A recent conversation:
Friend: Are you looking forward to being retired and moving out of the cold country?
Me: I’ve got lots of things I’m looking forward to doing when I have the time, but we aren’t planning to move.
Friend: What!? Why would you want to put up with Wisconsin winters when you could live almost anywhere?
Me: We actually like the winters. And, most of the usual retirement areas are ungodly hot in the summer.
Friend: And, the tornados! Wouldn’t you want to get out of the tornado belt?
Me: There are risks everywhere.
Friend: Meh.
Later that day, I did a little poking around and found an article from the August 5, 2005 issue of Forbes magazine that listed the safest and least safe cities in the U. S. in terms of extreme weather (based on data from Sperling’s Best Places).
Least safe:
1. Monroe, LA
2. Dallas, TX
3. Jackson, MS
4. Lakeland - Winter Haven, FL
5. West Palm Beach – Boca Raton, FL
6. Kansas City, MO
7. Elkhart – Goshen, IN
8. Tulsa, OK
9. Memphis, TN
10. Shreveport – Bossier City, LA
I particularly like the fact that a city named for being a haven from winter has riskier weather than any snow-belt city in the country, even though one of the risk factors measured in the study was the frequency of below-freezing temperatures.
Safest:
1. Honolulu, HI
2. Boise City, ID
3. Santa Fe, NM
4. Yakima, WA
5. Spokane, WA
6. Richland – Kennewick – Pasco, WA
7. Medford – Ashland, OR
8. Corvallis, OR
9. Salem, OR
10. Las Cruces, NM
Why all the WAs and ORs (and the ID?)? The study ignored volcanic eruptions. It also ignored tsunamis (although Hawaii hasn’t had a bad one for decades).
That leaves a couple of higher elevation cities in New Mexico.
We might take a look. Any other suggestions?
Larry Halverson: I've Been Thinking
Larry Halverson, CFA, Managing Director of MEMBERS Capital Advisors, Inc., is a veteran of more than 35 years in the financial services industry. Links: SUBSCRIBE TO: I've Been Thinking | 
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Wednesday, May 30, 2007
Friday, May 25, 2007
Lapse . . . of judgment?
Today’s interesting statistic: In 2005, 3.5 million life insurance policies paid death benefits.
Today’s amazing statistic: In 2005 18.5 million life insurance policies lapsed.
(These numbers were recently reported by the Insurance Information Institute.)
I’m no insurance expert, but this seems like a lot of lapses. I’m sure many of these policies were owned by retirees who simply quit paying premiums when their perceived need for insurance declined with their retirement (no more earning power to protect and fewer if any financial dependents). Or, maybe it was just that money got a little tight.
There may have been good reasons for the majority of these lapses, but I’m sure some were simply bad financial decisions. Before letting a policy lapse, the policy owner really should give strong consideration to the following:
What benefits does the policy still provide (tax advantages, estate planning, etc.)?
What is the economic value of the policy today if I live to my normal life expectancy (present value of proceeds at death less present value of premiums paid between now and then)?
What alternatives do I have to maintain coverage (borrow to maintain premiums, convert to a paid-up policy, etc.)?
If I can’t or don’t want to maintain the policy, what alternatives do I have besides letting it lapse (give or sell the policy to someone who will maintain the premiums and designate them as beneficiary)?
Most policyowners should work with an insurance expert to fully evaluate these (and probably other) alternatives. This is especially true when considering selling a policy; this “life settlements” arena has seen lots of shady dealings and abuse, both from buyers and sellers, so be careful.
But, don’t just let your life insurance policy lapse without considering the alternatives. That could be the worst lapse . . . of judgment.
Today’s amazing statistic: In 2005 18.5 million life insurance policies lapsed.
(These numbers were recently reported by the Insurance Information Institute.)
I’m no insurance expert, but this seems like a lot of lapses. I’m sure many of these policies were owned by retirees who simply quit paying premiums when their perceived need for insurance declined with their retirement (no more earning power to protect and fewer if any financial dependents). Or, maybe it was just that money got a little tight.
