5 Mind-Altering Wealth Strategies for Successful Business Owners

I’m an entrepreneur and just so happen to be in the business of providing other entrepreneurs with financial advice. But I don’t typically offer up the usual status quo advice that tells you to do things that aren’t always in alignment with growing your business.

My views originate from my experiences and at times are contrarian to what’s being recommended by the usual tax preparer and other financial advisers, because I am in the trenches running a business just like you. I know what it takes to grow a business, make payroll, deal with IRS notices and manage cash flow.

The truth is that being an entrepreneur can be isolating at times as a result of being wrapped up in the day-to-day of running your business. When you are hyper-focused on your business, it is difficult to also be an expert at managing the profits of the company.  You may be great at making money, but once it’s made, what do you do with it?

Thinking differently about your company and how you will use it to build wealth is the key to true financial success.

In this article, I’ll outline five ways you can shift your mindset about money to transform how you define and operate your business and approach your financial decisions. It will help you identify what you really want to achieve: A Self-Managing Company®, a term coined by  Dan Sullivan of Strategic Coach.  

Mind Shift No. 1: Understand that Retirement Savings Plans Don’t ‘Lower’ Your Tax Bill

As a business owner, you are probably time-starved and used to making fast decisions. And you may be tempted to make fast decisions at tax time, especially when your tax preparer suggests that tax-deferred investments are the answer to lower your tax bill and save some money for retirement.  Easy enough, right?

This is what I like to call a half-truth. It’s true that you’ll get the deduction for that year’s taxes. But the other half of the story uncovers the problem with the use of SEP IRAs, 401(k)s and other tax-deferred options to “lower” your tax bill. The reality is that you are taking money from your business where you have some level of control and redirecting those dollars into the stock market where you have absolutely no control.  The money is tied up until you are 59½ years old and face potentially higher tax liabilities than you previously owed with no access to your cash if it is needed for growing or sustaining your business.

When you own a business, the half-truths you hear from many finance professionals and the mainstream media can at times negatively impact your ability to grow your business and protect your interests.  I have found there are other, more productive ways to build wealth outside of your business, beyond the base-level concepts of investing or putting money in an IRA or 401(k).

Mind Shift No. 2: View Your Company Not as Your Job, but as a Tool for Building Your Wealth

If you run a healthy business, you have a long-term strategy. You know what the end-goal is. You think about the business as a whole, rather than focusing on simply the day-to-day tasks.

We’ve all heard the old adage: Work on your business, not in your business. That’s because if you’re working in your business all the time, you’ve only created a job for yourself.  The goal is to build systems and develop people to slowly work yourself out of the role you have and allow the business to run on its own.  The sooner you shift your mindset to this way of thinking, the sooner you can begin to experience the results.

First, carve out the time in your day to think about your business. Many business owners I talk to don’t do this, because they are buried in the work. Take time to talk to your future self about what you want your life to look like in the future.  What would your future self say to you about the decisions and choices you are making?  It helps to outline your thinking time, keep a journal of your discoveries, meditate to de-stress, and use the time to reflect on what you are trying to accomplish in the business.

Next, think about your business as a piece of your financial plan. How much time and capital are you investing into the business, and what are you getting out of it?  What is your ROI?  I’ve found that a business can offer the biggest opportunity to build wealth, and in many cases — depending on your results — it can offer more than what you might get from investing in the market.

Finally, think with the end in mind. At the end of the day, what are you trying to get out of your company? To build wealth through your business, you must identify what will build its value.

Building value revolves around creating a self-managing company, one that runs without you and has a strategy to sustain itself into the future. This allows you to sell it for maximum value, or even create a passive income stream without actually having to work in the business.

Shifting your mindset is important, because you probably didn’t start your business that way. Many business owners don’t, and that’s OK while you’re getting things up and running. But it’s important to remember that what got you started will not get you to the next level and will not build the wealth needed to successfully exit the business.

