Peter Hug from Kitco describes the four types of people that buy precious metals, how to best buy and sell silver and gold yourself, and whether these commodities are similar to cryptocurrencies like Bitcoin and Blockchain. Joe and Big Al talk permanent vs term life insurance and tax reform. Plus, holiday gift ideas to transform the quality of life for the retirees in your life: they get new tech, and you get your third-grade report card and high school lettermen’s jacket.
- (1:02) Roth Conversions & Re-Characterizations Changing With Tax Reform
- (9:22) Peter Hug, Kitco: Four Types of Gold Buyers
- (20:14) Peter Hug: How to Buy and Sell Gold and Silver
- (30:17) Big Al’s List: What to Buy Recent Retirees to Transform Their Quality of Life (MarketWatch)
- (40:01) Permanent Vs Term Life Insurance
I give a number of speeches at gold conferences throughout the year, and I found that the questions I was being asked today are almost identical to the questions I was asked back in the late 70s and early 80s. Always had investors ask me, “should I buy gold?” And so I decided to take a closer look at the motivation behind the reason to buy gold. I came up with something that I found relatively interesting. – Peter Hug, Kitco
We’ve got those interesting reasons people buy gold today on Your Money, Your Wealth, as Peter Hug from Kitco describes the four types of people that buy precious metals, how to best buy and sell silver and gold yourself, and whether these commodities are similar to cryptocurrencies like Bitcoin and Blockchain. Joe and Big Al talk permanent versus term life insurance, and how Roth recharacterizations for 2017 may be affected by upcoming tax reform. And we’ve got holiday gift ideas to transform the quality of life for the retirees in your life. They get new tech, and you get your third-grade report card and high school lettermen’s jacket. Happy Holidays! Now, here are Joe Anderson, CFP, and Big Al Clopine, CPA.
1:02 – Roth Conversions & Re-Characterizations Changing With Tax Reform
JA: So I know you’re just chomping at the bit to talk about this, every week now, the updates on tax reform.
AC: Oh my goodness this is a fluid situation, I think you could say. Before we dive in, I want to I want to give you guys a caution that we sorta decided was prudent to consider this last week with our clients, and that is, if you’ve been listening to our show, we’ve been advising and telling you to consider Roth conversions. Take some money out of your IRA, you convert it to a Roth IRA. Of course, you pay taxes on what you convert, but then that money ends up in a tax-free account, and all future growth, income, the principal is tax-free. So it makes a lot of sense for a lot of people to do that. We’ve also told you on this show, which is, by the way, current tax law, that you can recharacterize it, or undo the Roth conversion, all the way till you file your tax return in the following year.
JA: And there are a few reasons why we did that, is because you needed to get the Roth IRA conversion converted into the Roth IRA before December 31st. So it’s a taxable event in the given year. But you don’t necessarily know how much that you should convert in some cases, depending on your income. So the tax law allowed you, until the tax filing deadline of October 15th of the following year, to see if you wanted to keep it, recharacterize, do a partial recharacterization. So for instance, let’s say if you wanted to convert some money to the top of the 25% tax bracket and you’re married. So that number is roughly about $150,000.
AC: Right. So that’s your target, you’re trying to do enough Roth conversion to get to $150,000.
JA: Right. You don’t want to go more because that would push you up into a higher tax bracket.
AC: Yeah, and then your accountant prepares the return and your taxable income is $160,000. Ooh, that’s too much. And now you can recharacterize $10,000, and get back to $150,000, just where you want it to be.
JA: So the planning was, you kind of look at your return and spitball it a little bit, and then you would convert. But sometimes you might get a bonus at the end of the year. There could be some other things that happen if you’re a small business owner, who knows. So you could always clean it up. You could get it to the exact amount the following year. And that’s why we would always over convert, because hey, we can clean this up next year. I’d rather over convert than under convert because you want to maximize the amount of money that you get into a tax-free environment every single year. Because there’s only so many calendar years until you retire.
AC: And that was, I think, generally a good strategy, because if you under-converted, if your taxable income ended up to be $140,000, you couldn’t add another 10. Because you had to do it by December 31st of the prior year. So if you over-convert, you can always pull some back in.
JA: So now, the tax law – there’s no tax law.
AC: The tax bill. They’re taking away Roth recharacterizations. So in other words, in the future, starting in 2018, you can no longer recharacterize a Roth, or undo a Roth conversion. In other words, it’s irrevocable. You do a Roth conversion, and you cannot undo it. That’s what’s in the tax bill. Now, this is not a law right now. And here’s the problem. The problem is, what we know for sure is that if it passes in some kind of form as it is right now, then 2018 Roth conversions, you cannot recharacterize. But here’s the concern, is if you did a Roth conversion this year, in 2017, you may not be able to recharacterize even that in 2018. So we actually, with all of our clients, that we felt converted a little bit too much, or that we had strategies, to even do a couple Roth IRAs, invest them differently, keep the one that’s higher, we actually are doing our recharacterizations right now, in the month of December, because there’s too much uncertainty whether the recharacterizations are going to be available next year. So if you’ve been listening to our show, and you’ve been converting Roth IRAs, I’m telling you right now, you’ve got a look at your situation. It’s too risky because we don’t know what’s going to happen. And if you recharacterize right now in December, yes, you missed a few months of potential growth, and the ability to make a better decision. But at least you haven’t converted too much. So it’s going to require some you to sit down with your accountant, or Turbo Tax, do a tax projection, look at the Roth conversion that you already did, and make your best guesstimate if you will, as to what you should have as a conversion and recharacterize the rest right now, before December 31st.
