Why Another Housing Bubble is Looming...

Like 2006 all over again… Could the US be heading into another housing bubble? 



By Teresa Kuhn, JD, RFC, CSA

This micro “house” in Brooklyn, NY, built from a tool shed, was recently listed on Tulia for $500,000…


Will 2016-2017 see a repeat of the housing meltdown that pulled our economy into a recession and destroyed millions of dollars of Americans’ wealth?

I’ve been looking at the trends lately and am seeing a disturbing amount of irresponsible practices creeping back into the marketplace; practices that directly contributed to the bursting of the last bubble.

The idea that a housing bubble is barreling down on us is controversial, to be sure. Real estate industry insiders say that even though standards have loosened a bit lately, they are nowhere near what they were in the days of stated income and no down payments.

There is a lot more documentation and a whole new set of requirements and hoops that must be navigated prior to purchasing a home, they claim. However, I have observed some unsettling trends that I believe will ultimately lead to another marketplace crash in the near future.

Loans are getting easier to get 

Standards are once again loosening up with risky loans disguised as something innocuous. Many of these loans are, in fact, the same highly risky, subprime-style loans we had during the meltdown. The only real difference is now they are now being made with government (taxpayer) guarantees rather than originating with private investors. In spite of being coated with government promises, these loans reek of risk.

Mortgage software company Ellie Mae recently reported that the average FICO credit score of an approved home loan plunged to 719 in January, 2016 down from 731 a year earlier. This figure is well below the peak of 750 in 2011. Lower FICO scores, of course, correlate directly to higher risk of loan defaults. This is a dangerous sign that lenders are continuing to loosen underwriting standards. 

Home prices are rising a lot relative to income

For the past few years, home prices have been rising about 5%-6% a year, but incomes are growing at only about 2% or 3%.

What does this mean? It is a tell-tale sign that housing affordability is worsening. As fewer people can afford homes various players in the housing market have a lot to lose and are pressured into relaxing lending standards even further to preserve the illusion of growth.

On the other hand, construction of new housing units over the last four years is at around half the pace of the bubble year construction. This lack of supply pushes home prices well above people’s ability to pay.

Flipping is once again a hot pastime

Another sign that the real estate market is teetering on the brink of collapse is the resurgence in popularity of real estate speculation and home “flipping”.

Flipping is once again trendy and hitting levels not seen since just prior to the last mortgage crisis. In 2015, almost 180,000 homes were sold and then resold last year — the highest level since 2007. Frenzied flipping in metro areas such as New York, San Diego, and Miami is actually exceeding peaks set back in 2005. Low interest rates and easier credit once again make this possible.

Conclusion:

After researching current real estate market behaviors and seeing history repeat itself, I can’t help but side with economist and demographer Harry Dent.

Writing in Economy and Markets Dent observed:

“… I’m predicting net housing demand will fall – even turning negative over the next two decades – especially starting later this year. This critical demographic indicator shows it won’t turn positive again until after the year 2039 – 23 years from now. The same indicator explains why the echo boom in Japan never caused a bounce in housing even after its all-time bubble highs and 60% crash.” (http://economyandmarkets.com/markets/housing-market-markets/the-dumb-moneys-at-it-again-always-the-last-sad-sack-to-the-party/)

Why insurance is one financial tool you DEFINITELY want to have...

“Now you’re up against the two biggest risks to your money – tax risk and investment risk (investment risk meaning stock market risk). Nobody wants those two nooses around their neck, especially going into retirement,” Slott says. “Insurance is the kind of product where you can eliminate the taxes and the investment risk. So to me, that is essential for anybody who wants to sleep at night. I don’t know of any other product that attacks both risks at once.”- Ed Slott, CPA 
“America’s IRA Expert”

 By Teresa Kuhn, JD, RFC, CSA
President, Living Wealth Financial

 It’s hard for me to imagine how any financial advisor who truly understands the different phases of a person’s financial life can ignore the value of life insurance as an integral part of a wealth preservation strategy.

 Yet, there seem to be many advisors out there that either don’t understand the difference between investing and saving or who are so dead set against permanent life insurance that they ignore its’ obvious advantages, to the detriment of their clients. The financial media isn’t much help either as they continue to promote the largely discredited theory that everyone should “buy term and invest the difference.”