Mind Shift No. 3: Master Your Cash Flow

I tend to bust a lot of myths when it comes to financial matters, and one of them has to do with cash flow. This is especially important to understand as an entrepreneur. Your cash flow is not there to simply pay your bills. Yes, you must pay your bills of course, but there is more to it than simply making payroll.

Cash flow is a tool to help you build wealth and the value of your company.  Healthy cash flow allows for you to control your money, and there are strategies you can explore to help you maximize it.

I recently spoke with a partner of a business who was earning a W-2 salary of $400,000 per year. In working with his CPA, we were able to rework his partnership agreement, removing him as an employee and adding him as a consultant of his own LLC.  While this simple strategy reduced his tax liability by $20,000, implementing this strategy was about more than just lowering taxes.  This was about cash flow – everything is always about cash flow.  By making this little tweak, he increased his cash flow by $1,666 per month.

I’m not a CPA and don’t provide tax advice, but I ask a lot of questions and propose many scenarios for the tax professionals to consider – scenarios that can increase cash flow for business owners. Increasing and optimizing your cash flow should be a top priority for your business.

Mind Shift No. 4: Be Your Own Bank

Companies with cash are able to do many things without having to rely on a bank or other source of funding. In essence, they can be their own bank. Think about it. When you have cash, you can use it to work on your wealth-building strategy. You could buy a company, invest in equipment, hire more people (maybe even a replacement for yourself who can run the company while you collect passive income), buy property, or take advantage of any other opportunity that may come your way.

But there is another way you can be your own bank. Maybe you’ve heard of the concept of “BUILD Banking™,” a cash flow strategy using a specially designed life insurance contract. It’s a strategy that I use personally and with many of my clients who want to have greater control of their cash flow. It frees them from dependence on banks for capital infusions and avoids government red tape when they need to access their money.

For more information about BUILD Banking™, visit www.buildbanking.com.

This strategy enables business owners to grow assets tax-free and have access to those funds whenever they’re needed. In essence, you’re accessing cash when it is needed while having uninterrupted compounding growth for your future.

Mind Shift No. 5: Understand Your Legal Exposures and Protect Yourself

You likely have some form, or forms, of insurance in place for your business. And you may believe that these policies have you covered. Well, they may, and they may not. The coverage you need goes far beyond liability, even extending into punitive damages.

It’s important to work with an insurance professional who specializes in business coverage to ensure that you have the right type of policies and the proper level of protection for your specific business.

There are also certain types of insurance policies (including the BUILD Banking strategy I’ve described above) that can serve a strategic purpose for your business. It’s common, and valuable, for business owners to have a life insurance contract as part of their succession plan, acting as a funding mechanism for the beneficiary to purchase the deceased owner’s share of the business.

Again, you will want to have a collaborating team of insurance professionals who have expertise in their vertical and who understand your business, your goals and what you are trying to accomplish. It’s also a good idea to include your CPA, attorney and financial planner in on those discussions.

These five financial planning tips and mindset shifts will help you use your business as a tool to start building wealth (or build greater wealth). They may be things you’ve never thought about, or things you’ve considered but haven’t been able to implement.  Putting these ideas to work can get you on the path to true business success.

Results may vary. Any descriptions involving life insurance policies and their use as an alternative form of financing or risk management techniques are provided for illustration purposes only, will not apply in all situations, may not be fully indicative of any present or future investments, and may be changed at the discretion of the insurance carrier, General Partner and/or Manager and are not intended to reflect guarantees on securities performance. Benefits and guarantees are based on the claims paying ability of the insurance company.
The terms BUILD Banking™, private banking alternatives or specially designed life insurance contracts (SDLIC) are not meant to insinuate that the issuer is creating a real bank for its clients or communicating that life insurance companies are the same as traditional banking institutions.
This material is educational in nature and should not be deemed as a solicitation of any specific product or service. BUILD Banking™ is offered by Skrobonja Insurance Services LLC only and is not offered by Kalos Capital Inc. nor Kalos Management.
BUILD Banking™ is a DBA of Skrobonja Insurance Services LLC.  Skrobonja Insurance Services LLC does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal adviser for such guidance.

