The Top Five Beneficiary Blunders

Dayana Yochim, writing in the Motley Fool (http://www.fool.com/) listed five common mistakes that people make when completing the beneficiary form for life insurance policies. I thought it was worth mentioning them here as well.

1. You assume that your will is going to take care of all the details. Your beneficiary designations always take precedence over your will. Make sure that your will and your beneficiary forms are consistent with one another. If you have a trust, make sure you designate the trust as the beneficiary, not the person you name in the trust to inherit the money.

2. You subject your heirs to an avoidable tax bill. Failing to name beneficiaries on your IRA (or consigning the IRA to your estate) robs your heirs of the ability to maintain tax-advantaged growth over their lifetime. Without a beneficiary, your IRA money will be probated and your family will be required to withdraw the money within five years. If your heirs, with the exception of your spouse, withdraw the entire IRA (which most do) they will incur an immediate tax bill, and all subsequent earnings and capital gains are subject to federal income tax.

3. You forget to update your beneficiary forms. This is a very common mistake. You fail to change your beneficiary designations when the beneficiaries marry, divorce, come of age, die or you decide that they should no longer benefit from your passing. Do you really want your ex-spouse to realize an unexpected windfall?

4. You fail to designate a back-up beneficiary. If your primary beneficiary isn't around to collect and you don't name a second beneficiary, the court will decide who inherits the proceeds. You can name multiple primary and secondary beneficiaries. Don't be afraid to spell out how you want your assets divided.

5. You name minor children as beneficiaries. Until children reach the age of majority (either 18 or 21 depending on your state), minors can only inherit limited amounts. You should designate a financial guardian or set up a trust for minor beneficiaries. Make sure that the trustee or financial guardian has detailed instruction on how to manage the funds until the minor(s) come of age. Also, don't forget about mistake number three; eliminate the trust or guardianship when the beneficiaries reach majority.

You can avoid all of these mistakes by having someone with detailed legal and financial knowlege review your beneficiary forms and then compare them with your will or trust documents. Make sure that you schedule this review annually to insure that you are keeping up with changes in the law and changes in the personal situations of you and your beneficiaries.

Consumers Hold On To Their Investments

Advisor Today magazine reports that a new survey by the Life Insurance Marketing Research Association (LIMRA) shows that only "16 percent of the consumers polled in the survey have taken any action with regard to their financial portfolios." The survey also revealed that more than two-thirds of the consumers ranked economic conditions in the U.S. as 'very unfavorable,' although an increasing number believe that conditions will improve within the next 12 months.

As a Wealth Strategist, I encounter many people who believe that "staying put" and waiting for the market to return is the safest strategy. While their caution is understandable, this belief is flawed in a couple of ways: first, reliably predicting how the market will perform is difficult, at best. Reliable industry statistics reveal that even the four and five star rated fund managers are able to only capture 52 to 63% of the upside of the market. If you missed the 10 best market days between 1984 and 2003 (the biggest bull market ever) the 10 percent market average over this period drops to 7.1 percent. Miss the twenty best days and the average drops to just 5.3 and miss the 20 best days and your return is only 1.8 percent.

Secondly, assuming a perfect investment strategy, historical models show that average market performance will require years of a "stay put" strategy for a portfolio to simply return to the position it was in prior to the most recent market melt down. But don't just take my word for it, here's a link to the New York Times "Comeback Calculator" that will help you estimate how long it will take your investment portfolio to recover its peak value.

So what's the average investor to do with what's left of their retirement funds? What if there was a way to earn a guaranteed 8% on your money plus a 10% bonus without ever risking your principal or your gains? Would you take advantage of that? More to the point, why would you not take advantage of that?

Try this exercise, use the "Comeback Calculator" to estimate the recovery time of your portfolio using the 3.16 percent compounded annual growth rate of the S&P 500 over the last 10 years (1.8% when you adjust for inflation), assuming that you will make no further contributions to the account. Now use the "Comeback Calculator" to determine your recovery time using an annual return of 8 percent. Using the stay put strategy and an initial $100,000 investment (which is now worth only $60,000), the calculator shows that the stay put strategy will not return you to the starting position anytime in the next thirty years. If you were to use a guaranteed 8% return strategy, it takes 11 years to return to your former position.

As startling as this is, the real impact is in the long run. In 15 years, the stay put strategy yields a total value of just over $61,000 while a guaranteed eight percent strategy yields a value of over $126,700. Could you use an extra $65,000 for your retirement? If the answer is, "No, I won't need the extra money," then just continue to use the stay put strategy.

To learn more about the Personal Protected Pension Plan and how your bonus can earn you a first year return of better than 18%, call me or watch the video on my How You Can Retire Wealthy web site. Here's to helping you uncover your Hidden Wealth!

Did You Buy a Home This Year? Don't Forget Your Tax Credit!

Legislation passed in 2008 provides a tax credit for first-time home buyers. The credit equals 10% of the home's purchase price up to a maximum credit of $7,500. The credit applies to homes purchased on or after April 9, 2008 and before July 1, 2009. The credit is available in full for single taxpayers with income up to $75,000 and married taxpayers with combined incomes of up to $150,000. Under this credit, your tax bill is reduced (or your refund increased) dollar for dollar up to the $7,500 maximum.

The credit is claimed on the tax return for the year in which the home was purchased. If the purchase was made in 2009, you can elect to take the credit in either 2008 or 2009, whichever provides you the greatest tax benefit.

For more tax saving tips visit our website: http://www.howyoucanretirewealthy.com/

What part of your overall personal wealth is most important to you? Take our Personal Wealth Index and find out: http://www.wfgnetwork.com/wealth_index.php?inner_class=gp

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