Market-Moving News[i]
Record heights
The Dow on Monday eclipsed a record high that it had set in mid-July while the S&P 500 followed suit on Thursday as stocks were lifted by the first interest-rate cut since March 2020. Each of the major indexes gained around 1.5% for the week, leaving the NASDAQ nearly 4% shy of its historic peak.
Fed goes for 50
As expected, the U.S. Federal Reserve on Wednesday cut its key lending rate, and it opted for a reduction of 50 basis points―or 0.50%—rather than a more incremental 25-point cut that some had forecasted. The move was backed by 11 of 12 Fed voting members and left the Fed funds range at 4.75% to 5.00%, with further cuts expected at Fed meetings in early November and mid-December.
Cut’s market impact
The week’s biggest move in the stock market came on Thursday—the day after the Fed’s rate-cut announcement—when the NASDAQ jumped 2.5%, the S&P 500 added 1.7%, and the Dow rose 1.3%. In the bond market, the yield of the 10-year Treasury was 3.73% at Friday's close—higher for the week, but down sharply from a year-to-date peak of 4.70% in late April.
Retail resilience
Monthly U.S. retail sales rose slightly, beating the expectations of most economists, who had predicted a slight downturn. Sales rose 0.1% in August, and the Commerce Department also revised July’s gain to 1.1%, up from an initially estimated figure of 1.0%.
Yield curve normalization
A bond market indicator that’s often cited as a gauge of the prospects for a recession is no longer indicating a high potential for an economic downturn. Since mid-2022, the yield of the 2-year U.S. Treasury note had been higher than that of the longer duration 10-year Treasury—a rare occurrence known as a yield curve inversion. On September 4, the 2-year yield crossed back below the 10-year yield, and it has since stayed there, with Friday’s closing 2-year yield at 3.58% and the 10-year yield at 3.73%.
PCE inflation ahead
A monthly report scheduled to be released on Friday will show whether the recent easing of inflationary pressures extended into August. The most recent report covering July showed that the Personal Consumption Expenditures Price Index rose at an annual rate of 2.6%, excluding energy and food prices.
The Week Ahead: September 23-27
- Monday
- No major reports scheduled
- Tuesday
- S&P/Case-Shiller 20-City Composite Home Price Index
- Consumer Confidence Index, The Conference Board
- Wednesday
- New home sales, U.S. Census Bureau
- Thursday
- Second-quarter GDP, third estimate, U.S. Bureau of Economic Analysis
- Pending home sales, National Association of Realtors
- Durable goods, U.S. Census Bureau
- Weekly unemployment claims, U.S. Department of Labor
- Friday
- Personal Consumption Expenditures Price Index, U.S. Bureau of Economic Analysis
- University of Michigan Index of Consumer Sentiment
Philosophy Quote of the Week[ii]
The Most Secure Fortress
“Remember that your ruling reason becomes unconquerable when it rallies and relies on itself, so that it won’t do anything contrary to its own will, even if its position is irrational. How much more unconquerable if its judgments are careful and made rationally? Therefore, the mind freed from passions is an impenetrable fortress – a person has no more secure place of refuge for all time.”
Marcus Aurelius, Meditations, 8.48
Bruce Lee once made an interesting claim: “I fear not the man who has practiced one kick ten thousand kicks once,” he said, “but I fear the man who has practiced one kick ten thousand times.” When we repeat an action so often it becomes unconscious behavior, we can default to it without thinking.
Training in the martial arts or combat is a deeply thoughtful study of movement. We sometimes think of soldiers as automatons, but they’ve actually built is a steady pattern of unconscious behaviors. Any of us can build these.
When Marcus says that a mind can get to a place where “it won’t do anything contrary to its own will, even if its position is irrational,” what he means is that proper training can change your default habits. Train yourself to give up anger, and you won’t be angry at every fresh slight. Train yourself to avoid gossip, and you won’t get pulled into it. Train yourself on any habit, and you’ll be able to unconsciously go to that habit in trying times.
Think about which behaviors you’d like to be able to default to if you could. How many of them have you only practiced once? Let this week be twice!
Tax Tips[iii]
Financial Planning and Fiscal Fitness
To Become a Millionaire, Consider the Following Points:
- Discipline Equals Success
Putting something away each payday is better than waiting until later. Frequently people do not believe they have money to put away. However, if you were to put away the cost of a pack of cigarettes or the money spent on Starbucks each week, you would be surprised at how much money you save every month!
- Systematic Investing Provides the Building of Wealth
Having money taken from your pay and put into a savings account is easy for many people, because they never see the money coming out of their check, they just see their account growing. Everyone needs an emergency fund. An emergency fund should be 3-6 months of living expenses. The emergency fund an be placed in a savings account. Although savings accounts generally pay low interest, in an emergency they can save you borrowing a lot of money with a high interest rate.
- Start Today Because the Longer You Wait, the Less You Make
Putting money away when you are 20 is easier than putting it away when you are 40, because you will need to put away three times as much if you wait until 40 to start saving. Compounding allows you to need less at an earlier period, which allows you to have more at a later period.
