Rick’s cautionary tale about buying a tax-lien certificate opens an article about using self-directed IRA’s to buy unusual investments. The piece by James Sterngold, “A Nervy Approach to Retirement Saving,” was published in the online edition on May 17, 2013.

To learn more about self-directed IRA’s, or just to find out how Rick bought a house that wasn’t there, you can read the entire article here.

The article includes some excellent advice for anyone who hasn’t yet started saving for retirement. You can read it here.

If you heard this from your doctor, you’d jump off the examination table and run for the door. Yet that’s essentially the approach the President and Congress used three years ago to pass a bill, optimistically called the Affordable Care Act, that was the largest transformation of the U.S. health care system in our lifetime.

During the frenzied debate our elected leaders made many promises as to the amazing benefits this legislation would bestow on Americans. After listening to speeches from President Obama, Speaker of the House Nancy Pelosi, and President of the Senate Harry Reid, I recounted those promises in this blog on March 21, 2010.

Let’s revisit those promises.
1. All Americans will now receive affordable, or free, quality health care.
2. No one will ever be denied coverage.
3. No one will ever go into bankruptcy because of the costs of health care.
4. There will be increased access to health care for 95% of Americans.
5. There will be no decline in the quality of health care.
6. Health care costs will go down.
7. Health insurance coverage will be affordable to the middle class.
8. There will be no decline in Medicare benefits.
9. Insurance premiums will decline for the middle class.
10. It will unleash unprecedented entrepreneurial opportunity and stabilize the economy.
11. The deficit will decline, saving taxpayers $1.3 trillion.
12. It will cut $500 billion of waste, fraud, and abuse out of Medicare.
13. No government funds will be used to fund abortion.

Are these promises coming true? Many of them are pending full implementation of the act in 2014. Others have fallen flat or encountered the law of unintended consequences.

I’ve heard recently from several owners of small businesses about their increased health insurance costs. In addition to premium increases of nearly 50% over the past two years, they are seeing increased administrative costs from what one person called the “insanity and complexity” of the new regulations.

Businesses with fewer than 50 employees aren’t required to provide health insurance. The incentive for owners of businesses close to that threshold is to keep employee numbers below 50, which means curtailing growth or even laying people off.

Those without employer-provided insurance are supposed to be able to shop for coverage in new health care exchanges, beginning this October. However, half the states have chosen to rely on the federal government instead of setting up their own exchanges.

This has brought criticism even from former supporters like Democratic Senator Max Baucus of Montana, who helped write the health care bill. He is concerned that the exchanges will not open on time and consumers won’t have the information they need to use them. He told the Huffington Post that Obamacare is headed for a “train wreck.”

The proponents said the ACA would cost $938 billion over 10 years. In addition to the promised Medicare savings, this was to be covered by a total tax increase of $562 billion over 10 years. This included a Medicare tax of 3.8% on dividends, rents, interest, and investment income on individuals and small business earning over $250,000.

The Office of Management and Budget, however, places the cost at $1.8 trillion over 10 years, resulting in a shortfall of around $900 billion.

Whether Obamacare becomes the wild success the proponents guaranteed is yet to be seen. However, what we’ve seen so far isn’t promising. We as consumers would be well advised to pay close attention and ask tough questions before we accept this drastic surgery.

Part of the problem is that these readers interpreted my warning about BYOB, which I called “one step from being a scam,” as an attack on whole life insurance in general. That was not the case.

Admittedly, I’m not a fan of whole life as an investment. The purpose of life insurance, in my view, is not to provide retirement income or cash value, but to replace income when someone dies. For most people, the best and cheapest way to do this is through term life insurance. Obviously, someone who sells insurance will have a different opinion.

The insurance agent who tried to show that my math didn’t add up accused me of misrepresenting a Modified Endowment Contract (MEC). He wrote that no insurance professional using what he called the “banking concept” would ever sell an MEC. He’s right about that.

An MEC is a classification under 1988 federal tax law that is intended to limit the use of life insurance policies as tax-advantaged investments. If the cumulative premium payments exceed certain amounts, the IRS defines a policy as an MEC. This means withdrawals from the cash value are taxed as ordinary income and subject to a penalty.

What the BYOB salespeople promote are “blended whole life” policies. These combine term and whole life in order to keep the policies from qualifying as MEC’s. The calculations presented in my article were actual numbers taken from a blended whole life policy sold by a BYOB promoter, so of course they didn’t add up when viewed through the lens of an MEC.