JA: Because a lot of you that listen to this program like to do your own financial planning. So you listen to us to get a couple of tidbits. But the problem with that sometimes is that you hear strategy and you think, “OK, this applies to me,” and it might not apply at all to you. But you do it, and then there’s no adult supervision – no offense to anyone, but – in cases like this, all of a sudden next year, it’s like, “OK, it’s time to recharacterize,” and you can’t do it, and it’s like, “I’m stuck. Now I have to pay a little bit larger tax bill.” At the end of the day, to me, you got the money in the Roth you pay a little bit of tax, you’ve got that much more in the Roth and move on. But if you’re very concerned with this, then we suggest that you absolutely take a look right now to see, “hey, if I did a Roth IRA conversion, how much did I convert.” Because it’s closer to the end of the year, you can kind of dial in a little bit more of what your income is going to be now.
AC: Yeah, you can get a better estimate.
JA: And then you say, “OK well maybe I did a little bit too much” and then just do a partial recharacterization or recharacterize the whole thing. It’s up to you. So we’re just giving you some information of what we feel is probably the best practice. And we’re a conservative group.
AC: And by the way, we’re just being cautious here. I hate to act when it’s just a tax bill. It’s not even law. So we really don’t know. It’s just, to me, there’s too much risk that this will actually happen, and if it does happen, it could be that 2017 Roth conversions you cannot recharacterize in 2018, which is why we’re having our clients do recharacterizations right now, in this month of December.
JA: It’s the same law with 401(k)s if you’ve ever converted your 401(k) to a Roth 401(k). So you did an inter-plan conversion. Those are irrevocable – you cannot recharacterize those. So now they’re just pushing it over to the Roth IRA. So it doesn’t make a ton of sense to me. But it is what it is. So now it’s just for future Roth conversions. you’re probably going to have to dial in your number a little bit better. and do more sophisticated tax planning. instead of “hey, let’s just throw some money in a Roth.”
AC: Yeah, because we can always pull it back later. So if this law goes through, then in future years, that’s right Joe, you’re going to want to be more careful on your Roth conversions. This is a bit unusual, to have a tax law that’s going of affect potentially so many things, and like I said, I hate to act in advance of this passing, but to me there’s too much risk if you did a Roth conversion and you feel like you don’t want to keep all or part of it, now would be the best time to recharacterize it.
So just in case, you haven’t been paying attention, that there is potentially some new tax law that would take effect next year. And they’re trying to do this before the end of the year and this would generally take effect for 2018. And then most importantly, are there some things and steps that you need to do right now? Because we know we have the current law right now, and it may be completely different next year. Interestingly enough Joe, almost all of these changes, particularly in the Senate, expire after 2025. So they’re not necessarily permanent changes. And of course, we also know that any time there’s a new tax law, a whole ‘nother tax law can be voted on. Let’s just fast forward – if the Democrats get in power in another three years from now, they could come up with their own tax bill and change all this. So it’s a little bit in flux, and as a consequence, a lot of people don’t really know quite what to do, because there could be a lot of change. But anyway, just wanted to educate you on some of the things. For families, personal exemptions right now you get $4,050 per taxpayer. The House and Senate would repeal exemptions, which means simply, that if you have a lot of kids or folks in your family that are dependents, you are going to potentially lose some deductions. And on the flip side, the standard deduction goes up, it almost doubles. Right now it’s that’s about $6,500 for a single taxpayer. $13,000 for married. It would go to about $12,000 and $24,000 for both the House and Senate. So basically that means, let’s say you live in California, you have a mortgage, you pay state and local taxes, which may or may not be retained. You’ve got lots of charity, you itemize your deductions anyway. So the bill isn’t going to be terribly favorable for you, because the increase in the standard of the deduction doesn’t necessarily help you, and you’re losing the exemptions.
JA: All right, well stick around. I think the 22nd is the vote? That’s what they’re planning on? Right before Christmas? So stay tuned.
As of this recording, the House and Senate have agreed on a final tax bill, and it may become law before the end of the year. No question about it, tax reform is going to affect us all. How will it change your strategies for retirement account contributions, distributions, conversions and recharacterizations? What about collecting Social Security, withdrawal rates, estate planning and charitable giving? Make an appointment right away to find out before the end of the year, which is just days away now. Visit YourMoneyYourWealth.com and click Free Assessment, call 888-994-6257, or email email@example.com. Find out what strategies make the most sense for you in retirement.There are three ways to make an appointment for your no cost, no obligation appointment: visit YourMoneyYourWealth.com and click Free Assessment, call 888-994-6257 or email firstname.lastname@example.org.
9:22 – Peter Hug, Kitco: Four Types of Gold Buyers
JA: Big Al, it’s that time of the show.