Founder & President, Skrobonja Financial Group LLC

Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder of St. Louis Missouri-based wealth management firm Skrobonja Financial Group LLC. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently to reach their goals. Brian is the author of three books, the Common Sense podcast and blog. In 2017 and 2019 Brian received the award for Best Wealth Manager and in 2018 the Future 50 St. Louis Small Business.

Source: kiplinger.com

8 Best Disability Insurance Companies of 2021 (Short-Term & Long-Term)

Data from LIMRA’s 2018 Insurance Barometer finds that roughly 3 in 5 American households have some form of life insurance.

In other words, there’s a good chance you have — at minimum — a term life insurance policy and therefore have some experience choosing a life insurance policy that fits your financial needs and life goals.

It’s far less likely you have experience searching for another type of insurance you probably need. That would be disability insurance, a vital income replacement solution for workers unable to work productively due to serious injury or illness.

If you or your family rely on your employment income to make ends meet or support a lifestyle you’ve become accustomed to, disability insurance is nearly as important as life insurance. After all, not all life-altering accidents and illnesses result in death.

And not all life-altering events that qualify for disability coverage are tragic. According to internal data from the Guardian Life Insurance Company of America, new mothers make more than one-quarter of the company’s short-term disability insurance claims.


Best Disability Insurance Companies

Obtaining a disability insurance policy isn’t all that different from obtaining a life insurance policy. And many of the best life insurance companies also write disability insurance policies, so you’ll see plenty of familiar names along the way.

Always shop for insurance using an aggregator like Policygenius. But the following disability insurance providers, in particular, are among the best for U.S.-based workers.

There are two main types of disability insurance coverage: short-term disability and long-term disability. All of the companies on this list offer long-term disability coverage, some offer short-term disability insurance, and many of them (or their close affiliates) offer other insurance products, such as term life and annuities.

This evaluation incorporates:

  • Financial strength ratings from A.M. Best, which measures insurers’ financial stability and overall capacity to make promised benefit payouts
  • Customer satisfaction ratings from the Better Business Bureau (BBB), a leading evaluator of general business quality
  • Overall suitability based on each company’s product mix, strengths, weaknesses, and markets served

When evaluating disability insurance companies and policies, pay close attention to policy specifics like:

  • The length of the elimination period (the waiting period before benefits kick in)
  • The length of the benefit period itself (which is usually longer for long-term policies)
  • The monthly benefit amount
  • Actual disability insurance costs (monthly premiums)
  • Whether the policy offers “any occupation” or “own occupation” coverage (or both)

1. Breeze Financial & Insurance Services Group

  • Breeze LogoA.M. Best Financial Strength Rating: Not available
  • BBB Customer Satisfaction Rating: A+
  • Great For: Very affordable policies; 100% online process with no salespeople

Breeze offers short- and long-term disability solutions that are all about convenience and affordability. Its 100% online application process cuts traditional salespeople out of the equation, allowing would-be policyholders to focus on what matters most: finding and securing the right amount of disability coverage at the right price.

Young, healthy workers with low coverage needs qualify for long-term coverage for as little as $9 per month — significantly less than many mainline insurers charge.

Despite its technology-driven approach, Breeze prides itself on an unusually transparent process that walks applicants through the entire scope of coverage and can accommodate a range of nontraditional situations, including solopreneurs and small-business owners with complex insurance needs.

And Breeze offers low-risk applicants an instant approval option that waives the usual medical underwriting requirement — no invasive medical exams or time-consuming labs required.

Learn More


2. Northwestern Mutual

  • Northwestern Mutual LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Supplementing employer-sponsored disability plans; specialized plans for part-time workers and stay-at-home parents

Northwestern Mutual specializes in long-term disability plans with variable-length elimination periods that bridge the coverage gap between what employer-sponsored disability plans pay and policyholders’ pre-disability income.