Is a blended whole life policy ever a worthwhile option? Like any insurance products, there are certain situations where they make perfect sense when they are represented honestly and transparently.

However, anyone considering such a policy needs to know two things. First, insurance agents are compensated by commissions on the products they sell. They have no fiduciary responsibility to act in the best interests of their customers.

Second, whole life insurance pays some of the highest commissions of any financial product on the planet. The typical commission ranges from 50% to 70% of the first year’s premium.

With commissions like this, it’s easy to see how insurance agents might feel challenged by any criticism of whole life insurance. As a fee-only financial planner, if I discover that a particular type of whole life insurance isn’t good for consumers, that’s simply useful information to pass on to my clients. The same discovery for a commissioned insurance agent, however, is a potential threat to that agent’s livelihood.

Even with these tempting commission rates, there are many legitimate life insurance professionals whose intent is to serve customers rather than exploit them. These honest agents do their best to sell products they believe will promote consumers’ financial well-being. Comparing whole life insurance sold by reputable agents to the schemes pushed by BYOB sellers is like comparing apples and rotten apples.

It’s too bad that more insurance professionals are not stepping up to protect their industry from the rotten applies engaged in this type of shady marketing. Numerous honest life insurance salespeople would agree that the BYOB spin is not only harmful to consumers. It is also hurting the life insurance industry as a whole.

These unassuming millionaires know how to live on much less than they make, and they know how to save money.  But those behaviors alone aren’t enough.  Not spending money today does not always result in having more money tomorrow.

Frugality for its own sake can result in doing without things that matter to you, failing to take care of basic needs like your health, and living with a sense of deprivation.  It can also lead to spending more money, not less, in the long run.

Frugality for the sake of enhancing your life, on the other hand, features an eye for value.  Most people who build wealth are masters at the art of getting value.

There are many ways we might think we are saving money, but actually the opposite is true.  We end up spending more money in the long term.  Here are a few of the ways we can fail to get value:

1. Not spending the money to have legal documents drawn.  A poorly-worded agreement—or even worse, no written agreement at all—can cost you a bundle in future legal fees or even result in your losing a business or other asset.

2. Doing your own taxes.  Unless your finances are so simple you can file the 1040-EZ, you’re better off to pay a professional who will find deductions you’re likely to miss.

3. Buying a new car to save money on repairs.  An occasional repair bill for a few hundred dollars is still a lot cheaper than a monthly payment.

4. “Saving” money by spending on bargains you don’t need or want.  This includes settling for what’s cheapest instead of looking for the best price on what you really want.

5. Going without insurance.  At a minimum, you should have homeowner’s or renter’s insurance, car insurance with maximum liability amounts, and a high-deductible health insurance policy.  A loss or liability that isn’t covered can cost you everything you have.

6. Not getting regular medical checkups. ” An ounce of prevention is worth a pound of cure” is a cliché because it’s so true.

7. Looking only at the initial price tag without comparing long-term costs.  A more expensive but higher-quality item, whether it’s a car or a pair of shoes, might last much longer and be a better value than something cheaper.

8. Not focusing on value for services when purchasing investments.  A discount broker, for example, isn’t always a better deal than a full-service broker.  For “A” shares of mutual funds, you may pay the same in commissions without getting any personalized help.  If you use a discount broker, be sure to purchase “no-load” funds, which don’t have commissions.

9. Paying hidden costs for financial advice.  Writing a check to a fee-only planner may seem too expensive.  Yet Bob Veres, editor of Inside Information, says that investors who don’t pay directly for the financial advice they get often pay two times more in hidden costs for the “free” advice.  If you buy investments products from a financial salesperson, keep asking questions until you know exactly what you’re paying in commissions and fees.

10. Paying off a low-interest loan instead of putting the money into a retirement account.  If you can earn more than you pay in interest, it may be wiser to keep making loan payments.

Frugality that focuses on value is an essential wealth-building tool.  Those who use it well do more than just save money. They know how to get the most value for the money they do spend.

I was a bit confused when I received an email today from a local business owner congratulating me for being named among the top financial advisors who have most transformed the financial advice profession.  I thought perhaps he read my online resume and was referring to when BusinessWeek named me as one of the top 15 financial planners in 2009.

A little research shows that InvestmentNews is doing a survey as part of their 15-year anniversary issue- asking readers to select the top five most transformational advisors from a list of 26 candidates.  I am totally surprised and honored to be among that group, which reads like a Who’s Who of financial planning.  Even more surprising, I consider ten of them to be personal friends!

