While there are several positive attributes of cash dividends, they all carry a risk….and uncontrollable risk: The dividends may be reduced at any point in time or stop completely.  You have no control over the amount or timing of any corporate dividend. Namely, we are referring to cash dividends from publicly traded companies listed on an Exchange, such as the New York Stock Exchange or the NYSE MKT (formally known as the American Stock Exchange), and NASDAQ.   

Company Dividend History

There are companies that are known for paying cash dividends and have a history of successful distributions.

But that list is shrinking, and there is an increasing number of companies cutting back on cash dividends and stock dividends. The volatility of the US Markets is having a major impact on company and stock performance as well as the global economic, political, and social conditions. More pressures are being placed on companies to perform and meet or exceed shareholder expectations because everyone enjoys a “good return on investment.” The bottom line is that the balancing act of keeping shareholders happy with good returns, keeping enough capital on hand to run the business, and meet the ever-growing challenges of daily operations, a toll is being taken on cash dividends. 

Research from Dividends.com

A recent research article from Dividend.com  entitled “The Unreliability of Dividend Income Throughout a 30-year Retirement” noted the ever-increasing volatility and shrinking list of companies paying cash dividends. They noted five reasons why there is a shift away from paying dividends or reducing them.

(1) Company failure to change with the times, (2) Incompetent management, (3) Took on massive risks, (4) Debt burden became unsustainable, and (5) Public faith and sales plummeted. Here are just a few well-known companies that have cut, suspended, or stopped quarterly dividends during the last few years:  

• Bank of America – from 64 cents per share to 32 cents, to .1 percent for some quarters.
  
• Citigroup – from 54 cents per share to 32 cents, then 16 cents, to suspended, back to 1 cent.
• Ford Motor Company – from 5 cents per share, suspended for six years, back to 5 cents.
• General Motors – from 50 cents per share to 25 cents, suspended, then back to 30 cents.
• Kodak – 50 cents per share, then 40 cents, then 25 cents, and then completely suspended.
• Washington Mutual – 56 cents per share, to 15 cents, then down to 1 cent per share.

A quote From Warren Buffett — Warren Buffet’s Berkshire Hathaway has never paid a dividend. Warren believes that any company paying a dividend is saying, “we don’t know how to use this extra money to grow our share price, so you take it and see what you can do with it.”  

What if I Need Steady Income?

The most important concept to remember about cash dividends is that you are not in control of the amount or the timing of when they may be paid. If you are dependent on cash dividends to cover any required retirement expenses, you may find yourself without an income stream or a reduced income amount to pay your bills. Why take the risk with your retirement money when there are other and more stable alternatives.

According to a 2020 Dividend.com study, over 50% of dividend investors use Income Annuities to help safeguard their retirement portfolio.

Since investors purchase cash-paying dividend stocks mostly for income purposes, what can you do if you want steady and guaranteed income? We suggest you consider using an Income Annuity to protect your portfolio and provide the ongoing cash payments that can be paid for a certain period or even for the remainder of your life. Income Annuities are not always the most appropriate solution, but in many cases, if you need the reliable income that you cannot outlive, then it is worth exploring this option. Your funds are guaranteed and protected from loss by the insurance company, and they are the only institution that can guarantee an income stream and still grow your funds.

For more information on Dividends, here are some websites you can visit:

• Dividend Channel — https://dividendchannel.com
  
• Forbes Dividend Channel — https://www.forbes.com/sites/dividendchannel
  
• Dividend Investor — https://www.dividendinvestor.com
  

For more information on Annuities, here are some websites you can visit:

Check out our Lifetime Income Channel on Annuities:  https://www.lifetimeincomechannel.com/annuities-lifetime-income

The purpose of a life insurance policy is to protect and preserve your assets and income in case you or your family suffer a loss (i.e., lose your income, loss of a family member’s income, the inability to work, or other reasons). But did you know that you may be able to use a life insurance policy to provide tax-advantaged? Did you also know that you may be able to have national and well-known banks assist in the funding of your premiums to provide a larger cash value? Think about this: Many people have (or had) a mortgage to buy a home, but have you ever considered a similar concept to fund your life policy for more cash growth?