 Here are just a few reasons that I choose to build my clients’ financial futures using the power of specially-designed, dividend-paying whole life insurance,

1. Using life insurance leverages your money and creates wealth. In the long run, life insurance has the power to create more wealth than any other financial tool available to the average person. 

This wealth ends up being more valuable than tax deferred retirement savings that are at risk of being taxed at future high rates. The leverage power of life insurance means that one dollar put into a permanent life policy can become many more dollars that are tax free.

Is Wall Street or your bank able to do the same? 

 2. Life insurance is a good asset 

 “America’s IRA Expert,” CPA , author, and PBS host Ed Slott, says that insurance is a good asset. He explains that while most people with retirement savings have them in 401K’s and IRA’s, they don’t realize the vulnerability of this money when it is needed most…in retirement. For example, funds in an IRA, distributions are not only taxable (in a traditional IRA), but the increased income they create could also trigger hidden or “stealth” taxes. These taxes include phased-out deductions, exemptions, and tax credits.

 An income increase from an IRA distribution could even cause more of a retirees Social Security benefits to be taxed These are hidden tax increases in the form of phased-out deductions, tax credits, exemptions and other benefits as income increases.

For example, an income increase from an IRA distribution could cause more Social Security benefits to be taxable or the trigger the 3.8 percent additional tax on net investment income from capital gains, interest and dividends. These are some of the reason that Slott says traditional retirement accounts are uncertain and diminishing assets over time and recommends replacing such accounts with permanent life insurance using systematic IRA withdrawals.

Wouldn’t you like to enjoy a better and more powerful long term asset?

 3. Life insurance can help eliminate stock market risk 

Depending on how your policy is designed, permanent life insurance can build a wall of protection around your savings that prevents the erosion of your cash due to stock market volatility. The closer a person gets to retirement age, the less likely it is that he or she will be able to replace lost wealth. Most people will never be able to replace lost money unless they win the lottery or get a surprise inheritance from a long lost uncle.

 How much money can YOU afford to lose?

 4. Life insurance keeps you from being forced to play by other peoples’ rules 

 There is a measure of control afforded those who choose life insurance as the ultimate savings vehicle. For example, (except for Roth IRA’s) , IRAs are subject to annual required minimum distributions after age 70 ½, whether you need that money or not This creates forced distributions and additional taxes when you need them least.

 5. Life insurance helps you safeguard against unexpected losses

 Many of us plan to “work until we die.” While that might be an admirable goal, reality has a way of upsetting our plans. Even the most well-planned and prudent person can suddenly be faced with a health crisis that forces them to retire sooner than planned. Having a “turbocharged” life insurance policy, such as the ones I design for my Bank On Yourself clients, can make a huge difference in your quality of life should you be faced with a health emergency.

 Conclusion:

My career as a financial strategist has exposed me to every flavor of investment and savings tool available. After researching all of these, I continue to recommend that my clients build their financial futures on the solid foundation provided by permanent life insurance policies.

 If you or someone you know could benefit from having greater financial peace of mind, call my office today. I’ll send you all the information you need to discover how to create a financial future that is less stressful and more satisfying.

Stop Eating Leftovers...

re: Financial leftovers- is your wealth strategy based on junk food?



by Teresa Kuhn, JD, RFC, CSA
President, Living Wealthy Financial

           Stop giving yourself the crumbs!

I recently read an article in Business Insider  outlining some of the ways in which wealthy people differ from average people both in actions and mindsets.

For example: while many of us are consumed by saving and being as frugal as possible, most self-made millionaires are busy looking for ways to EARN more money and then put that money to good use-making even more money.

A study of over 1,200 wealthy people conducted by Steve Siebold, a self-made millionaire and author ("How Rich People Think.") concluded that the vast majority of millionaires did not fall prey to the same "nickel and dime" mentality that plagues the majority of Americans.

Indeed, even in the toughest times, when others are cutting back, laying off workers, halting research and development and investment, these entrepreneurs are searching for ways to profit from the shaky economy.

According to Siebold, when a business owner or individual is so consumed by searching for ways to trim expenses, they often miss huge opportunities to grow their wealth.  He also maintains that most of us fall victim to old school thinking when it comes to the pursuit of financial prosperity.