If you want to check out the survey you can access it here.

My recent article on the Be Your Own Bank (BYOB) scheme didn’t sit well with Clark Sowers, Belle Fourche, SD, who wrote a letter to the editor of the Rapid City Journal shaming and disparaging me for my characterization of cash value insurance as a scam.

The only problem is that I didn’t call whole or cash value life insurance a scam.  I did, however, call the BYOB scheme “one step from being a scam.”

I found it very interesting that Sowers says BYOB is promoted by other fee-only planners, inferring I must be out of step with my profession.  I have never met a fee-only planner that promoted the BYOB concept, and I know a few thousand of them. I would be very interested in meeting a fee-only planner who promotes it.

Sowers also says my article is simply an advertisement for weak alternatives to cash value insurance.  I reread my article three times and have yet to find any alternative I promoted in the article, outside of “Don’t do it!”.  I certainly could have promoted a number of very strong alternatives, like putting your money in a real bank or 401(k) and avoid paying all the high fees to the BOYB shysters.

Finally, Mr. Sowers’s justification for cash value life insurance rests on the fact that General George Custer financed his trip to DC to save his career.  While that may be true, stories like this are ubiquitous with the BYOB people.  They are quick to point out that Walt Disney, J.C. Penney, Sen. John McCain and, yes, George Custer all used policy loans to finance projects and therefore, you should too.  They don’t bother to discuss that the circumstances, fees, and policy structure of the policies these people owned, compared to the policy they want to sell you, may be equating apples with mussels.

It’s too bad that legitimate life insurance professionals are not stepping up and protecting their brand by distancing themselves from this type of shady marketing. There are many honest life insurance salespeople who would agree.  The bottom line is that the BYOB spin is a scam and it’s hurting the life insurance industry as a whole.

The case for the union of money and psychology is overwhelming.  Almost everyone experiences fear, sadness, grief, anger, or happiness around money events.  Large life events like divorce, death, bankruptcy, losing a job, and selling a home clearly involve money and evoke emotions.

We may be less likely to notice the psychological aspects of smaller money events.  Yet even acts like paying monthly bills, buying birthday gifts, or shopping for groceries have an emotional component.

Researchers like psychologist Daniel Kahneman (who won the Nobel prize in economics) find that 90% of all financial decisions are made emotionally, not logically.  Even the seemingly cold and calculating world of investing is driven by emotions.  Economic theory is being set on its head as economists are slowly coming to realize that, regarding money, consumers often don’t make rational decisions that are in their best interests.

Yet 18 years after a small group of pioneering financial planners and therapists first met to explore the relationship of emotions and money, the field of financial psychology is still in its infancy.  It’s really no wonder.

On the money side of the equation, we have institutions like large brokerage houses, insurance companies, and banks. Like all businesses, they need to be profitable.  Any concern these institutions may have about the union of finance and psychology is likely to focus on ways to manipulate customers’ emotions in order to sell more of their goods and services.

On the emotional side, psychologists and therapists rarely mention money issues.  When they do talk about money, it’s often in the context of their own fees.  Their training doesn’t address the idea that both they and their clients may have emotional issues or beliefs around money that could be destructive.

This leaves a big gap.  In the middle of it are consumers who don’t know how to develop healthier patterns of behavior around money.  They may overspend to relieve stress, feel overwhelmed by credit card debt, be unreasonably fearful about financial security, be overly trusting or overly suspicious, or give or lend too much to family members.

Some of these consumers have at least some idea that their destructive financial patterns are psychological.  They may realize they need more than financial facts to change those patterns.  Yet they may have no idea where to find the help they need.

The one group of professionals that is moving to fill that need is client-focused financial planners.  Unlike advisors who sell financial products, client-focused financial planners receive no commissions but charge fees for their advice.  By law, they must act as fiduciaries and advocates for their clients.

Historically, financial planners have not embraced the notion of money psychology.  Obtaining the Certified Financial Planner® designation still requires no formal training even in client communications or conflict resolution.  Yet a small but growing group of client-centered financial planners is seeking out training in psychology and communication.  A few even partner with financial therapists.

The challenge for consumers is how to find these professionals.  One source is the Financial Therapy Association, which has a list on its website.

Gradually, more consumers as well as professionals are realizing that it’s possible to combine financial knowledge and psychology to create more balanced relationships with money.  This awareness is sure to increase the demand for financial psychology services.  It will be exciting to watch this infant profession as it grows.

If a proposal in President Obama’s budget plan is approved by Congress, however, retirement plans may no longer be the first and best stop along the road to financial independence.