- Time and Compounding are What Make You Money
Einstein said the greatest secret in the universe is the power of compounding. Most people become rich from making money on money, not from finding secret stock tips. The key is investing money in something that pays you money and then reinvesting it. For instance, buy stocks that pay dividends then reinvest the dividends. This is better than buying new stocks and hoping they rise drastically over time.
- Work With a Financial Planner – Work With Us!!
Discuss what type of savings plan can be established for you. As they say in physics, “An object in motion tends to stay in motion and an object at rest tends to stay at rest.” There are many savings opportunities available and once you start it’s easy to continue.
Most of us are aware that we need to have a workout and diet plan to stay healthy. You also need a plan to stay fiscally healthy. After learning some of the above theories, let’s learn how to develop a specific financial plan to know roughly how much you should be spending on a few different items. This plan is based on an annual basis of spending for the entire year. While some categories spent may be more than the annual range for any one month, if you stay in the range by the end of the year you should be fine!
You should always have six months’ living expenses set aside in an emergency fund (not invested – just sitting in a savings or money market account) before you start anything else. You also need a strong insurance plan that includes life, health and disability insurance. Once the emergency fund and insurance plan are in place you can start financial planning.
Spending Guidelines
- Housing (17-25% of income): rent/mortgage, repairs, escrow payments (your property/renter’s insurance and property taxes)
- Food (10-14% of income): groceries for you and family only!
- Transportation (10-13% of income): gas, car payments, repairs, insurance
- Entertainment and Clothes (5-9% of income): clothes, movies, theater, theme parks, gifts to others, holidays
- Utilities (5-9% of income): gas, electricity, water and phone
- Retirement Account (15% of income): from your gross income, and only after you have an emergency fund saved
- Healthcare (7-10% of income)
- Charity (5-10% of income): ideally 10% is best but sometimes you must adjust; donate to local charities
Once you have an idea of what your spending habits are, you might be able to adjust so that you meet or even beat the average of the American taxpayer.
You should have an idea of the priority of spending for these categories.
- Food
- Housing
- Utilities
- Transportation
- Healthcare
- Retirement Planning
- Charity
- Entertainment or Clothes
These are guidelines and certainly vary from person to person. Not everyone spends in all the categories listed. Your fiscal exercise plan should be to try and stay within the target ranges each month.
By using the financial planning tips, couples with a fiscal fitness schedule like the one outlined above, you should be financially independent and successful relatively quickly! Like the story of the tortoise and the hare, the tortoise always wins.
Financial success is not a sprint! It’s a long-distance marathon!!
Remember – always contact your tax professional for help! That’s what you pay them for!
Life Insurance Awareness Month[iv]
Living Benefits of Life Insurance | 2024 Guide
Written by Sarah Horvath
As most people get older, they run into more complicated (and expensive) health concerns. Living benefit life insurance is a financial hedge that provides policyholders with the ability to access a portion of their cash benefit while they’re still alive — under select circumstances.
Different options are available depending on if you have term life insurance or permanent life insurance policies and if you opted to get any riders.
What Are Life Insurance Living Benefits?
A living benefit rider in life insurance is a coverage add-on that allows you or your beneficiaries to access the death benefit of a life insurance policy while the beneficiary is still alive. Living benefits insurance may be offered as its own policy or as a rider that you can add to whole life or term insurance. Some life insurance companies refer to this add-on as an accelerated death benefit rider.
Term Life Insurance Living Benefit Options
The qualifying circumstances under which you can access your accelerated death benefit will vary based on the rider you purchased. Some of the most common living benefit options that may allow you to access your death benefit early for term life insurance include the following:
- Terminal illness:Terminal illness living benefits insurance gives you access to your death benefit if you’re diagnosed with an illness with an anticipated life expectancy of six months to two years, depending on the insurance company. For example, if you’re diagnosed with end-stage renal failure with an estimated one year to live, a terminal illness rider might allow you to use the death benefit as a lump sum payment to cover end-of-life care.
- Chronic illness: Chronic illness riders let you use your death benefits if you’re diagnosed with a recurring illness that significantly impairs at least two of the six activities of daily living (ADLs). ADLs include eating, putting on clothes, bathing, toileting, transferring and continence. You can use the proceeds from a chronic illness rider to cover the cost of in-home care and gain more quality of life.
- Critical illness: A critical illness kicks in when you suffer a sudden life-threatening illness, such as a heart attack or stroke.
If allowed to tap into your death benefits early, you usually get a lump sum. You may be eligible to receive the entire death benefit or only a percentage of it. It all depends on medical bills or other care needs spelled out in the terms of your policy.
Permanent Life Insurance Living Benefit Options
Permanent life linsurance policies can offer living benefits in the form of cash withdrawals or loans against the policy’s accumulated cash value. Depending on the specific policy and insurer, policyholders may be able to access a portion of the cash value to cover expenses such as medical bills. For example, a whole life insurance plan with an investment portion may allow you to take a low-interest policy loan to cover medical expenses if you’re diagnosed with a terminal illness.