Writes Siebold in "How Rich People Think":

"The average person believes the harder they work the more money they’ll make. Their linear thinking equates labor and effort with financial success. This is why most people aren’t rich. They’re following an outdated model of success and are confounded when they reach middle age with little money to show for twenty years of hard work." 

Another obstacle to financial success (perhaps the BIGGEST one of all) is that few of us abide by that very excellent piece of advice:

Pay yourself FIRST!

I can't overemphasize the fact that this one simple action has profound consequences for your financial future.  Yet, an overwhelming majority of people continue to feed their wealth with "leftovers and crumbs."  They sit down, pay all their bills, and give themselves whatever tiny portion remains.

This is, according to Siebold and other experts, a self-defeating mindset.   No wealth happens until you reach a point where you have made a firm commitment that, no matter what, you will pay yourself before you pay anyone else.

Paying yourself first, of course, is not the same as spending on yourself.  It is simply a discipline where you set aside a payment to yourself before you take out any other funds.  You are, in essence, treating yourself like a creditor.   Setting up a system to "bill" yourself can help cement this habit, as can having an automatic deposit made from your check into a savings account.

I realize that the high cost of living and flat paychecks are the prime reasons people can't seem to find the cash to pay themselves or start emergency funds.  However, when I have sat down with clients and they've been honest about expenditures, I have usually found places where money can be saved and used to pay themselves.

The point of all this is that if you really want to achieve financial independence, you MUST change and adopt the habit of paying yourself first.

For many of my clients, having Bank on Yourself policies in place is the ultimate way to make sure you pay yourself first, consistently, EVERY month.  Having money automatically deposited into a BOY policy allows you to pay yourself and achieve safe, steady growth of that money without having to expose it to Wall Street turmoil.

If you want to move from giving yourself crumbs and leftovers, call us and ask how hundreds of my clients have discovered a better way to pay themselves first...every time.

(800) 382-0830

Slight Hiccup or... Sign of Things to Come?

re: January 4, 2013- The worst start of trading in Chinese history.


by Teresa Kuhn, JD, RFC, CSA
Living Wealthy Financial
Host, Living Wealthy Radio

While it wasn't entirely unexpected, (at least to those of us who've been paying attention), the meltdown of China's stock market on the first of post-holiday trading triggered massive sell-offs in the United States and Europe and caused more than a few folks to clench their teeth.

China's new "safety" mechanism, which had just gone into effect that day, halts trading of index futures, options, and stocks for 15 minutes whenever there is a move of 5% in the CSI 300.

As Zero Hedge reported, "Following the initial halt in CSI-300 Futures at the 5% limit down level, the afternoon session opened to more carnage and amid the worst 'first day of the year' in at least 15 years, Chinese stocks collapsed further to a 7% crash. At 1334 local time, stock trading was halted for the rest of the day across all exchanges (at least two hours early)."

While there was an immediate impact on the rest of the world, the plunge’s initial effects are somewhat muted due to the fact that China tightly controls and limits foreign investment in mainland stocks.  Foreign investors own less than 1% of Chinese mainland stocks.

The lion's share of  losses from the January 4th meltdown were felt by less than 14% of the Chinese population who are active investors.  

But before you breathe a sigh of relief and head back out to do some more risky business, consider this:

In the age of globalization, world economies are so intertwined that someone in China can cough and everyone on Wall Street runs to get a flu shot.  

There is absolutely no way that this won’t ultimately affect every person who has exposure in the stock market.  After all, Chinese investors have lost more about $3.4 trillion in equity value from the markets mid-June peak until the July 7 close.  And the slide looks like to continue as the bubble stretches until it can stretch no more.  

3.4 trillion in personal wealth can't just vanish without causing a ripple effect across the globe, especially since Chinese consumption has been  a driving force in so many economies, particularly the anemic US economy.

ZIRP and the Zen of Chinese Economic Maintenance

A central factor triggering the Chinese meltdown was their central bank's insistence on following a Zero Interest Rate Policy (ZIRP) which created a frenzy of borrowing.   Cutting rates to rock bottom had the understandable consequence of driving people who were desperate to grow their wealth into the market.  In other words, it just didn't pay to save...at all.

If any of the above sounds familiar to you... it should.  It's exactly the same thing that has been going on in the United States for years.  Savers have been crushed, debtors rewarded, and the whole system has become highly fragile and suspect.