AC: That it is Joe, and today we’ve got somebody that knows a lot about a topic that we don’t know a lot about, so we’re going to ask some questions.
JA: Yeah, you have a gold chain on. (laughs)
AC: (laughs) That’s the extent of my knowledge.
JA: We got Peter Hug on the line from Kitco, he’s been in the precious metals since 1974. So when you think of gold, precious metals, there’s a lot of commercials that you hear on the radio. So we wanted to get the best expert in gold.
AC: Yeah, like that’s what’s the real story, Peter? Why should we consider buying gold?
JA: Yeah let’s welcome Peter first, Big Al. He’s excited he wants to sell his gold chain. (laughs) So Peter, welcome to the show.
PH: Thank you, pleasure being here.
JA: So to tell our listeners a little bit about your background, and then we can dive in a little bit more about the specifics of gold, and why people want to buy it, or should buy it, and things like that.
PH: OK. I graduated from the University of Toronto back in 73. I got into the financial field in the foreign exchange side in 74. That’s where I cut my teeth, worked for, at that time, the largest global retail dealer in foreign exchange a company called Deak-Perera, and they had offices in some 40 countries around the world, and I was in charge of their Canadian desk, trading of corporate foreign exchange. In 76, I moved over to a financial institution called Guardian Trust that was also a foreign exchange dealer in the province of Quebec. But they also had precious metals component. So we developed the precious metals desk in around 78 for Guardian, out of Toronto, and were fortunate enough to catch that first bull run in gold, where gold moved up to $850 and Silver moved up to $50 for the first time, and have been in and around the precious metals market for the past 40 years. I joined Kitco in 2010. They had a staff of some 220 people, and they were the largest online retailer of precious metals at the time, and the owner of the company needed some support in developing their precious metals division. And so I joined them in 2010, sort of pulled me out of retirement and been there ever since.
AC: Yes so let’s get to Peter. So why should people consider buying gold?
PH: I don’t want to be one of these analysts that says gold going to $10,000 an ounce and you’ve always got to own gold. Gold is as good as or as bad as any investment, it really depends on timing, and it depends on the motivation of why you want to be in the market. What I did was, I give a number of speeches at gold conferences throughout the year, and I’ve always had investors ask me, “should I buy gold?” And so I decided about a year ago to take a closer look at the motivation behind the reason to buy gold. I came up with something that I found relatively interesting.
I found that the questions I was being asked today are almost identical to the questions I was asked back in the late 70s and early 80s. Then I tried to figure out what was the psychology behind people wanting to buy gold, and I think I was able to break it down into four groups. And I’ll just sort of name the groups and the names are just things I made up, but they seem to be fairly consistent throughout the last 40 years in the gold market.
The first group, and again I’ve yet come up with a proper name for them, but I would call them sort of – and again, I don’t want to insult anyone, but more like the sort of the “End of Worlders” that have bought into the concept that the financial system is in imminent collapse. And although those stories are prevalent, were prevalent in 2008 and continue to be prevalent, they were just as prevalent in 79 and 80 when we had inflation at 18%. And this group is influenced by analysts that think the financial system is going to collapse, that you’re going to need gold in barter form to be able to survive the apocalypse of government intervention and government confiscation of your gold. It sounds like a fringe group, but it isn’t. They truly believe that the financial system is at major risk, and they want to hold physical gold to mitigate the apocalypse when it comes. And they take a sizable portion of the gold market, physical market off the market on a continuous basis, and they tend to be long-term holders. They’re not concerned about the price, they’ll pay $1,200, $1,500 $1,900. Their aim is to, they believe that gold will go to $10,000, $20,000, $30,000 an ounce, and they’ll need the gold for barter.
The second group that I sort of identified, with what I again named “The Conservative Investor” are the ones that are influenced by analysts that suggest you should hold a percentage of your assets in gold as protection against the balance of your portfolio. They tend to be not as concerned about holding gold with financial institutions. They are engaged in the ETF market, mutual funds, mining shares, and also the physical market. The analysts that suggest you hold the percentage of your assets in gold never really complete the thought process. It’s one thing to tell people to buy 10% of their assets in gold, but gold is, again, as an Apple stock is, or as your real estate is, it’s a portion of your portfolio that needs to be calibrated and balanced, at least every six months. And why I think that’s important, and where analysts miss the point when they tell people to hold the percentage of their assets in gold is, if your aim was to hold 10% of your assets in gold, let’s say in 2008 when gold was trading at roughly $700 an ounce, in 2011 gold was trading at $1,900 an ounce. Everything else being relatively equal, the portion of your of your gold portfolio would not have been 10%, probably would have looked more like 18% of your portfolio. At that point, you have to liquidate 8%. Vice versa, had you gotten in at $1,900 in 2011, and in December of 2010 when gold was at $1,050, your portfolio probably would not have been holding 10% of gold, it would have been probably holding anywhere between 4 and 6% of gold. At that point, you need to buy that percentage to bring it back to 10. You need to balance that portfolio if your aim is to hold it at 10%. What that’ll do is it will help you liquidate gold into strength and buy gold into weakness.
