give you the number of years it will take to double your money. Using a simple interest rate of 1%, which varies above and below the current bank rates being paid on savings accounts, it would take you approximately 72 years to double your money using the Rule of 72: 72 divided by the rate of return; 1%. Accordingly, a 2% return rate would double your money in 36 years.


A Googled search du jour on CDs, provides for the current average interest rate somewhere between 1.06% for one year CDs on the low end, leveling off at 1.86% for three year CDs. At 1.86%, it will take 38.7 years to double your money. FYI: IRA CD returns were even less.


Discover and Capital One are currently offering a ten year CD at 3% for minimums of $2,500 and $5,000 respectively. It will take 24 years to double your money in this case. Conversely, an invested mix of stocks and bonds with a hypothetical return of 6% would cut that time period in half to 12 years: 72/6 = 12. It is a simple formula to wrap your head around.


The chart to the right (double click to enlarge) further illustrates the relationship between the hypothetical rates of return and the number of years it takes to double an initial investment with  all earnings reinvested.


While CD rates are fixed and may be insured by the FDIC, they offer relatively low returns. On the other hand, stocks and bonds tend to offer higher rates of return, but come with higher risks of loss. Similarly, fund yields and returns may fluctuate and fund shares are not insured. Still, you may be risking the possibility of NOT reaching your goals if you strictly stick to low yielding investments such as CDs.


Consider further, the current annual rate of inflation; 2.11% last month. Economic rebounding is slowed when inflation rates are higher than invested rates of return. The Rule of 72 may provide that a mix of investment vehicles tailored to your own return thresholds and timing needs could be the best plan to work toward.


Kurt Rusch, CLU, ChFC


Retirement Confidence Survey

Tuesday, March 8th, 2011


Up three percentage points up from an all time low in 2009, the percentage of American workers who feel “very confident” that they will have enough money for a comfortable retirement is 16%.

Not to play Devil’s Advocate, but we really need to rephrase that: 84% of the American workforce doesn’t think they’re going to have enough money to retire comfortably.

When the Employee Benefit Research Institute (EBRI) sent out a press release on the 20th Annual Retirement Confidence Survey last week, the headline read “New Research from EBRI”: Between 4–14% More U.S. Households “At Risk” of Running Short of Money in Retirement Due to 2008–2009 Recession.


Choosing their copy wisely, EBRI notes that: the likelihood of becoming “at risk” because of the economic crisis depends to a large extent on the size of the retirement account balances the household had in 401(k)-type plans and/or individual retirement accounts, as well as their relative exposure to fluctuations in the housing market.


No matter how you slice it, way more than the majority of us working folk have little confidence life will be grand after we stop working. This is not a good thing. Further workforce results provide:

Covering Basic Expenses 29% are very confident they will be able to cover their basic needs

Unaware of  Goals 46% don’t know how much money they will need to retire comfortably

Not Enough Savings 54% say the total value of their savings and investments excluding their home and any defined benefit plans is currently less than $25,000

No Savings At All 27% say they have less than $1,000 in savings (up from 20% in 2009)


In 2010, 33% workers were polled as saying they expect to retire after the age of 65. For workers who fall into some of the categories above, the amount of money they will need to save from unpreparedness and unawareness will be overwhelming to say the least. But what of the people who did/do have good plans in place? How much will these workers need to save to recoup their losses from the economic crisis?


“Early Boomer households, will generally need to save between 1 and 4 percent of compensation  more each year between now and retirement age”,  provides EBRI. (These amounts will vary to the personal and market profile of each worker.) While another 1-4% may not sound that bad, it may become quite challenging in a climate of increased taxes, higher employee benefit deductions and every changing inflation rates.


When it comes to providing for retirement, overall confidence may not be high, but it is changeable. Decide what you would like to have, try out some online tools such as, retirement calculators, to get a feel for your  goals and sit down with a professional advisor to construct the best plan for you.


Kurt Rusch  CLU, ChFC