I am not alone in thinking that having your precious cash on Wall Street right now, especially if you are at or near retirement, is like playing hot potato with a loaded grenade.   Sooner or later, the grenade is going to explode and leave a big hole where your money used to be.

Can you get SANE GAINS and still keep your nest egg safe?

I'm a big believer in legitimate investing, and I encourage my clients to seek out ways to increase their wealth that don't involve hard core gambling on overvalued stocks.

The first thing I tell them to do, though, is get themselves a Bank On Yourself policy to help manage their cash flow and provide safe, steady, and risk-free gains. Bank On Yourself (R) is a proven and safe cash management strategy that uses a versatile kind of life insurance to accomplish financial goals.

BOY can be used to finance large purchases such as income producing properties, houses, cars, businesses or to pay for vacations, medical emergencies, educational expenses, or other big ticket items.  With Bank On Yourself as your financial linchpin, you will have the cash you need to control your own financial destiny without having to rely on banks or expose yourself to risk on Wall Street.

If you can afford to lose your money,  then you probably won't benefit from learning more about Bank On Yourself.   But, if you are like most people and are concerned that losing even one dollar of your cash could spell trouble in retirement, you should call our office now at

(800) 382-0830.

I will be happy to send you a packet explaining all the details about the amazing financial tool that is Bank On Yourself.

Or, visit my main site at http://livingwealthyfinancial.com/ for more information.

Preparing for the New Year: Three Things You Can Do Right Now To Get Ready for 2016

by Teresa Kuhn, JD, RFC, CSA

Life has a habit of derailing even the most well-thought-out plans.  That being said, there are still some simple steps you can take to ensure that your wealth stays intact as much as possible in the coming years.

Friend of Living Wealthy Radio, economist Harry Dent, believes that prudence is the best course of action over the coming years as Wall Street hijinks and demographics prove themselves incompatible.

Writes Harry in a recent edition of his newsletter: 

"Most analysts think the U.S. economy is OK outside of these dollar and global slowdown factors.

But here’s a few thing they don’t see coming… happening this next year…

They don’t see the slowdown of the affluent sector, wherein the top 20% control over 50% of income and spending. This group peaks at age 54 – that’s this year – and they hold almost all of the bubbled up financial assets like stocks. That’s where QE has had its impact – not on Homer Simpson.

Analysts also don’t see that car sales, which have been strong up to this point, will lead the downturn in 2016 as they also peak with that affluent sector at age 54." 

With this in mind, I thought of a few things that you can do to prepare yourself for the wild ride.

1.Eliminate debt as much as possible.  Debt, especially consumer debt, can absolutely strangle your economic progress and get you caught in an endless "two steps forward, three steps back" loop.  Do anything and everything you can to pay off your debts, even if all you do is kick in a few extra dollars on your car payment or place a moratorium on your credit card use.  If you have cash built up in your Bank on Yourself policies, consider using some of that to pay down debt or to make major purchases.  Doing so will not only help you get out of debt, but you will build up your pot of cash even more quickly.

2. Start learning more about asset planning and protection.    Protecting what you own with proven asset protection strategies   Asset protection trusts are powerful tools that you can use to help stem the erosion of your wealth.  A great place to start is with an E- copy of Arnold Goldstein and Ryan Fowler's Asset Protection in Financially Unsafe Times Download it  here:http://www.mediafire.com/view/qoiaura2ljfadwz/AssetProtection_%281%29.pdf

3. Call our office and schedule time with a Living Wealthy advisor.  Even if you have someone else doing your financial planning, it never hurts to have a second pair of eyes evaluating your financial blueprint.    We'll look for potential weaknesses in your current plan and make suggestions as to how you can shore them up.  If you are already a client, now might be the perfect time to check in with us to ensure you are on track to your goals.  Call now and get on the schedule!  (800) 382-0830

Remember, it's not all "gloom and doom, " especially when you have a Bank on Yourself policy as your ultimate cash-flow engine.  With a mindset that includes debt and cashflow management and a conservative approach toward genuine investment, you will emerge in a better place, even if the economy takes a nosedive.