The third group is what I call “The Trader.” They have no loyalty to the market. They’re strictly in it for capital gains. They could be bullish at nine o’clock in the morning, and bearish at 9:01 in the morning, and they’re looking for vehicles that have the closest calibration to the gold price. They tend to trade in the futures market, options markets, sometimes in the ETF market, but they’re in and out traders, the same as they would be with the with stocks.
The fourth group, which I really don’t call investors, but they do take a sizable offtake of the physical market on an annual basis, and I call them “The Collectors.” These are individuals that buy either medallions or coins that are made by sovereign mints that are not really considered in the category of bullion coins, but have themes attached to them. Could be Superman coins, Darth Vader coins, could be a collection of airplane designed coins, and people think they’re cool. They buy them. The premiums tend to be fairly exorbitant to the intrinsic metal value. But they think they’re cool, they come in gift boxes, and they usually end up in somebody’s drawer, and somewhere down the road though when that person tends to depart, their kids find these things, and they just sell them into the market. So I don’t consider them good investments from a perspective of appreciation, because of the high premium you pay. But it does constitute a fairly large percentage of off-take of the physical market on an annual basis.
AC: So what you recommend? Is buying bars the best way to go? Are there other ways to buy gold?
PH: Again, it really depends on where your comfort level is. If you’re in group 1, you’re going to want to buy bars. Group 1 tends to take delivery. They don’t trust storage accounts with dealers. They want the actual gold at home. They bring it home and either put it under their mattress or they hide it somewhere. And that’s how they’re comfortable. My personal feeling is, if I like gold, my main caveat, other than protection, would be that I want the best chance for a capital gain. In that context, I want to buy gold at the closest to the gold price that’s available.
So my tendency, again, I’m not as concerned about the collapse of the system, but my tendency would be to be more oriented towards leveraged vehicles such as the futures market and the options market, and possibly the ETF market, depending on what the carrying cost is on the product. So again, it depends on where your psychology is. If you want to buy physical gold, it’s available in sizes ranging from one gram, which is a 32nd of an ounce, all the way up to 400 ounce standard bars, which is the bars you saw the old James Bond “Goldfinger” movie. And you can take delivery, or you can have dealers offer you allocated storage, where the gold is held off balance sheet from the dealer, so there’s no credit risk to the dealer, and it’s held in your name, and the storage fees are relatively incidental. They’ll range anywhere from a quarter to a half a percent per annum on the value of the gold that you’re storing.
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20:14 – Peter Hug: How to Buy and Sell Gold and Silver
JA: Welcome back to the show, the show’s called Your Money, Your Wealth. Joe Anderson here, with Big Al Clopine. We’re talking to Peter Hug, from Kitco. Go to Kitco.com, we’re talking gold.
AC: So my dad, he’s collected coins for years. And I think part of it was just owning precious metals. But a big part of it was, he just enjoyed it, just like you said, and I think probably a lot of our listeners have coins, and when you get to a point where you do want to sell them, I think you’re right. You paid such a premium. How do you sell them and not get ripped in terms of a price back to you?
JA: Yeah, or what’s the worst place to either buy or sell? I think there’s a lot of TV commercials or radio commercials. How big of a premium are some of these dealers selling this stuff at, and is the consumer even aware of what the markups are?
PH: Well again, it’s a relatively easy exercise to compare dealer pricing. There are actually websites that actually have comparative pricing, where if you punched in best price for one ounce gold eagles, it’ll come up, and it’ll pop up the five best dealers that are priced in the market for one ounce Gold Eagles. So it’s relatively easy to determine who’s the most competitive. What your listeners need to understand is that when they see the price of gold quoted to them, whether it’s on CNBC, or whether it’s in the Wall Street Journal, that price is quoted for what is called a standard bar. And in gold, a standard bar is a 400-ounce bar. In silver, it’s a thousand ounce bar. And the rule of thumb is, the smaller the unit from that standard bar size, the more expensive the premium relative to the price. So just to give you an example, a 400-ounce gold bar, close enough, it’s trading at $1,250. You can buy a 400-ounce gold bar very close to $1,250 an ounce. If you bought a one-ounce gold bar, you would pay a premium of anywhere between $10 and $25 over $1,250, depending on which dealer you go to. If you were buying a coin, I’ll use the American Eagle as an example. They tend to trade somewhere about three and a half to 4% over the gold price. So $1,250 plus 4%, you’d be looking at about another $50, so you’d be paying about $1,300 for an American Eagle. And it’s relatively easy to shop that.
AC: When you do have the coins though, what’s the best way to get rid of them and get the best price?
PH: Same thing. I would go to an online dealer, one that has some longevity to them, at least five years. That would be my recommendation. And dealers, on their websites, will show you not only offer prices but also bid prices. So if you’ve got a one-ounce gold eagle that you’re looking to sell, you can go, selling one-ounce gold eagle, a comparative price website will come up, and you’ll be able to see who’s bidding the highest for a one-ounce gold eagle.
JA: So what’s the difference between gold and silver, in regards to purchasing it?
