Category: Estate planning

Buying insurance and annuities

Two kinds of insurance products are often sold as investments, and should not be:

  • Life insurance
  • Annuities

There may be a place for both of them in your financial plan.  But they are often bought for the wrong reason because they are often misrepresented by the agent or misunderstood by the buyer.

Insurance products are complex and difficult for a layman to understand.  Let’s first review the basic purpose of these products.

Life insurance – its primary purpose is to replace the income that is lost to a family because of the premature death of the primary earner.  A young family with one or more children should have a life insurance policy on the earners in the family.  Ideally the insurance is will allow the survivors to continue to live in their accustomed style and pay for children’s education.

This usually means that younger families need more insurance.  However, there will be a trade-off between what a young family needs and what they can afford.  To obtain the largest death benefit, I suggest using a “term” policy.   “Whole Life” policies which have some cash value generally do not provide nearly as much death benefit and are less than ideal as investment vehicles.  Whole life policies are often sold using illustrations showing the accumulation of cash value over time.  What most people don’t realize is that illustrations are based on assumptions that the insurance company is not committed to.  This is the point at which an advisor who’s not in the business of selling insurance can prevent people from making mistakes.

Life insurance can also be used for other purposes.  One popular reason was to pay for estate taxes.  However, changes in the estate tax exclusion amount have made this much less attractive except to the very wealthy.

Annuities – useful for providing an income stream that you cannot outlive.  Like life insurance, it comes in a dizzying array of options that the average layman has trouble understanding. It is also one of the most commonly misrepresented insurance products.

Some of the most heavily promoted annuities are sold as investments that allow you to get stock-market rates of return without risk.  That’s one of those “too good to be true” offers that some people simply can’t resist.  The problem is that few people either read, or understand the “small print.”  Insurance companies are really not in the business of giving you all the upside of the stock market and none of the downside.  If they did, they would quickly go out of business.

These products are popular with salespeople because they pay high commissions.  Unfortunately they also come with very high early redemption fees that often last from 7 years to as much as 16 years.

If you have been thinking about buying a life insurance policy or an annuity you should first get some unbiased advice on what to look for.  Most insurance agents are honest, but like most sales people they would like you to buy their product.  It would be wise to get advice from someone who is an expert, but who is not getting paid to sell you a product.  There are a number of financial advisors who will provide guidance.  At Korving & Company we are Certified Financial Planners™ (CFP®) and licensed insurance agents, but we do not sell insurance products.   Since we don’t get paid to sell insurance we can evaluate your situation, advise you, and if life insurance or an annuity is what you need we can refer you to a reputable agent who can get you what you need.

How Advisors Can Help Surviving Spouses

Investopedia published an article we authored.

When the subject of death comes up, a term that’s often used to describe the feelings of those left behind is “loss.” But there is more to that loss than the loss of companionship. There’s also the loss of information, especially if the person who died also handled the family finances.
In my 30 years of experience advising families I have often had to help and council widows who depended on their husbands to manage the family finances. It’s fairly common for families to have several investment relationships. It’s quite rare to find that the spouse who managed the money actually did a good job keeping records and keeping his spouse “in the loop” when it comes to money management. And when her spouse dies, the widow has to deal with a host of organizations whose primary focus is on making sure that they don’t distribute money to anyone who is not entitled to it. The liability is too great. So we typically have a widow dealing with the death of a loved one, plus the Social Security Administration, the husband’s pension plan, and two, three or more brokerage firms who handled the couple’s investments. (For more, see: Estate Planning: 16 Things to Do Before You Die.)

Who Handles the Finances?

One of my earliest experiences was with a widow whose husband took care of all the family finances. He made the investment decisions, paid the bills and balanced the checkbook. He died suddenly and his wife did not know what to do. Childless and with no near relatives, she needed help. (For more, see: Estate Planning for a Surviving Spouse.)
While her husband’s will was up to date, during our first meeting she revealed that she knew nothing about her financial condition. She did not know how much she was worth, what her income sources were or what it cost her to live. It took a while to learn where all the investments were, what her income sources were and how much she needed to maintain her lifestyle. (For related reading, see: Advanced Estate Planning: Information for Caregivers and Survivors.)
Over the years I found that this situation was not uncommon. Balancing a checkbook, paying bills and making investment decisions does not appeal to a lot of people. They are happy to allow their partner to do that for them. The problem with this division of labor does not appear until the individual in charge of the finances disappears either through death or incapacitation.