But traditional employees with existing disability coverage aren’t the only folks Northwestern Mutual’s worthwhile for. The company also offers nontraditional products and add-ons for part-time workers and stay-at-home parents whose emotional labor is so often undervalued.

Plus, it’s regarded as one of the strongest insurance companies on the market, which is no small thing for those seeking peace of mind.

Learn More


3. MassMutual

  • Mass Mutual LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: B-
  • Great For: Retirement savings protection; tying benefit growth to salary

MassMutual’s customizable disability insurance products protect between 45% and 65% of policyholders’ pre-disability income, but that’s far from the whole story.

Powerful riders, some of which aren’t widely available elsewhere, help policyholders keep their financial plans on track, even as they pay into their policies or (if it comes to that) collect benefits.

For example, the retirement savings protection rider earmarks some income for policyholders’ retirement plans, keeping their long-term investment strategy on track when they’re temporarily unable to work.

Another rider pegs benefit growth to salary growth, adding protection as policyholders’ careers advance.

Learn More


4. Guardian Life Insurance Company of America

  • Guardian Life Insurance LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Coverage for self-employed workers; group plans for small employers

Guardian Life Insurance Company of America offers short- and long-term disability insurance for self-employed individuals, group plans for employers, and supplemental policies for workers looking to add to their employer-sponsored coverage.

Because its policies are only available through licensed insurance brokers or employers themselves, Guardian requires all would-be policyholders to go through a middleman and definitely caters to small-business owners and executives looking to retain employees with attractive disability coverage.

But it’s a solid choice for self-employed workers with variable income, a group that tends to be perceived as high-risk (and is therefore underserved) by most disability insurance providers.

Learn More


5. Principal Financial Group

  • Principal Financial LogoA.M. Best Financial Strength Rating: Not rated
  • BBB Customer Satisfaction Rating: A+
  • Great For: Existing Principal Financial clients and those willing to work with a Principal advisor

Like Guardian’s, Principal Financial Group’s disability insurance offering is gated, available only to clients of Principal Financial Group advisors and those willing to establish an advisory relationship (even if temporary) to obtain disability coverage.

The advantage: All Principal policies are written for individuals, not employers, and are therefore portable, meaning they remain in force when the policyholder changes jobs.

Because Principal clients’ relationships extend well beyond disability insurance, they can sometimes qualify for lower premiums than those available through one-off individual policy transactions. However, the most critical factor in any pricing decision is the perceived risk of disability.

Learn More


6. RiverSource Life Insurance Company

  • Riversource LogoA.M. Best Financial Strength Rating: A+ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Option to tie benefits to salary; potential for high coverage limits

RiverSource Life Insurance Company offers two disability insurance solutions: Income Protection and Income Protection Plus.

The main difference between the two is a higher level of coverage with the latter, though both are customizable based on policyholders’ incomes and long-term goals.

And both come with optional riders that tie benefits to salary increases, ensuring peace of mind with every raise. Like Guardian and Principal, RiverSource offers disability policies through a network of advisors — in this case, those working with Ameriprise Financial.

Learn More


7. Mutual of Omaha Insurance Company

  • Mutual Of Omaha LogoA.M. Best Financial Strength Rating: A+ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: High coverage limits, optional coverage until age 67

Mutual of Omaha Insurance Company’s long-term disability insurance offering has two distinct advantages: high coverage limits (up to $12,000 per month) and the option to extend coverage until age 67, two years past the usual cutoff date for long-term disability benefits.

If you continue to work full-time and pay your premiums, your policy could remain in force until age 75, but Mutual of Omaha reserves the right to cancel your policy at any time after age 67.

The main drawback here: As with some competitors, individual Mutual of Omaha disability insurance policies are only available through licensed agents.

Learn More


8. Assurity

  • A.M. Best Financial Strength Rating: A- (Excellent)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Longer coverage periods, flexible benefit amounts (including total disability coverage)

Assurity is a flexible option for workers with longer-term disability income insurance needs. Its coverage periods start at one year and continue up until retirement age.