PH: Exactly the same. All dynamics are exactly the same for silver as they are for gold. You can buy silver ETFs, you can buy physical bars, you can buy coins. The most popular silver coins are the American Eagle, the Royal Canadian Mint Silver Maple Leaf, the Australian kangaroo, the British Royal Mint Britannica coin. Those are the four most popular silver coins. Gold, you have the Gold Eagle, the gold Buffalo, the gold Maple Leaf, also the Australian gold kangaroo, and also the gold Brittanica, those are the five most popular gold coins. Bars, the most popular size of bars are one ounce, 10 ounces, and for some of the larger investors, kilo bars, which are 32.147 ounces of gold. A kilo bar is one of the primary products that are sold into the Far East, into the Chinese market. The Chinese love kilobars. So in that range, you have fractional coins, you can go down to a tenth ounce Eagle coin, you can go down to a one gram gold wafer, so there’s a variety of products you can buy from metal that will meet the psychology of why you’re investing.
JA: So, with that second group of individuals that want a certain allocation to gold, would you then recommend probably just a gold or silver ETF, or physical gold? But that would be pretty hard to continue to rebalance. You have to go to the shed and dig it up. (laughs)
AC: I’ll sell half a bar to ya. Cut it in half. (laughs)
JA: Get my treasure trove out. (laughs)
PH: Yeah that’s exactly my point. Again if you fall in group #1, you’re going to go with the physical product, because you’re not looking to rebalance, you’re just looking to hold gold. If you’re looking at to hold the percentage of your gold as protection against your assets, and you have no fear of the system, you’re not worried about holding an ETF, and you’re not worried about holding a mining share, or a mutual fund, I think that would be a better way to make an allocation towards gold as a portion of your overall portfolio.
JA: This is all a big belief system, I think with everything else. And what’s really popular now is the Blockchain and Bitcoin. It has some similarities there. Would you agree?
PH: No I think Bitcoin is a little different. Bitcoin, first of all, I can’t come up with a value on Bitcoin that makes any sense. I can come up with a value on gold, based on what the production cost is, what supply/demand is, I can generate enough fundamental information on the gold market to come up with an educated guess as to whether or not I think the gold market is cheap or expensive at certain prices, so I think there’s enough data there to be able to make an educated assumption. Whereas with Bitcoin, I have absolutely no clue. One day it’s at $13,000, this morning on one of the exchanges it hit 19, and now it’s trading at $15,000. I don’t have enough data to be able to make a reasonable assessment as to the logic of Bitcoin. But gold does have a history. And that’s one thing Bitcoin does not have. You can have very strong, empirical evidence on what happens to the price of gold when certain things happen in the market i.e. 2008, i.e. wars, financial crises, inflation. So there’s a number of parameters that, when certain things happen within the economic system, you can see the direct correlation to what happens to the price of gold. So there is empirical evidence that you can then justify your, “I should be in this market, or I should be out of this market, and I should be into this market by X percentage as opposed to being out of the market.” So it’s different in that sense.
JA: Peter, great stuff. Where can people get more information on you, your firm, and get more educated on this topic?
PH: Yeah one thing I wanted to say, I’m not promoting Kitco, but having been in this business since the mid-70s, what I found extremely intriguing about Kitco, is the site, which is Kitco.com. And the reason I bring that up is, most dealers don’t have informational sites. They put up their products, and they put up their promotions, and they’re basically in the business to sell gold. If you read Kitco.com, and we have a Chinese wall between our media division and our metals division, Kitco.com is probably the most incisive news site for precious metals that I’ve run across. So people that are new to the game, or even people that are well-established in the gold market, the commentaries that are posted on Kitco.com, and first of all, these commentaries are not posted by employees of Kitco, I do post the blog every day, but 99.9% of the blogs are totally outside analysts. So we’re unique in the sense that, we’re a company that posts news and analysis on the precious metals market that is sometimes bearish, and sometimes bullish, and sometimes you’ll get three people that are bullish and three people that are bearish on the same site. And I think it’s a great tool to educate yourself on what makes the market move and other analysis on the precious metals market. So that would be my recommendation, is to at least read Kitco.com to become aware of the market, and then if you do decide to pull the trigger, you have the option of buying the metal from Kitco, or you can go to another dealer. But at least you can get the information on our site.
JA: So that’s Kitco.com. That’s Peter Hug, folks. We got to take a short break. That was awesome. We’ll be right back. Show’s called Your Money, Your Wealth.
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Time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths and advice to improve your overall financial picture – in handy bullet-point format. This week, What To Buy Recent Retirees To Transform Their Quality of Life
30:17 – Big Al’s List: What to Buy Recent Retirees to Transform Their Quality of Life (MarketWatch)
AC: I got a different kind of list today, Joe, because we got the holidays coming up. Got Hanukkah, Christmas, Kwanzaa – to be politically correct I say holidays. And as a consequence, a lot of people want to buy gifts for their loved ones, and maybe you have a parent that’s recently retired, or maybe that’s been retired a long time, and maybe they kind of have what they need. What do I get them?
JA: So this is just gifts for retirees?
