Over the past 10 years, Steve Sivak has worked with high net worth individuals in all situations and through several market cycles. Client frustrations with the ‘Big Bank’ model of the business led him to want to improve the experience. Steve created Innovate Wealth with the vision to refocus the business away from a product sales culture and back to the clients, their education, their behavior, and do it all at a more affordable cost.
Steve has been in the financial services industry for 14 years and spent the last 10 working for Wall Street banks. He is a Certified Financial Planner™ (CFP©) and previously attained the Certified Divorce Financial Analyst (CDFA) and Certified Portfolio Managers (CPM) designations while at Morgan Stanley, and an engineering degree from Lafayette College. He spends his free time reading (a lot of finance!), with his dog Kimo, serving on various community Boards, or doing anything outside or active.
BA, Civil Engineering, Lafayette College
Assets Under Management:
Let's start with a basic question: why do you feel you need permanent insurance?
I usually recommend permanent insurance to accomplish a few very specific goals:
1. You have estate planning complexity
2. You have permanent debt that you'd prefer not to pass to your heirs
3. You want to guarantee a fixed inheritance for someone
4. You are trying to kill two birds with one life insurance stone
Your answers to 1-4 will go a long way towards a decision to pursue permanent life insurance. The most likely scenario for your situation is #4. Many life insurance carriers will issue whole/indexed life insurance policies with an additional rider that allows you to use the death benefit for nursing or long-term care needs. Long-term care can be a significant expense as we age and is often overlooked.
With money in a retirement account and a government pension, it seems like retirement cash flow will not be an issue. Unfortunately at your age, a permanent life insurance policy will be expensive, so you should carefully consider the goals 1-4 above. If you don't feel like you need to solve those goals, I would consider a much cheaper term insurance policy to cover your early retirement years, or perhaps you don't need life insurance at all? If your assets far exceed your liabilities, life insurance becomes a frivolous expense as you are effectively self-insured.
First, congratulations on maxing your retirement accounts! That's always a good goal and you've clearly prioritized that during your peak earning years.
It's really impossible for anyone to answer whether this is a good idea unless they had your entire financial situation. Let me try to arm you with more information to make a good decision:
1. There are very few situations in which an annuity makes sense. Very few. It's not to say they're terrible products in all cases, but given your age and savings rate, it's likely not worth using an annuity. You have plenty of time to save enough money to create your own income stream, which is the goal, right?
2. Annuities are often oversold because they pay large commissions. The percentages say your 'advisor' is likely making this recommendation based on how much money he/she will make on the product sale, not how it fits into your strategy.
3. Is your advisor a sworn fiduciary? Have they signed an agreement to that effect? Why not? Advisors that have a fiduciary responsibility and don't receive commissions magically stop recommending annuities.
4. Be very clear about the terms before you sign anything. Understand how it works, and how you can get your money out of the product if you want. Is it too hard to understand how it works? Then why are you buying it? Finance doesn't have to be complicated.
5. Finally, seek out a second opinion from a fee-only, fiduciary advisor. They are sure to look at your entire financial picture and give you an objective opinion, rather than force you into a product.
Congratulations on a clean balance sheet!
First, your priority should be the 401k - you never get these years back and the compounding effect of the money you're saving growing tax-free for 30-40 years is huge!
Next, your HSA is also a tax-advantaged account that you could keep around for many years. If you don't have a lot of medical expenses it's not imperative to save there, but it can also be a tremendous place to grow funds over the years because of the tax advantage. I'd probably keep it.
Finally, your ESPP. The answer here is highly dependent on the terms of your ESPP and also how soon you plan to buy the house! Most ESPP allow employees a chance to buy stock at a discount, or similar advantage. That's a great way to save...but right now you have another goal. If you're funding the first two accounts, you're already off to a great start saving, and now you have to prioritize the rest. You could use the ESPP to save for the house, but the terms may not provide the liquidity you're looking for, and remember, stocks can go down too! If you save $50k for a downpayment and it turns into $40k by the time you can access it, you're going to be quite upset.
My advice: save in the tax advantaged accounts first. If you are buying in the ESPP and can liquidate the stock quickly, then you could continue to save that way and simply sell the shares and move them into something safer. If that's too much and/or the rules won't allow you? Just forget the ESPP for now, and max out a good old short-term savings account until you reach your house goal.
Wrap accounts refer to an investment account where a percentage-based fee is applied to the account as a whole, and commissions and other transactional charges are not incurred.
For example, an investment professional may manage a wrap account while charging a 1% total fee to the client. The 1% is the only fee the client should see, any trading commissions and/or mutual fund loads are typically waived. (the underlying management fees of the funds/etfs/etc are typically still incurred by the client)
Wrap fees are advantageous in most cases where there is a lot of trading volume. In an account where many positions are held, and regular trading occurs, it is often cheaper for the client to pay this percentage fee than to incur the other trading costs.
Wrap accounts are not the solution in all cases, however, it is very much a case-by-case basis. Wrap accounts can often mean a client is paying more in fees, so each account type should be evaluated based on client goals and investment direction, as well as any additional services rendered as part of the fee.
'Moving to cash' can mean several things from an investor pespective.
The implication is that you are reducing risk in a portfolio, as cash is considered 'risk-free.' You would excecute this by selling investments or other liquid products and not buying something else, therefore, it stays in cash.
The catch is that most investment institutions/banks will 'sweep' this cash money into a money market fund, or similar short-term investment vehicle. So while this is still considered 'cash,' it is techincally invested and not like the cash in your pocket.
Investment advisors may also use the phrase 'moving to cash' when they are redeeming higher risk investments and placing the money into much safer, shorter-term investments, such as US T-bills. In the investment community this is synonymous with moving to cash, but you are still buying another investment and not putting paper bills in your pocket.
Cash and cash equivalents ARE an asset class, so making this move can be a vital and important part of an investment portfolio when you want to reduce risk and volatility.