Recent COI Increases Reveal the Weaknesses of Universal Life Insurance

By Teresa Kuhn, JD. RFC, CSA

President, Living Wealthy Financial

There’s a certain amount of trust and faith required when entering into a business relationship, as well as a fair amount of reliance on companies to follow accepted practices and do the right things for their clients.    

And, while most of us realize that the way products are marketed may be the polar opposite of how they actually work, we continue to have faith that what we are being told about the things we buy is at least somewhat truthful.

As some of the most trusted and respected entities, American life insurance companies have been successful mostly because ordinary people have put so much faith in them and their promises.  

Throughout our country’s history, people have bought insurance policies that last for years, often entire lifetimes.  They do this believing that the insurer would never violate their trust by failing to honor the original policy terms or by doing things that would harm them financially.   

Most people, for example, never expect the company to suddenly exercise a provision in the contract that would have an adverse financial consequence for them.

Unfortunately, however, such trust may no longer be justified. 

Except for whole life insurance policies, most other permanent life insurance policies have a right to increase the cost of insurance built into their contracts. 

In the past, most people did not pay much attention to this particular provision simply because insurers realized it would be bad business for them to use it.   Increasing the cost of insurance (COI) was just something that was seldom, if ever, done.

Recently, though, unprecedented types of premium increases have begun to hit consumers.  These rate hikes call into question the trustworthiness of insurance companies and threaten the entire industry.

At least four major insurance carriers have published significant rate hikes with no warning to consumers.

These rate hikes result from increases in the cost of insurance (COI) companies charge their existing customers.

For those of you who may not know what COI is, it is the pure insurance protection portion of a policy and is tied to mortality risks.

In the past, COI increases have been unthinkable and consumers have relied on the implicit and explicit promises of  life carriers that they will never have COI increases.  The breaking of this promise by four big insurance companies virtually guarantees that others will follow.

There’s nothing subtle about these premium increases, either.  Policy holders are getting bills with anywhere from 40% increases in premiums to over 100 percent!   Such increases come at a time when health insurance, automobile, and other insurance premiums are also increasing.

The impact on older Americans, especially those over age 65, is tremendous.   This is because the highest COI rates occur as people approach and surpass their expected mortality.

So why are these carriers suddenly starting to raise these rates and what can you do to avoid having this happen to you?

To understand the reasons for this situation, you need to know a little bit about how life insurance works.

Nearly all permanent life insurance policies, including indexed universal life, whole life and variable life, use projected COI to help determine how the policy will be priced.

Even “guaranteed universal life” contains a mortality component  found on the company’s side of the risk equation.

If an insurance company’s projections are off and more insureds die than expected in a particular group, the company can pass those additional costs along to their policyholders. 

This has always been a possibility, but until this year, COI rate hikes were very rare.  Insurance companies realized that doing this would create massive PR headaches and potentially tarnish their public image. 

Now however, major insurers such as Transamerica say they can no longer afford to maintain public perception at the expense of profitability.   

The company recently revised COI costs for a huge block of universal life insurance business written in the 1990’s and now requires all proposals for these policies to be illustrated at the guaranteed mortality rate, guaranteeing large rate increases.

Another large issuer of universal life insurance, 

Voya Financial has also notified many of its’ universal life policyholders  about coming rate increases.

AXA , which is the largest insurance company in the world, also recently increased COI rates for a block its’ universal life policies.   These policies, in addition to being singled out due to bad mortality rates, were also chosen according to premium payment patterns.   

Universal life and flexible premium policies let owners choose how much they pay each year, provided there is sufficient cash value in the policy.

In addition to adverse mortality rates, the Fed’s stubborn insistence on maintaining ZIRP (zero interest rate policies) has had a negative effect on customers’ abilities to fund policies.

If you have one of these types of policies and you’ve experienced rate increases such as those above, you should contact our office.  We’ll suggest alternate strategies that may help you offset some of these increased costs. 

As an advisor and agent, I can’t believe that insurance companies would have such callous disregard for their loyal policy holders.  The consequences of increasing COI are not reflected in a bunch of numbers on the company balance sheet, but rather in the daily lives of people, especially older Americans who must somehow deal with this blow to their budgets.

On a positive note, I work hard to ensure that none of my clients will ever experience such devastating impacts on their budgets.  At Living Wealthy Financial we are extremely selective about the companies we use to implement our Bank on Yourself® strategies.