Using Premium Financing to Increase Cash Growth

The ability to use banks to help fund your policy premiums can be accomplished using a concept known as “premium finance.” At this point, you may already be asking yourself: How is this possible? How much can I get from the banks to fund my retirement? Are there loan documents? What are the risks? What are the terms? All great questions, and we’ll offer some information to help you understand the concept of premium finance and tools to conduct further research.

It’s Not Where You Invest…It’s How Much You Invest

One of the most significant risks associated with retirement planning is “capital risk.” It is the risk that you may not have saved enough during your working years to support your desired lifestyle in retirement. Many of us will spend 20 to 30 years in retirement, and that’s a long time to make your assets last. A recent research article from Retirement Success by David M. Blanchett found that how much you have to spend in retirement is determined by how much money you saved as opposed to where you invested it. The study found that 74% of your retirement money comes from the cash you accumulated, and only 26% comes from investment growth. That’s a staggering thought!

Why Would Banks Want to Fund Your Life Insurance Policy?

Banks don’t like losing money, and by the nature of their Charter, they seek out secure sources of investments. Life insurance is often a vehicle used by banks because it is one of the more secure sources, and it can still provide them with competitive cash growth and you too. Banks are willing to partner with you to help pay the premiums on your policy because both you and the bank can enjoy the benefits of life insurance. Too, the cash value in a policy is often sufficient collateral for a loan. But keep in mind that many companies offer premium finance programs, and they can vary greatly.

Some programs may provide all of the premiums, and you only need to post some collateral. In contrast, some programs may share in the premiums (i.e., bank funds the majority of the premiums) with no collateral needed from you. Some programs require loan docs with a personal guarantee. Some have loan programs in which there are no personal guarantees, no collateral, no credit checks, no interest payments, and not even a signature. Too good to be true? No, just too good to be free. At some point, the bank will seek repayment of the loan out of the cash value in the policy (plus interest), but the remainder is YOUR cash to be used to create tax-free income (via policy loans). All the terms are set up front, and you will know your risks/reward scenario from the start with a premium finance program.

Does this work well for both parties? It does. That’s because you are using leverage and interest rate arbitrage to build a larger cash value. Leverage is the #1 strategy used by the wealthy to increase their net worth. Just like a 401(k), 403(b), or other IRS qualified programs offered by an employer – you and your employer are both adding funds to your account for a more considerable accumulation. The same is true with a premium financed policy, except you and the bank add premiums. In addition, you can add this strategy to your financial portfolio without affecting your other retirement accounts, and there are no IRS-imposed limits on premiums.

The Benefits of a Life Insurance Policy

There are many benefits associated with life insurance policies. The cash accumulation inside a correctly structured policy can be a source of funds to use as needed for tax-free income if appropriately structured. Here are some of the benefits of a life insurance policy with the option of cash accumulation:

• Asset and Income Protection
  
• Tax-Deferred Growth of Cash Value
  
• Potential for Tax-Free Income
  
• Potential for Market-Driven Rate of Return
  
• Safety (no market risk) with fixed products
  
• Liquidity / Withdrawal Privileges
  
• Cash in the Event of Death or Disability
  
• Cash in the Event of Chronic or Critical Illness
  
• Added Premium Payments from the Bank
  

Some Cautionary Notes

There are critical components of a life insurance policy that must be structured properly, especially when using a premium finance strategy. You will need the assistance of a qualified and trained insurance agent who knows exactly how to address your specific situation and design a policy for the purpose of protection and potential future income. For example — we mentioned earlier that there are no IRS-imposed limits on premiums, but there are limits based on death benefits and on IRS tax laws IF you want the potential of tax-free income. Many agents are not familiar with premium finance, so seek out qualified professionals and do your “due diligence” on the agent and the premium finance company.