AC: This is what to buy recent retirees to transform their quality of life. So this is what you can do for your mom, Joe, because she’s buying a home. Now the first one is too late for you and your mom. But it says, “more Americans want to downsize their homes rather than buy larger homes. And that may be even harder for seniors. But there’s help for that. The National Association of Senior Move Managers provides services for de-cluttering and moving senior citizens out of their homes.” And that’s one of the biggest complaints I hear – even my parents, and we have this quandary, which is they have four storage units. When are they ever going to get to them? And here’s a service that will help you.
JA: Yeah but it’s not necessarily the physical act of doing it. It’s them going through all of that stuff.
AC: I know, that’s a problem. But, here’s the thing. Here’s where it’s helpful, is if you’ve got some strong people to go through all your stuff, and you can say, “keep, Goodwill, throwaway.”
JA: Yeah, but they’re going to say, “well no, I can’t throw that out.” Because my mom just did that. So she closes on her little retirement home next month. So, over the past several months, I think we decided to do this, I don’t know, maybe five months ago? Over the summer – maybe in June. And it’s been a process. My father passed, what, now, seven, eight years ago. But throwing away his clothes, or Goodwill, and then you see the pictures… so that’s why she sent me bins of stuff. I have a report card from my elementary school! I’m like, “Mom, why are you sending me this crap? I don’t need trophies from third grade?!” I’m like, “No.” She’s like, “well I can’t throw that out.” The only thing I liked, I got my lettermen’s jacket.
AC: Oh, that’s good. Yeah. Well, I have a solution for your mother. You can give her this book, called, “The Life-Changing Magic Of Tidying Up.” It’s a book on decluttering by the Japanese author Marie Kondo. And it talks in-depth about purging possessions that don’t bring you joy and living a more organized minimalist lifestyle. You read that first, and then you hire these people to help you go through your clutter. Which by the way, can cost $50 to $125 an hour, so it’s not exactly cheap, and a full house might be up to $4,000, but if you’re stuck, It’s an approach.
JA: Hoarders. Ever seen that show?
AC: Hoarders? No.
JA: You’ve never seen Hoarders?!
AC: No, I don’t watch as much TV as you do. (laughs)
JA: Oh my god! I don’t watch it! (laughs)
AC: Why would I watch a show on hoarding?
JA: Deb, you’ve seen Hoarders. Of course, everyone that’s listening have seen Hoarders! (laughs)
AC: (laughs) Well I haven’t.
JA: Because you’re a special person, Alan.
AC: I don’t watch anything, hardly. Except Ann said, “I want to watch some sappy Hallmark movies,” so I watched two of them in the last three nights. So I saw the story about a doctor that moved up to Alaska, and had some trouble with the cold, and fell in love. Good stuff. I’m watching happy stuff. I don’t care about hoarding. OK. So here’s another thing you can do for your senior, is find and hire a handyman for repairs around their house. And this, again, I’ll kind of bring up my parents. Things break in their condo in Oregon, it’s like, “we don’t know what to do.” And they’re so used to doing everything themselves. I think that was the mentality of that generation. And we actually did it. We hired a repair person for them.
AC: Yeah, Schneider. It cost whatever, $100, and they got their toilet fixed and they got their whatever.
JA: 24-7 on call?
AC: No, whatever you want.
JA: Live in? A live-in handyman?
AC: Well they don’t have an extra bedroom.
JA: That’s probably what my mom wants. (laughs)
AC: (laughs) OK, so let’s move on to technology. Because it turns out that seniors are becoming increasingly competent on technology. Today, about 42% of people 65 years and older own a smartphone. That’s up 24% from just 2013. And I know that’s true because my dad now owns a smartphone. He doesn’t know what to do with it, but he’s got a smartphone. And it says that 67% of seniors actually use the Internet. 51% have a home broadband network.
JA: Only 50%?
AC: Yeah. Well, you’re talking about anyone 65 and older, so it could be the 80s. 90s. So what they’re suggesting, is maybe get your senior, your parent, your grandparent, your friend – maybe get them a tablet, and show them how to use it. And the recommendation is a tablet over a laptop because they’re easier to use and they’re lighter. So easier to hold. My mom has a tablet.
AC: We’re just learning everything about Big Al’s family. (laughs) You get the whole ball of wax.
JA: Yeah! Dad’s got a smartphone, Mom’s got a tablet. (laughs) Everything down the list, “oh yeah, my Mom’s got that too!”
AC: I didn’t know about this. You could you could consider a technical support service like Bask. Never heard of it. Starting at $15 a month.
JA: We need that at Pure Financial Advisors. (laughs)
AC: (laughs) We do. We need the other one called Nerds on Call. But Sessions cost between $99 and $229. Or you can hire a local tutor. (laughs) So, staying healthy and happy. How about getting your parent, grandparent, getting a meal plan? Costs from $100 to $300 a month. These include South Beach Diet, Diet on the Go, Nutri System, Weight Watchers. Get them healthy, so they can live and enjoy their lifestyle.
JA: Their tablets and smartphones.
