Many employers offer disability income insurance as a group benefit. Some individuals, particularly high wage earners, will supplement this coverage by purchasing additional individual policies. In most cases, however, the maximum benefit is 60% of current earnings. If disability insurance is paid for with personal funds, then the benefits are generally tax-free. So, if you are in the 35% tax bracket and take into account Social Security and Medicare taxes, it means that you are likely replacing most of your cash flow. For some very high wage earners there is also a dollar cap. Thus, they may not get anywhere close to the 60% level. Disability insurance coverage can be viewed as expensive, unless of course, you end up needing it. Unless you are independently wealthy, you should certainly consider it. One of the biggest drawbacks to disability insurance is that, while it can cover living expenses such as mortgage payments, food, and other insurance policy premiums, there is no way it can fund a retirement plan. When you consider that most disability insurance coverage ends at age 65, it can cause serious retirement problems for anyone who has become permanently disabled.
Leave it to the insurance industry to come up with a solution. Several companies now offer “Retirement Savings Disability Income Insurance,” specifically designed to cover the loss of retirement contributions, and any employer match, if you become sick or injured and unable to work. Benefits are based on how much you and your employer contribute to an eligible qualified retirement program. If you are disabled, the insurance company will pay these benefits to a trust. You then manage the investments, choosing from the trust company’s portfolio. At the later of age 65 or retirement, or when you meet other terms of the trust agreement, the trust assets will be distributed to you.
If you personally pay for the policy, contributions to the trust will be tax-free. However, investment interest, income or capital gains are taxable in the year they are accrued, even though the interest, income and gains are reinvested in the trust. These taxes are paid from the trust’s assets. You may defer taxes by investing in an annuity within the trust.
Retirement savings disability income insurance is designed to be combined with individual disability income insurance. Should you have an interest in basic disability or retirement savings coverage, please contact us, and we will be happy to develop a proposal on your behalf.
Over just seven years, the price of oil has risen 550%, from $20 to more than $110 per barrel. Much of the blame for this can be laid at the feet of the weakening dollar. However, the dramatic rise may also be due in part to speculators, such as hedge fund managers, who borrow money to purchase futures contracts for oil. Eventually, speculators flee markets and prices fall to a natural equilibrium. In the meantime, high oil prices provide incentives for scientists to find alternative solutions to our energy needs. As harnessing the sun, wind and waves for energy becomes less expensive, the demand for oil will naturally decline. Like all bubbles, the oil bubble will eventually return to earth. American ingenuity, intellect, and our free enterprise system have always come through in the past during a crisis, and there is no reason to believe the same won’t happen with this particular “crisis”. By the way, this same problem exists for many other commodities.
The expression, “the rich keep getting richer” may apply not only to the United States but worldwide. Oliver Wyman, a member of Marsh & McLennan, recently announced that the world’s millionaires now control $53 trillion of investable assets. Their wealth increased by an average 11% per year over the past five years, according to the study, but that increase is expected to slow down to only 9% average annual growth over the next five years. By then, millionaires are expected to control $75 trillion in investable assets.
According to the New York Stock Exchange, short selling was at a record level at the end of March, with 16 billion shares being shorted. When investors sell stock short, they sell shares they don’t own in hopes that prices will drop. That way, they can buy back shares at a cheaper price, return the shares to the investor who lent them, and pocket the profit. In essence, they are betting against the crowd. But what if the crowd is right and the price of that stock actually goes up? The short seller must buy the stock back at a higher price, losing more and more money as the market rises. As they buy to cover the short positions, more people are buying than selling, driving the price of the stock even higher. Therefore, if March’s short sellers are wrong and the market starts to rise, we could see some very positive upward spikes six to nine months from now, albeit with a great deal of up and down volatility along the way.
For the last couple of years anyone who has reached the age of 70½ has been able to donate up to $100,000 tax-free from their regular IRA accounts to a qualified charity. Many of our clients have taken advantage of this. Unfortunately, this special provision in the Tax Code ran out with the 2007 tax year. That’s the bad news. The good news is that this was so popular Congress is likely to extend it through 2008 retroactive to the first of the year. Thus, if you are planning on making any charitable contributions this year and are over age 70½ you might want to hold off doing that until later this year in the hope that Congress will grant the extension.
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon.
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