Helping Manage the Transition

This is the point at which a trusted financial advisor can ride to the rescue. A good one is willing to go through records to see what it takes to run the household. He will be able to determine the survivor’s income. He will know how to identify the family’s investment and bank accounts even if the records are incomplete. Just as important, a financial advisor should be willing to provide more than simply financial advice to the surviving spouse. This is the point where questions arise about selling the extra car, upgrades around the home, moving to be nearer the children – or moving into a senior living facility. These may well be the questions a trusted advisor is able to answer. (For more, see: 6 Estate Planning Must-Haves.)
Advisors who are simply money managers will, at this point, probably find themselves replaced. According to PriceWaterhouseCoopers’ Global Private Banking/Wealth Management Survey, 2011, more than half (55%) of the survivors will fire their financial advisor following the death of a spouse. A lot of that will be due to the changing level of service that a surviving spouse needs. (For related reading, see: Why Do Widows Leave Their Advisors?)
But there is actually a better answer to the financial confusion that often follows a death. The best time to gather comprehensive information about family finances is when the couple is still alive.

Why a Will Might Not Be Enough

With due respect to the legal profession, will and trust documents are written to specify how assets are to be distributed at death. With few exceptions, they rarely get down to the kind of detail that allows the surviving spouse to take up where the deceased has left off.
What is needed is a specific book of instructions itemizing financial assets, their location and their ownership. Income will be vitally important to the surviving spouse. Realizing that income will change once one’s spouse dies, it’s important to know what the survivor’s income sources will be. Finally, the cost of maintaining the surviving spouse can be determined while both are still alive much more easily than after one has passed away. And since so many transactions now take place via password protected Internet portals, the survivor needs a list of those portals and passwords. (For further reading, see: The Importance of Estate and Contingency Planning.)
When someone dies, the surviving spouse will always have a period of grieving. But if a little though is given to preparing for the inevitable, grief does not have to be accompanied by fear of an unknown financial future.

To make it easy for couple who want to plan, purchase a copy of our book: BEFORE I GO and the BEFORE I GO WORKBOOK. 

Who, exactly, are these financial advisors

There’s a really great article on the CNBC website that discusses the question of what financial advisors are.  There is a lot of confusion because people use the term “financial advisor” for a group of people who are really different.  There is less confusion in the medical field because we distinguish between various kinds of doctors.  When you have a medical problem you distinguish between a pediatrician, a heart surgeon, a dentist or a psychiatrist.   They’re all doctors but people know there’s a lot of difference between them.

The same thing is true of financial advisors.  They could be a stock broker, an insurance salesman, or a Registered Investment Advisor (RIA).

Here is one important difference between brokers (technically known as Registered Representatives) who work for investment firms like Merrill Lynch, Wells Fargo, UBS or other major firms and investment advisors.

Brokers can only offer you investment advice that is incidental to them buying or selling financial products, whereas investment advisors are professionals who are paid by you to give you advice — advice that is in your best interest. The latter is called a fiduciary responsibility.

Before engaging an advisor, Ask yourself these key questions:

  • Are you looking for advice on individual stocks or someone to manage a diversified portfolio for you?

  • Are you looking for a product to solve a problem or a long-term financial plan?

  • Are your assets straightforward, or will you need more coordination because of complex estate-planning issues?

  • Are you an employee of a company, or might you be dealing with potentially complex tax issues, like selling your business?

  • Are your issues acute and immediate, or will they be ongoing or recurring?

  • How much do you want to rely on the recommendations of your advisor, or do you want to be the ultimate arbiter of what’s best for you, whether to follow a recommendation or not?

  • Are you prepared to evaluate each recommendation to determine whether it’s aligned with your needs?

These questions will help you determine what kind of financial advisor you need.

Feel free to contact us to answer some of your questions.

What Your Executor NEEDS to Know

We live in an age when everything about us seems to be public. Facebook has our pictures, the pictures of our kids, our cats, where we go, and who our friends are. Computer hackers have our e-mail addresses, our social security numbers and our deepest secrets (if we ever worked for the government). So it’s only natural that we try to hold on to as much of our privacy as possible. Unfortunately, that means that the people who we appoint to take care of our affairs after our death are often in the dark.

Here is how one on man described the situation when he asked his sister where her estate planning documents were.