Cost of Living Benefit Life Insurance
Living benefit life insurance adds more cost to your policy. Because a living benefits add-on increases the number of qualifying circumstances when your insurance provider will need to issue the death benefit, plans with living benefits are riskier. Hence the extra cost. Other factors that influence the price you’ll pay for living benefit life insurance may include:
- Coverage structure
- The frequency with which you use alcohol and tobacco products
- Total accessible death benefit
- Your medical history
- Results of an in-person medical examination
- Your age, height and weight
Why Should You Use Living Benefits?
There are a number of situations when you might need early access to the cash value of your policy. For example, about 70% of senior citizens will require some type of long-term care during their lifetime. Long-term care may not be covered by either standard health insurance or Medicare Part A and Part B. Even if you’re below retirement age, an accident or illness might leave you with an immediate need to cover medical expenses or pay for loved ones’ day-to-day needs as you recover. Many term life insurance plans do offer riders for terminal illness coverage and many permanent policy plans allow you to “cash-in” early and withdraw your basis and borrow against your policy's accrued value if you need to.
How Life Insurance Living Benefits Work
To access living benefits, a policy owner must meet certain qualifying criteria, which are outlined in the policy. Typically, this includes being diagnosed with a serious illness or condition such as cancer, heart attack, stroke or terminal illness. An insurance agent working with your provider can guide you in the next steps to navigate the claims process.
You must already have a life insurance plan in place with your living benefits rider when you’re injured or get sick to qualify for the payout. Most life insurance living benefits include a waiting period from the time you sign onto coverage until the date when your insurance goes into effect, which prevents you from buying the add-on after you qualify for the benefit.
How to Get a Life Insurance Policy with Living Benefits
- Research insurance companies that offer it.
- Look for policies that specifically mention living benefits or accelerated death benefits. Both term and permanent life insurance policies may offer these riders, and coverage is available from most major insurance providers. You can also work with a licensed insurance agent or financial professional, either of whom can help you find policies that fit your needs and budget.
- Once you find a policy you’re interested in, you’ll need to apply for coverage. That usually involves filling out an application and undergoing a medical exam, which helps the insurance company determine your risk profile and your cost of coverage. If you have a pre-existing medical condition, you may need to provide additional information or documentation to the insurer. The best no-exam life insurance options could be appealing for those already showing symptoms of a disqualifying disease.
Living Benefits Riders
If you’re approved for coverage, you can add a living benefits rider to your policy if it’s not already included. This typically increases the cost of the policy, but it provides valuable coverage in case of a serious illness or condition. The added tax-deferred growth of a cash value life insurance with this extra benefit can provide more complete peace-of-mind for your loved ones if you’re growth- and investment-oriented.
If your policy includes some form of living benefits as standard coverage, you may be able to use the rider to add extensions listed above. For example, your policy might include critical illness benefits as a part of its standard life insurance coverage but include nursing home care as a rider. Specific insurance products offered will vary depending on the company you’re working with.
Frequently Asked Questions About Living Benefits of Life Insurance
- Is living benefit insurance worth it?
Living benefit insurance may be worth the cost if you’re healthy but at a higher risk of developing a terminal illness — or if you work in a high-risk profession. While this type of life insurance may not be your best option for cheap life insurance, it can enhance your peace of mind if you have limited savings available.
- What is a living benefit v. death benefit?
The term “death benefit” refers to the payout that a policy’s beneficiaries are entitled to if the policyholder dies while the policy is active. A living benefit rider is an extension that allows policyholders to access the death benefit while they are still alive under qualifying circumstances. Living benefits may be included as a term of the policy itself or added onto a term or whole life policy for an extra cost.
- Is Living Benefits Life Insurance Better Than Traditional Life Insurance?
The benefits of life insurance with living benefits can provide enhanced peace of mind, especially if you have limited savings for health care expenses. However, these policies are more expensive than traditional life insurance plans, which may not make them the best choice for those looking for limited, affordable protections.
- What is the difference between whole life and term life insurance?
Term life policies provide a death benefit to beneficiaries only if the policyholder dies during the active term of the policy. In comparison to term life insurance, whole life policies cover the policyholder’s entire life and guarantee a payout to beneficiaries as long as premiums were paid up at the time of death.
[i]https://www.jhinvestments.com/weekly-market-recap#market-moving-news, accessed 09.22.2024.
[ii] Holiday, Ryan. The Daily Stoic: 366 Meditations on Wisdom, Perseverance, and the Art of Living. Kindle edition, page 285-286. Accessed 09.22.2024.
[iii] Hockensmith, Robert F. 52 Ways to Outsmart the IRS, Weekly Tax Tips to Save You Money. Kindle edition, page 171-174, accessed 09.22.2024.
[iv]https://www.marketwatch.com/guides/life-insurance/living-benefits-life-insurance/, accessed 09.22.2024