There may have been good reasons for the majority of these lapses, but I’m sure some were simply bad financial decisions. Before letting a policy lapse, the policy owner really should give strong consideration to the following:
What benefits does the policy still provide (tax advantages, estate planning, etc.)?
What is the economic value of the policy today if I live to my normal life expectancy (present value of proceeds at death less present value of premiums paid between now and then)?
What alternatives do I have to maintain coverage (borrow to maintain premiums, convert to a paid-up policy, etc.)?
If I can’t or don’t want to maintain the policy, what alternatives do I have besides letting it lapse (give or sell the policy to someone who will maintain the premiums and designate them as beneficiary)?
Most policyowners should work with an insurance expert to fully evaluate these (and probably other) alternatives. This is especially true when considering selling a policy; this “life settlements” arena has seen lots of shady dealings and abuse, both from buyers and sellers, so be careful.
But, don’t just let your life insurance policy lapse without considering the alternatives. That could be the worst lapse . . . of judgment.
Friday, May 18, 2007
Developing Financial Discipline
Most of us near-retirees and many actual retirees were raised by people who lived through the Great Depression of the 1930s. Most of them were quite thrifty, maybe even miserly. This trait was almost universally attributed to their life experience – to their environment.
Most children of these Depression era parents are thought to be not very thrifty, maybe even spendthrifts. This is usually attributed to their opposite experience – their formative years’ environment of ready employment and rapidly advancing standards of living.
I’m sure these differences in external influences made a difference in how these two generations thought of and used money. But, I also think there is another factor. And, I base this opinion on my own personal experience
One of our two sons has an almost manic compulsion to spend. The other is still in college, but already has a pretty nice liquidity cushion in his savings account as well as a few mutual fund investments. Yet, they grew up in the same environment.
At least part of this financial characteristic has to be innate in each individual.
I recently ran across some confirmation of this. George Lowenstein of Carnegie Mellon University monitored actual brain functions as people made purchases and found that everyone experiences pleasure from buying, and also subsequent displeasure with having to pay for the purchase (buyers’ remorse?). But, some experience this displeasure/remorse far less than others. For them, it’s all gain and no pain.
The significance of this in the retirement realm? Don’t expect your spending patterns to be easily changed in retirement. Without a lot of work, however you behaved pre-retirement is likely to continue post-retirement. You’re wired that way.
Contrary to the usual perception of our generation noted above, the study also found that under-spenders are more prevalent in the U. S. today than over-spenders, but are just less visible. I guess spenders love to spread the joy of their purchases while the more penurious among us are quietly watching their wealth accumulate. I wonder who’s happier (at least until the money runs out).
Most children of these Depression era parents are thought to be not very thrifty, maybe even spendthrifts. This is usually attributed to their opposite experience – their formative years’ environment of ready employment and rapidly advancing standards of living.
I’m sure these differences in external influences made a difference in how these two generations thought of and used money. But, I also think there is another factor. And, I base this opinion on my own personal experience
One of our two sons has an almost manic compulsion to spend. The other is still in college, but already has a pretty nice liquidity cushion in his savings account as well as a few mutual fund investments. Yet, they grew up in the same environment.
At least part of this financial characteristic has to be innate in each individual.
I recently ran across some confirmation of this. George Lowenstein of Carnegie Mellon University monitored actual brain functions as people made purchases and found that everyone experiences pleasure from buying, and also subsequent displeasure with having to pay for the purchase (buyers’ remorse?). But, some experience this displeasure/remorse far less than others. For them, it’s all gain and no pain.
The significance of this in the retirement realm? Don’t expect your spending patterns to be easily changed in retirement. Without a lot of work, however you behaved pre-retirement is likely to continue post-retirement. You’re wired that way.
Contrary to the usual perception of our generation noted above, the study also found that under-spenders are more prevalent in the U. S. today than over-spenders, but are just less visible. I guess spenders love to spread the joy of their purchases while the more penurious among us are quietly watching their wealth accumulate. I wonder who’s happier (at least until the money runs out).
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