Customizable benefit amounts range from partial disability (for those transitioning back to the workforce) to total disability coverage for policyholders unable to work at all.

Assurity also stands out for its commitment to any occupation coverage. Even if you’re able to perform some duties in a role or profession other than the one you held before your disability, you can remain out of the workforce (and earning benefits) until you’re once more able to do the job you were trained for.

Learn More


Final Word

Health insurance is a prevalent employment benefit. And it’s a valuable one — so much so that many workers accelerate or delay job changes based on the availability or absence of quality, affordable employer-sponsored health insurance.

Employer-sponsored disability insurance isn’t offered as widely and isn’t as high on workers’ must-have lists as health insurance. But it’s still a fairly common employment benefit. If you’re not sure whether your employer offers it, dig up your new-hire packet or log into your HR portal to see for yourself.

If it’s an option, investigate further. It could be a better deal than what’s available on the individual market to someone in your risk class.

Then again, it might not be, which is why it always pays to shop around.

Source: moneycrashers.com

Federal Reserve Interest Rates, Explained

If you pay attention to the news, you have probably noticed that the Fed makes headlines every so often—and it usually dovetails with other major events. In response to a stock market spiraling in the face of COVID-19 in 2020, the Fed cut its interest rates swiftly and seriously, to between 0.0% and 0.25%. As of April 2021, the current federal interest rate—otherwise known as the federal funds rate—remains between 0.0% and 0.25%.

There’s a connection between the Fed’s rates and the national economy, as well as your personal finances. The Fed works to help balance the economy over time—and its actions and influence on monetary policy can have an affect on individual wallets.

Here’s what consumers should know about the Federal Reserve interest rate, and how it trickles down to the level of individual wallets.

How Does the Fed Influence the Economy?

“The Fed” is short for the Federal Reserve System, which is the central US bank. The Fed is the main regulator of the US banking system and is made up of a dozen smaller banks, each of which is localized to a specific geographical region in the country.

Along with setting its target interest rate, the Fed also has other financial duties and powers—more so than regular banks—to take measures to ensure systemic financial stability. These duties include:

•  Supervising and regulating smaller banks
•  Conducting and implementing national financial policies
•  Maintaining widespread financial stability, in part by setting interest rates
•  Providing financial services like operating the national payments system

The Fed has authority over other US banking institutions and can regulate them in order to protect consumers’ financial rights. But perhaps its most famous job is setting its interest rate, otherwise known as the federal funds rate.

The federal funds rate, or federal interest rate, is a target interest rate that’s assessed on the bank-to-bank level. It’s the rate at which banks charge each other for loans borrowed or lent on an overnight basis.

The federal funds rate is not directly connected to consumer interest rates, like those that might be paid on a personal loan or home loan. But it can have a major influence on those interest rates, and over time has the ability to impact how both businesses and individuals access lines of credit.

Recommended: The Federal Reserve Cheat Sheet

How Is the Federal Funds Rate Set?

The federal funds rate is set by the Federal Open Market Committee (FOMC), at a minimum of eight times per year—though the committee will meet more often than that if deemed necessary.

Federal funds rate adjustments are decided based on key economic indicators that may show signs of inflation, recession, or other issues that may impact economic growth.

Current Federal Funds Rate

The federal funds rate is a recommended target—banks can ultimately negotiate their own rate when borrowing and lending from one another. Over the years, targets have varied widely depending on the economic outlook—as high as 20% in the early 80s (due to inflation), and as low as 0.0% to 0.25% in 2020 as a response to the COVID-19 pandemic, where it remains as of April 2021.

How Does the Federal Funds Rate Affect Interest Rates?

Although the federal funds rate doesn’t have a direct influence on the interest levels for loans taken out by consumers, it can change the dynamics of the economy as a whole through a kind of trickle-down effect.

The Fed often slashes rates as a response to turmoil in the market as an attempt to boost the economy. Lower rates may make it easier for businesses and individuals to take out loans and thus create more cash flow.