AC: When they when they start thinking about going on a trip, just buy them an $80 lifetime senior pass for America’s National Parks, which allows them to go into any national park for the rest of their life. It’s a one time fee. That, actually, is a great tip for people that want to see America’s jewels, national parks. You have to be 65 I think. Or maybe it’s 60, come to think of it, if I’m not mistaken. They talk about services for if you take medication. There’s a company called Pill Pack that will sort medications into a daily dosages. And they also have people that will check up on you, make sure you’re taking the pills you’re supposed to take. They’ve got companions that will accompany travelers on a trip – like, getting on airplane nowadays is quite an event. And if you’re in your 80s, you may not know, you gotta take off your shoes and your belt…
JA: So it’s like a My Buddy. But it’s a human for older people. Remember the doll, My Buddy? Probably not.
AC: No. (laughs) Why would I know that?
JA: See, Deb knows! It’s the song, (singing) “My Buddy, My Buddy. Wherever he goes, I go.”
AC: You forget, I’m a different generation of the two of you. The Freebird Club is an AirBnB style service geared for people over 50. So that’s me. Members of this program stay with each other on trips, so they can companion. So anyway, that’s all I got. (laughs)
JA: I give that a D+. (laughs)
AC: That was great journalism. (laughs) If you’re interested, go to MarketWatch, you can see the whole darn list.
JA: We’ll probably have it on our website.
AC: I think so, we usually link them to my list.
JA: Yeah, on our podcast.
AC: Aren’t you pleased that I got away from 10 Things To Do, or 7 Things You Absolutely Have To…
JA: Yeah, that was a struggle for you.
AC: Yeah, because I didn’t have a number. (laughs)
We do have a number, it’s 888-994-6257. That’s 888-994-6257! Use it whenever you have a burning money question for Joe and Big Al, and they can answer it for you, live, during Your Money Your Wealth. That number again is 888-994-6257. Of course, the fellas are always willing to answer your email questions – email@example.com, or send them directly to firstname.lastname@example.org, or email@example.com
40:01 – Permanent Vs Term Life Insurance
JA: This is George, from Carlsbad. “I’m 43, wife 47. I could buy a one million, 20-year term policy for both of us. Annual premium of $2,100. For only $1,000 more. I can get a million dollar 30-year term. Wife, a one million 20 year term, and $10,000 for my two children. It would have a conversion privilege with no health questionnaire anytime in the next 20 years. I could exercise that conversion right to a permanent policy or could add an LTC rider to provide long-term care coverage. We currently have $500,000 each. What are your thoughts on life insurance? My youngest child is 12.
AC: You lost me in some of the numbers, but I’ll talk generally. I think age 43, you have children…
JA: He’s looking at a million dollar policy for him and his wife. 20 years, 30 years, and then looking at certain premiums.
AC: Yeah, so I would say the least the way I would probably look at life insurance in his case, is to insure his and/or her income during their working years. And if they’re planning on working to 65, which is roughly 20 years, then a 20-year policy might be enough. On the other hand, there may be reasons to do a 30-year policy, maybe you just got a 30-year mortgage, and you’re concerned that if something happens even after 20 years and your spouse, you’d like to have that paid off. There’s there’s a lot that goes into it, but I guess one of the biggest things I would say is I’m a fan of term insurance, which is a lot cheaper. I’m not a huge fan of permanent insurance, which is a lot more expensive.
JA: Well, it’s more expensive upfront, but it could be cheaper if you needed it down the road. Because with a term policy, it’s just for a specific period of time and then it expires, 10 years, 20 years, 30 years. And most people don’t die with a term policy because they either let it lapse, they stop paying the premiums because they feel they don’t need it anymore, or the term expires and they don’t renew it, because now it’s 10-20 years later and it’s way too expensive. So a permanent policy, the premiums are a level premium, but it’s permanent. In most cases, you’re going to die with that policy, because you’re building up cash value within the policy, and that cash value then helps pay the premium. And I agree with you, Al. I’m a bigger fan of term versus permanent unless you have a permanent need.
AC: True. Like for example, maybe you decide to do some estate planning and you put a big asset in a charitable remainder trust, which means when you pass away goes to charity. But you want to make sure the kids have basically the asset that was lost coming to them in another form, which could be a permanent life insurance policy.
JA: But 43 and 47, I wouldn’t imagine that that’s probably their case. I’m thinking permanent need would be a special needs child. So there’s going to be some sort of level of cash that would be needed for that child when you’re gone.
AC: Yeah, although I’d still rather buy a term policy and then do my own investments. And the reason is that insurance companies tend to have pretty high internal costs.
JA: Yeah but it’s all leverage though. So you have to take a look at the internal rate of return. And then here’s Al’s argument, and I’m not disagreeing with him. He’s saying, “I’m going to have a cheaper premium, but I’m going to take that difference, and I’m going to invest the difference. Buy term, invest the difference. So then when I pass away, I have investments that could take care of the need of the child.” You have to look at the internal rate of return because let’s say if I’m in a permanent policy, Al’s got a term policy, and then invests the difference. And if he doesn’t die within that term policy timeframe, 20 years let’s say, but he’s saved X amount of dollars throughout, because he didn’t have a larger premium to put in the insurance policy, and then now he’s got this bag of money, then the child can have the bag of money. Well, what rate of return are you generating, and things like that. In a permanent life insurance policy, you’re buying it for the death benefit for the child, period. That’s what you’re dong. Because that’s a guaranteed rate of return of some sort. So if I die within two years, my rate of return is going to be 12,000%.