The proposal would limit a person’s total balance in all tax-advantaged retirement plans to the amount it would cost to purchase an immediate annuity paying $205,000 a year.  This appears to not be indexed for inflation.  The articles I’ve read and my own calculations suggest this would mean capping retirement accounts at around $3 million.

From the sketchy details available so far, the proposal appears to target traditional IRAs and other tax-deferred retirement plans.  Contributions to these accounts are made with pre-tax dollars, and the earnings in the account are not taxed until they are withdrawn.

Since 58% of Americans don’t have any retirement plan, my guess is they will pay little attention to this proposal.  Saving $3 million dollars seems well out of reach.  While that may be true in today’s dollars, it most likely will not be true in future dollars.

If inflation over the next 40 years matches that of the past 40, a $3,000,000 IRA in 2053 will be equal to $575,000 today.  If today’s 25-year-old, retiring then, wanted to be sure the money would last another 40 years, the IRA would provide an income equivalent to about $1,500 a month.

Even in today’s dollars, the $3 million maximum isn’t as unreachable as it may seem.  Employees can currently contribute a maximum of $5,500 per year ($6,500 for those 50 and older) to Roth or traditional IRAs.  Small business owners and the self-employed may have SIMPLE (savings incentive match plan for employees) or SEP (simplified employee pension) IRAs.  The maximum annual contribution is currently $17,000 for a SIMPLE and $51,000 for a SEP. A self-employed plumber, business owner, or doctor who was a conscientious saver with a diversified portfolio could certainly accumulate $3 million over a lifetime.

Or suppose the wife of a small business owner was a self-employed counselor with her own SEP plan.  If he died at age 58 and she inherited his IRA, the combined totals could easily put her over the $3 million cap.

It isn’t clear how the proposal would equate the withdrawal rate with the cap.  One possibility would be to raise the required minimum distribution amount, which would erode the value of an IRA more quickly.  Another option would be to penalize excess accumulations with a hefty tax of 40% or more.  Of course, the President could follow in Argentina’s footsteps and just confiscate any amount over the cap.  Any of these would add to the diminution of retirement plans as a vehicle for income during retirement.

The proposal includes this statement: “But under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”

Apparently we, as individual citizens, are not considered capable of defining “reasonable levels” of retirement saving for ourselves.  The real goal of this plan appears to be wealth distribution, instead of encouraging more Americans to save and provide for their own retirement.

You can read more about this proposal at Bloomberg and Market Watch, and here is a link to the President’s budget.  If this proposal is passed, retirement plans will play a much smaller role in many middle class Americans’ golden years.

Building wealth is not about your IQ, it’s about your EI, that is your emotional intelligence.  Author Dan Goleman in his book, The Emotionally Intelligent Workplace says that IE trumps IQ when it comes to job performance.  The most successful CEO’s score high in EI.

Our years of research and working with the blending of EI and finances finds that people with high EI also make better money decisions. Making good money decisions is a 21st century survival skill.

Creating Wealth and Financial Freedom By Expanding Your Emotional Intelligence is all about giving you better tools to create more abundance, wealth, and ease in your life. Rick Kahler co-created the concepts used in this workshop, which The Wall Street Journal  (September 25, 2003) referred to as “an innovative effort that combines experiential therapy with nuts and bolts of financial planning”.

The workshop uses researched techniques designed to increase emotional intelligence.  We will help you identify the beliefs and feelings about money that keep you stuck in making poor money decisions, or that may simply be keeping you poor.  Even people who have enough money can find themselves bankrupt in emotional intelligence that may result in overspending, underspending, risk taking,  workaholism, an unfulfilling job, and poor investments.

Dave Jetson and Rick Kahler, two pioneers in blending financial planning with emotional intelligence, have partnered together to offer a most unique experience for individuals and couples to deal with how money shapes their lives. The ”Creating Wealth and Financial Freedom By Expanding Your Emotional Intelligence” is a 4-day workshop that helps individuals and couples better understand and transform their emotional money intelligence.

This workshop starts at 8:00 am on Friday, May 17th, and ends at 5pm on Monday, May 20th. The cost is $2,750 per individual and $4,950 per couple that includes meals and lodging! The workshop will be held in the beautiful Black Hills of South Dakota at the new Terra Sancta Retreat Center in Rapid City.

Make an investment in yourself or your coupleship that will pay big dividends  for years to come. Join us for an experience that may change for the better how your coupleship works around money. Reserve your space early as seating is limited.