On the other hand, the Fed may raise interest rates when the economy is strong in order to keep borrowing (and inflation) in check, which can help prevent the kind of bubbles that can lead to crises like we saw in 2008.

The Fed’s rate changes have an impact across a broad swath of financial areas—from credit cards to mortgages, from savings rates to life insurance policies. The Fed’s rate change can affect individual consumers in a variety of specific ways.

The Prime Rate

A change to the federal funds rate can influence the prime interest rate (also known as the Bank Prime Loan Rate ). The prime interest rate is the interest rate banks offer their most creditworthy customers when they’re looking to take out a line of credit or a loan.

While each bank is responsible for setting its own prime interest rate, many banks choose to set theirs based in large part on the federal funds rate.

Generally, the rate is set approximately three percentage points higher than the federal funds rate—so, for example, if the rate is at 0.25%, a bank’s prime interest rate might be 3.25%.

Even for consumers who don’t have excellent credit, the prime interest rate is an important figure. It’s the baseline from which all of a bank’s loan tiers are calculated.

That applies to a wide range of financial products, including mortgages, credit cards, automobile loans, and personal loans. It can also have an effect on existing lines of credit that have variable interest rates.

Savings Accounts and Certificates of Deposit

Interest rates bend both ways. Although a federal rate cut may mean a consumer enjoys lower interest rates when borrowing, it also means the interest rates earned through savings, certificates of deposit (CDs), and other interest-bearing accounts will drop.

In many cases, this decrease in interest earnings is no reason to pull out of a savings plan entirely, because it is important to maintain an emergency fund that one can access immediately, if necessary.

But it could be a good opportunity to use any excess funds to pay off existing debts while interest rates might be lower than usual.

How Does the Federal Funds Rate Affect the Stock Market?

While the federal funds rate has no direct impact on the stock market, it can have the same kind of ripple effect that is felt in other areas of the US financial system.

Generally, lower rates make the market more attractive to investors who are looking to maximize growth. Plus, cheaper or more available money can translate to more spending and higher company earnings, which can in turn result in rising stock performance.

On the other hand, an increased rate has tended to dampen the market, since bonds can be more appealing. (An exception to this trend are stocks in the financial sector, which may have higher profits.)

What Other Factors Affect Consumer Interest Rates?

Although the Federal Reserve interest rate can impact personal finance in a variety of ways, it may take up to 12 months to feel the full effect of a change.

And it’s also only one piece of the answer to the larger question, “How are interest rates determined?”

On a consumer level, interest rates for credit cards and loans are calculated using a complex algorithm, which takes everything from personal creditworthiness to loan convertibility into consideration. Banks use benchmarks to determine an individual’s interest rate.

The Takeaway

The federal funds rate—or federal interest rate—set by the Federal Reserve is intended to guide bank-to-bank loans, but ends up having impact across various parts of the national economy—right down to individuals’ personal finances.
For investors, the federal funds rate can be an indicator of where the market may be headed. At least, it’s a factor that investors may watch.

Whether they are hands on or hands off, investors will find what they are looking for on SoFi Invest®, which offers both active and automated investing options. And members can manage their accounts from the convenience of the mobile app.

Find out how to start investing with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

7 Ways to Utilize Your Life Insurance Policy’s Cash Value

Permanent life insurance policies—like universal, variable and whole life—offer more than a death benefit. Some include cash value, which is a pool of money you can use while still alive. 

If you’ve had a policy for years, the cash value could be considerable. “The accumulation could be more than you put in, and this opens up all kinds of options,” says Jonathan Howard, a certified financial planner with SeaCure Advisors in Lexington, Ky. 

The cash value in permanent life insurance is your money, to be tapped as needed, but your options for doing so will depend on the type of policy and the carrier. Before doing anything, ask the insurer how much you can safely withdraw per year based on the cash value balance and policy terms. If you withdraw too much too early, the policy’s cash value could run out, forcing you to start paying more in premiums or have the coverage lapse.