AC: Sure, and if you live to 100, it’s a pretty low.
JA: It could be 2%. Yeah but it’s still a guarantee and that benefit would go to the child, tax-free. So then you look at the tax – well, they would get a step up in basis I guess in your example.
AC: Now a flaw with my example is that you really have to save the difference, and a lot of people spend it. (laughs)
JA: Of course!
AC: That can be a problem. But I think if you if you work out the numbers, I think in more cases than not, I’ll go out on a limb and say you’re better off with the term policy and investing the difference than a permanent policy.
JA: In what scenario? All scenarios?
AC: No not at all scenarios. But in the most common scenario. I’m making a presumption here, but husband or wife are insuring their income for their working years which is probably 20 years.
JA: Yeah, like in a normal standard situation, they don’t have a permanent need. So they should buy term insurance.
AC: Yeah. Do you have life insurance? Duh?
AC: Term or permanent?
JA: Term for sure.
AC: Me too.
JA: I don’t have a special needs child, or I don’t have a huge estate that I need to pass wealth on or things like that.
AC: I think my term insurance goes through age 68.
JA: Yeah well I have two policies, we also have one at work.
AC: Yeah that’s true. I wasn’t counting that. But one you’re actually paying for.
JA: Yeah. Ruthie’s my beneficiary. Just in case something happens, then she’s set.
AC: She’s counting on you. (laughs)
JA: Yeah right. (laughs) But the bigger question, I think, what we’re missing here, is how much do they need. So he’s assuming he needs a million dollars. I think that’s probably way too low at 43 years old and you’ve got a 12-year-old child.
AC: Yeah me too. I would say you look at your need. And so if you’re making $100,000 a year for 20 years, that’s 2 million. So maybe that’s the number. Now it’s a little more complicated, you might want to take a present value and do some other calculations. It’s kind of what are you trying to insure for? Maybe it’s, “I want to ensure my income for the next 20 years, and I want extra to pay off the mortgage.” OK well, then that’s fine too. So maybe you get $2 million plus $500,000.
JA: You’ve got to look at your financial goals. I want to retire at some point, or my spouse needs to continue her lifestyle. We have kids, they need to go to school. And so my combined income, let’s say if I was married, then the spouse and I, we’re saving money in our 401(k) plans, Roth plans, 529 plans, and everything else. And then I get hit by a bus. Well, then my income is totally gone. But also, all the savings and everything else. Now she can’t save as much because then she’s got to make that income stretch, because we got kids. So there’s a lot of other variables here. And I think most people are significantly under-insured in their 30s and 40s and probably 50s.
AC: And what about this, because this comes up. You get a mortgage and then you start getting things in the mail about mortgage insurance. He dies and the pay off your mortgage. You’re a fan of that.
JA: I don’t think so. No, I don’t even know any of those names. I want to go with a triple-A rated insurance company. It’s like “Bob’s Insurance.” Who the hell is Bob and is he gonna be around when I die?
AC: I’m not an expert in this. So take this with a grain of salt, I guess. But when I have a look at these kinds of things, the cost for the mortgage insurance was way higher than just the life insurance policy, a term life insurance policy. So I’d rather just increase my term life insurance to cover that.
JA: Question for you. Just going to ask you a personal question. I get something in the mail.
AC: From the IRS? (laughs)
JA: No no no no. Not this year. (laughs) Insuring the water pipes under your home. “$3 a month! It could cost you hundreds of thousands of that thing bursts at any time!” I was like freaking out/
AC: The letter I got said it might cost $3,000. I said forget it I can cover that. (laughs) Maybe it was $5,000, I don’t know.
JA: It wasn’t a couple of hundred grand?
AC: No. It wasn’t that much. And it probably happens, what, when you’re out in your yard trying to plant an avocado tree. (laughs)
JA: Or you’re building a pool on your own. (laughs) You got the backhoe out there, didn’t survey anything. (laughs)
AC: That water pipe goes down, you hit the gas line, your house burns down. “Whoops, sorry.” (laughs)
JA: I just wanted some jacuzzi! (laughs) All right, that’s it for us. For Big Al Clopine, I’m Joe Anderson. Have a wonderful weekend everyone. We’ll see you again here next week. Show’s called Your Money, Your Wealth.
So, to recap today’s show: It looks like tax reform is going to affect your ability to do Roth recharacterizations for 2017 – and it’s going to affect a lot of other stuff too, so call 888-994-6257 ASAP to make an appointment before the end of the year to discuss your personal financial situation. Hiring a decluttering service, a handyman, a technical support service, or a travel companion can improve the quality of life for the senior in your life – and so can spending time with them yourself, whenever possible. And if your name is Bob and you sell water pipe insurance, don’t expect to hear Joe or Al – or from any listeners of Your Money, Your Wealth for that matter!
Special thanks to our guest, Peter Hug from Kitco. For more information about buying or selling gold and silver, visit Kitco.com
Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, if you have a burning money question for Joe and Big Al to answer live on Your Money, Your Wealth, just email firstname.lastname@example.org, or call 888-994-6257! Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com
Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.