We know that other permanent life solutions shift the risk back onto the insured, which in effect means the INSURED is now responsible for making the insurance company’s guarantees work.  How crazy is that?

Sure, whole life might not seem as “sexy” as these other types of insurance, but how much of your savings can you afford to risk?  I would guess your answer is “none.”  If that’s the case, then you need a strategy that reflects the true purpose of insurance- to pass risk from the INSURED to the COMPANY, not vice-versa.

If you are working with a stock company, versus the mutual companies with whom I work, then you should know that those stock companies are geared toward making decisions designed to maximize their shareholder’s wealth…not yours.  That means that in the long run they are not too motivated to do what works best for policyholders.

PS: If you have a policy that is with a stock company, and you’d like us to analyze it and make recommendations, at absolutely no cost or obligation to you, then call our office now at (800) 382-0830 or visit our website at http://livingwealthyfinancial.com/

The Three Scariest Words Affecting Your Retirement...

by Pamela Yellen Bank on Yourself.com There are three words that could have the biggest impact on whether you enjoy a comfortable retirement... or you have to struggle and  forego life's luxuries – and even life's necessities. But almost no one is talking about these three words.  And there's a good chance you've never even heard of them. These three words could have more impact on your retirement lifestyle t han living longer than you expected... or than being forced to retire sooner than you planned (which happens to nearly 50% of Americans,  according to the Employee Benefit Research Institute). The three words may sound a little technical, but I'm going to  make them brain-dead simple to understand. The three words are: sequence of returns.  Specifically, the "unfavorable" kind. It's a fancy way of saying that retirees who have  a big portion of their assets in equities and  mutual funds face the very real risk  that the market will fall as they are  withdrawing money from their accounts. Many people plan to use the widely recommended "4% rule,"  which advises retirees to take out no more than 4% of the  value of their retirement accounts (adjusted for inflation) each year.  Studies show that rate of withdrawal has a good chance of making  your money last as long as you do.  (It should be noted that more recent studies show  that a 3% annual withdrawal is the maximum needed  to make your money last.) That means that if you have $100,000 in your retirement accounts,  you can safely pull out $4,000 a year using the 4% rule.  If you have $500,000, you can withdraw $20,000 a year,  and if you have $1 million in your account,  you can take out $40,000 a year. If you haven't thought much about what kind of lifestyle withdrawing  4% a year from your accounts would give you, I'm guessing you might  be feeling a little queasy right about now. Oh! And don't forget to take whatever you'll have to pay  in taxes that you deferred in your 401(k)  or IRA off the top of that number!) It's easy to see that if we experience another market crash of  50% or more – as has happened twicesince 2000 –  as you're nearing or already in retirement,  it could have a devastating impact on how much  you can withdraw each year. If your million-dollar 401(k) suddenly becomes a 201(k) worth  $500,000, withdrawing 4% will provide you only $20,000 a year,  instead of the $40,000 you had planned on. But here's where it gets really sticky... timing is everything... When you run the calculations, you discover that the impact of a market decline in the first few years of retirement is even worse  than in later years. It turns out that when you begin to take withdrawals, market volatility has a far greater impact than rate of return. An unfavorable sequence of returns may make you have  to cut back significantly on your retirement lifestyle, or force you to work longer than you had planned. The BIG problem, of course, is that there is no way  to accurately predict when the next market crash  will happen, or where the markets will be  when you are ready to retire. We may be at the beginning of the next major crash...  or several years away from it. Nobody knows for sure. One way to protect yourself from this very real threat to your  retirement lifestyle is to diversify your assets. What if a portion of your savings were in an asset that is  guaranteed to grow by a larger dollar amount every year?  That would be a favorable sequence of returns that translates  into financial peace of mind for life.

Such an asset exists, and it's called Bank On Yourself.   It's never had a losing year in more than 160 years! It also lets you fire your banker and become your own  financing source for your cars, vacations, a college education,  business expenses and more. And the best part is that it's easy to find out UP-FRONT  what your bottom-line guaranteed numbers and results  could be if you added Bank on Yourself to your financial plan. To find out how a custom-tailored plan could help you reach  your financial goals and dreams   without taking any unnecessary risks.  – just request your free Analysis right here.