If you no longer need coverage, it might be tempting to stop the policy and cash out all at once, but consider the tax ramifications, says Luke Chapman, a partner with Precision Wealth Partners in New Castle, Del. Any cash value growth above what you paid in premiums is taxed as ordinary income when withdrawn. For example, if you paid in $20,000, have $100,000 in cash value and withdraw the difference, the $80,000 of growth is taxable.

There are better ways to put that cash value to work that won’t ramp up your tax bill.

1 of 7

Live Off of It

A man stacking coins.A man stacking coins.

A more tax-effective option is to withdraw only what you need each year. Howard recommends keeping some money for an emergency fund, perhaps 12 months of expenses, with the rest used to supplement your retirement income. Withdrawals draw down the tax-free premium payments first; taxes are owed only after you start withdrawing the gains.

2 of 7

Borrow Money

A person ready to sign some documents to take out a loan. A person ready to sign some documents to take out a loan.

You can also tap the cash value through a policy loan. You won’t owe taxes for withdrawing gains this way. Plus, you’ll have the option to repay the money, whereas you can’t reverse withdrawals. If the money is not repaid, the death benefit will cover the loan balance when you pass away.

The insurer will charge interest for the loan. “The interest rate is determined by the policy contract and is carrier specific,” says Howard. “It’s typically 4% to 8% a year.” Policy loan rates don’t usually change with market conditions, he says, so don’t expect a deal today just because overall interest rates are low. Your remaining cash value can be used to pay the interest.

3 of 7

Exchange It for an Annuity

Concept art with several people looking at charts and graphs. Concept art with several people looking at charts and graphs.

The IRS lets you swap your permanent life insurance for an annuity through a 1035 exchange, which is a tax-free transfer of one contract for another. This move can generate more retirement income. “Let’s say the max payout stream from a cash value insurance policy is $10,000 a year. Converting to an annuity might generate $12,500,” Chapman says. An annuity could also guarantee the payments will last your entire life, but you will be canceling your life insurance policy, a move that can’t be reversed.

4 of 7

Convert to a New Policy to Pay for Long-Term Care

A nurse helps a woman at a nursing home.A nurse helps a woman at a nursing home.

If you’d like coverage for long-term care, consider converting your life insurance into another policy with a long-term care rider (if yours doesn’t have it already). You keep your life insurance, but part of the death benefit can be used to pay for long-term care expenses.

5 of 7

Use It as Collateral

A couple sitting in front of a house.A couple sitting in front of a house.

The cash value is an asset that increases your chances of qualifying for a loan or mortgage from a lender. It can even serve as the loan’s collateral, but Chapman warns to structure the deal carefully, as there can be tax consequences. Always ask an insurance expert before using cash value this way.

6 of 7

Tap It to Pay for the Policy

Concept art showing a life insurance policy document and calculator.Concept art showing a life insurance policy document and calculator.

The cash value can also be used to cover your life insurance premiums.

7 of 7

Leave It Alone

A couple who are declining something while speaking with a man on a laptop. A couple who are declining something while speaking with a man on a laptop.

You aren’t forced to do anything with your cash value. Left alone, the cash value will continue to accumulate, leaving a larger inheritance for your heirs, as withdrawals and loans reduce the final death benefit.

Source: kiplinger.com

‘Broke Millennial Talks Money’ Review: My 4 Major Takeaways

Many of us have been raised to believe that money and finances are not topics to bring up in polite company.

But frankly, I think it’s time we abandon that line of thinking.

Talking about money with others might feel uncomfortable or awkward, but it can be so beneficial. Financial expert Erin Lowry, the founder of the Broke Millennial series, focused her latest book — “Broke Millennial Talks Money” — on navigating tough financial talks.

I had the opportunity to read Lowry’s book and chat with her via Facebook Live. Here are my major takeaways.

4 Things I Learned from ‘Broke Millennial Talks Money’

If you’re looking for the solution to how to successfully talk to your coworkers, your manager, your significant other, your parents or your friends about money, “Broke Millennial Talks Money” is the book you’ll want to read.