Years ago, my sister named me as her personal representative, but she hadn’t given me copies of any of her estate-planning documents. Eventually, I took a trip to Phoenix to visit her and my brother-in-law, in part to discuss this very topic with her. When I asked her where she kept the documents, she led me into the guest bedroom. She opened the door to the closet, bent down and uncovered a well-camouflaged “secret compartment” in the carpeted floor. In the compartment was a locked metal box with a combination lock.
I looked at her incredulously and asked how she could expect me to be able to open the box without knowing the combination. “Oh, you’ll find that in the butter dish in the fridge,” she told me.
There was no way I would’ve found the lockbox under the trapdoor in the closet in an obscure room of her house — not to mention the combination. In fact, I wasn’t even sure I’d be able to get into her house, which was in a gated community with a coded keypad.

We have experienced similar situations many times and it is one of the reasons we wrote BEFORE I GO and the accompanying workbook.

You executor needs to know where your important papers are, how to get to them, how to access bank and investment records and any important computer files. If you do not leave them with clear instructions, you are running a huge risk that either your wishes won’t be followed or that you will have created a huge burden on your executor and cost them precious time and additional stress.

If you are interested in our guide book, you can download the first three chapters of BEFORE I GO for free by going HERE.

Where Should I Keep My Estate Planning Documents?

The Hook Law Firm has a good article on where you should keep your estate planning documents.  Read the whole thing.
They make a number of good points.

  • Make sure that you have original copy of your will.  Copies may not be accepted for probate.
  • Make sure someone knows where your important documents are.
  • Make sure that people you trust to use the documents can get to them.
  • Destroy old or out-of-date documents to avoid confusion.

We offer a set of books: Before I Go and Before I Go Workbook to guide people through the process of preparing their estate for their heirs.  You can order a copy at Amazon.com or get an autographed set directly from us for $25.  Just send us a check made out to Korving & Company, 1510 Breezeport Way, Suite 800, Suffolk, VA 23435.

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How well do couples communicate on money? – Part 5

Most couples think they communicate well, but research indicates otherwise when it comes to finances. Communication on financial issues between couples is especially poor, as we have discovered in previous essays. Despite concerns about medical costs, running out of money, inflation and Social Security, most couples have not created a plan to deal with these worries.

The 20{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of couples who have created a plan get the benefit of peace of mind, less stress, and a more cohesive relationship. Uncertainty and doubt around important financial issues creates stress within relationships.
Couples who have a retirement plan in place:

  • Are twice as likely to live a very comfortable retirement.
  • Are 50{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} more likely to be “completely confident” in assuming responsibility for retirement.
  • Are much more confident that their partner will be OK in retirement.
  • Are twice as likely to know how much they will need in retirement.
  • Are less concerned about unexpected health care costs.
  • Are much less likely to be concerned about outliving their savings.

Having a plan to reach your goals is much like going to the grocery store with a shopping list. You know what you need and are less likely to forget important items, nor are you as likely to buy things you don’t need.

Creating a plan forces couples to be open with each other about their goals, their finances, and the issues that may keep them from achieving those goals. Working with a Certified Financial Planner™ (CFP) to create a plan also brings an important measure of reality to the process. Professional guidance creates realistic assumptions about how much should be saved and the rate at which it should grow. A CFP can also help mediate differences between couples when issues arise.

Our next essay will focus on advice to young couples.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

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How to connect with your spouse about finances

Too many spouses don’t share enough information about family finances. It’s not unusual for one spouse to take care of investments and pay the bills. The other spouse may not be interested or may be too busy. It’s a fact that not everyone is interested in investing, budgeting or banking.

But this can lead to a bad outcome in case of death, divorce or separation. In fact, money is one of the top 10 reasons for marriage breakdown.

Money or anything related to finances can be a possible cause of disagreement between many people – including couples. Married couples, whether they are happy or not, may have disagreements over little financial issues to much bigger shared financial responsibilities or unequal monetary status. Money may not always be the principal cause but in fact is usually combined with other forms of reasons for divorce. In any case, it is still a significant contributor and should be managed with fairness from both sides, mutual understanding and a tiny dose of compromise.

But even couples that are financially compatible should sit down from time to time to review their financial situation. Our books: BEFORE I GO and BEFORE I GO WORKBOOK were written to help people do this.

If there is a difference in the financial mind-sets of a couple, a financial advisor may be able to act as a facilitator to reconcile the differences.