Discussing money can be tricky. Even as someone who writes about finances for a living, I’ve struggled with this in my personal life.

While “Broke Millennial Talks Money” offers much advice you’ll want to bookmark, here are the top four things that resonated with me when reading this book.

1. Talking About Money Has Real Financial Impact

If you’ve gone most of your life avoiding tough money conversations, you may wonder what’s the big deal when it comes to talking about finances with others.

The thing is: Being able to successfully navigate money conversations can have a real impact on your bottom line.

The first chapter of the book leads with a great example. A negotiation expert poses this question: “How much are you willing to pay to avoid an awkward conversation?”

It’s a rhetorical question, but it really gets you thinking. By choosing not to have a conversation about money, you could end up losing out.

For example, if you don’t negotiate salary with your employer, you could wind up being underpaid. If you don’t discuss poor spending habits with your spouse, you might delay reaching big personal goals.

Lowry put it best during our live Q&A. “You can do everything right to build your financial house,” she said, “but if you cannot communicate effectively, if you can’t set healthy boundaries and if you do not know how to engage in these tough financial conversations, it’s going to start to slowly crumble the foundation that is your financial house.”

2. You Can Talk Money Without Giving Exact Dollar Amounts

Sharing how much money you make, how much debt you have or how much you have saved up for retirement puts you in a vulnerable position. The fear of being judged about those numbers is what makes many people reluctant to talk about finances altogether.

But there are ways to discuss money without mentioning any dollar figure. In the book, Lowry says chatting with friends about housing prices or child care costs can lead to bigger money talks in the future. Getting context clues about how a significant other spends money can be helpful to gauge whether you’re on the same page financially.

Another strategy Lowry discusses in the book is using the over/under method when asking someone about salary. Instead of requesting the exact figure, you can ask if they’re making over or under a certain amount.

Talking in percentages is an additional way to discuss money without going into specifics. For example, you can talk about retirement savings as a percentage of your salary.

3. Talking About Money Can Take Practice

Because talking about money can be awkward, you may think it’s better to rip off the Band-aid and put everything on the table in one conversation. However, Lowry says it’s fine to let money talks be something that evolves over time.

When talking to your parents about their retirement plans, for example, you might start off by asking what they’d like their retirement to look like. In later conversations, you can follow up by asking how much money they have saved up and whether they have the proper estate planning documents in place.

Keeping the conversation ongoing can help it feel less uncomfortable over time. If you’re not sure how to kick off a money discussion, Lowry includes dozens of sample scripts.

4. Having a Positive Money Mindset is Key

While it’s very useful to be able to talk about finances with the people in your life, it’s also important to have positive money talks with your inner self.

Negative self-talk can lead to issues like imposter syndrome and scarcity mindset, which can sabotage your pathway to financial success.

“Most people start to have their relationship with money coded between the ages of about 8 to 12… so it can be really hard to undo some of the mindset as you age,” Lowry shared during her virtual chat with The Penny Hoarder.

“It’s just really important for us to excavate all of our deep-rooted feelings about money so that we also can understand how and why we make the decisions that we often subconsciously are making about money.”

Having a healthy money mindset means we’ll make better decisions with our finances and may even feel more confident to discuss money with our loved ones.

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Why I Recommend Reading ‘Broke Millennial Talks Money’

As much as I wish talking about money wasn’t so taboo, the fact of the matter is that too many of us simply avoid talking about money with the people in our lives.

We often pay for that avoidance. We rack up debt trying to keep up with friends. We work at companies for years never knowing about wide pay disparities. We get married without being on the same page financially with our significant other. And we wait until our parents are on their deathbeds to find out if they have a will or life insurance.

“Broke Millennial Talks Money” breaks down how to have these crucial conversations about finances. Almost everyone can relate to one of the situations discussed in this book. Best of all, it’s written from the perspective of someone who wants to help make these money conversations less awkward — and judgment-free.

Nicole Dow is a senior writer at The Penny Hoarder.

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Source: thepennyhoarder.com

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