A financial advisor can educate the couple about investing, budgeting and retirement planning. Regular meetings with a couple’s financial advisor provide them with the opportunity to share critical family financial issues, keep everyone informed and help resolve issues before they lead to conflict.

Having a trusted financial advisor in place, one who is already familiar with a couple’s finances, can also help in case you find yourself “suddenly single.”

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Finding financial guidance for the middle aged executive

Let’s imagine that you’re now firmly on your career track. You’re an expert in your field and have a team of experts to manage some of the complexities of life outside of work.

  • You doctor gives you regular medical check-ups.
  • Your attorney to reviews your estate plans regularly.
  • Your CPA prepares your taxes and suggests ways to reduce them.
  • But there’s something missing ….

You are putting away some serious money and you are getting nervous about market risk so you want to find a good financial advisor. You don’t want a broker who will call you to sell stocks and bonds on commission. You want someone who will create a plan and give you unbiased financial advice. Someone who will manage your portfolio for you – commission free – so that your retirement plans won’t blow up just as you get ready to enjoy independence.

But there’s a dilemma. Just as you feel more comfortable knowing that the pilot on your next flight has spent thousands of hours flying your plane, you want to find a seasoned financial pro who has experience in all kinds of markets. But those years of experience could well mean that he’ll retire before you do! What’s the solution?

Recognizing that continuity is important in a relationship as personal as financial guidance, many advisors have set up teams.

Korving & Company is a good example. Arie Korving has nearly 30 years of experience as a financial advisor. A Certified Financial Planner, he is the author of numerous articles and books on finance and estate planning, he has experience that includes both Bull and Bear markets. He’s seen the investment world from both sides and knows that honesty and experience is what people want in their advisor.

Stephen Korving received his degree in finance from Virginia Tech with a focus on risk management. After graduation he joined Cambridge Associates, one of the country’s leading investment management consulting firms. Cambridge provides guidance to major institutions and the super-rich. A Certified Financial Planner, he teamed up with Arie ten years ago and in 2010 they founded Korving & Company, a boutique RIA (Registered Investment Advisor) focused on providing holistic financial guidance to executives and retirees.

Together they provide decades of experience and a plan to continue to do so for decades into the future.  Check them out.

How to live well in retirement

No one plans to live in poverty in retirement. But one of the biggest problems for the majority of current workers is that they don’t plan … period. So what can we do to live better in retirement?

  •  Save, save, save and start early. The biggest tool that anyone has is time. Time is the magic that makes compound interest a miracle.  There is no substitute for starting early, and that means as soon as you leave school and begin work. Those who begin saving in their 20s saving $50 a month will end up with more money that those who started in their 40s.
  • Don’t retire early. People are living longer than ever before. Unless you are already rich, retiring early has at least three pernicious effects. First, your income stops and you begin drawing down your savings. Second, your pension and social security payments are much lower than if you wait. Third, you will spend more time as a retiree, forcing you to reduce spending to stretch your savings dollars.
  • After you retire from your main job and if you are physically able, find a paying job that will supplement your other income sources.
  • Find a way to cut costs. One of the best ways to reduce the cost of living during retirement is to be out of debt and that includes mortgage debt. It also pays, once you are empty nesters, to downsize the home. This has the effect of reducing taxes, utility and maintenance costs.

And once you are retired, get a copy of my book, Before I Go, so that you will be ready for the next stage on your journey.

If you were widowed, would you fire your husband’s financial advisor?

According to an article in Financial Advisor magazine,

Surviving spouses — statistically, wives — have a habit of firing financial advisors. Most sources peg the rate at about 50%, but the advisor-education website says the rate is closer to 70% if you wait a few years for the penny to drop.

Why is that?  It seems that most advisors have an “unbalanced advisor-client relationship.”  That means the advisor focuses on the half of the couple that seems to be more financially savvy.  This results in the surviving spouse, often the wife, not really thinking that the advisor is “her” advisor.

The article goes on to suggest that the advisor “provide basic, nuts-and-bolts financial advice to the surviving spouse.”

At Korving & Co. we go one better.  We have written a set of books “Before I Go” and the “Before I Go Workbook” anticipating the issues that the surviving spouse will face.

That’s why when our clients lose a spouse, we rarely lose the survivor.  They know that we focus on the family and the surviving widow trust us to take care of her.  In fact, we often find that when both husband and wife have passed on, the children come to us to manage their affairs.

For a personally autographed copy of both books, or more information on how we can help you, contact us.

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