Until recently, there have not been many options to pay for long-term care (LTC) costs. Some people may be fortunate enough to self-fund their care or purchase a traditional long-term care policy from an insurance company. Even then, the cost of the premiums could be quite high if the plan is started later in life. Today, the costs of long-term care are astronomically higher than previous generations, and there are less traditional LTC policies being offered by insurance companies.

What are the alternatives? If you have not researched today’s annuities or life insurance with long-term care riders, it is worth your time. Products with these riders have the potential to protect and grow your cash value while offering ongoing income payments with the added protection of long-term care benefits.

Some Alarming US Statistics: There is a 69% chance that a 65-year-old will develop a disability before they pass away and 35% will eventually enter a nursing home (1). What’s even more appalling is the amount of money needed to support an individual who requires long-term care. The U.S. Department of Health and Human Services says the average cost for a semi-private room in a nursing home is $6,844 per month and $7,698 for a private room (2). They also stated the average amount of time spent in a nursing home is between 2.5 and 3 years (3). Keep in mind that even if home health care is needed, those costs can mount up as well. According to Forbes magazine, the average cost of having home health administered is nearly $50,000 per year from a caregiver working just 40 hours per week (4). For most people living in the US, these costs are not affordable.

While it would be beyond the scope of this article to review every possible product with long-term care riders, there are common benefits offered by these types of annuities and life insurance. Typically, insurance companies which provide long term benefit riders will often categorize an illness as either chronic or terminal. Depending on which type of care is needed the benefits will vary. Some life insurance and annuity policies will allow you to access your entire cash value penalty-free if you are confined to a care facility or diagnosed with a terminal illness. Some policies which have “income accounts” will pay for long-term care expenses (up to 6 or more years) without depleting your cash value. Some annuities can double or triple your cash account balance from day one to be used for various long-term care needs.

While these annuities or life insurance policies with long-term care riders are NOT long-term care insurance, they can often be an effective alternative to buying traditional long-term insurance. Keep in mind that if you start a long-term care policy at an advanced age, the premiums for a LTC policy could end up costing more than the care needed. A critical decision is to discuss your specific situation with your financial planner or insurance agent who can make the appropriate recommendation and find the right products for your needs.

Remember that annuities and certain life insurance policies do offer a guarantee of funds which are backed by an insurance company. For example, utilizing fixed annuities (and a form of fixed annuities called “fixed indexed annuities”) which offer chronic and terminal illness riders can provide LTC benefits without depleting your annuity’s cash value and still provide you with monthly income. This is important because without a guarantee of funds your savings could be consumed, or your income/benefits could be substantially decreased. If you end up in the middle of a health crisis, the last thing you need is to worry about is whether the money will be available at the time care it is needed.

1. https://www.caregiver.org/selected-long-term-care-statistics
2. https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html
3. https://www.longtermcarelink.net
4. https://www.forbes.com/sites/nextavenue/2017/09/26/the-staggering-prices-of-long-term-care-2017/#3dc8ffa02ee2
   

Did you know that you have a valuable asset which is often overlooked and may not be included in conversations regarding your financial portfolio?  It’s your life insurance policy. Many people are not aware that a life insurance policy is an asset which can be sold with some of the terms being set by the owner.   

All too often life insurance owners surrender their policy to the insurance company instead of getting a quote in the “secondary” market for what it’s actually worth.  The market value of a life policy can be as much as eight times more than the surrender value!  If you have a life policy which is unwanted, unneeded or has become unaffordable, you can get a quote for the cash value in the open market.  Typically, you will have several choices as to the disposition of your policy.  

One option is to settle for an all-cash offer and surrender any and all ownership of the policy.  Another option is to take a reduced death benefit with a partial cash payout and never pay another premium.  This is the equivalent of owning a “paid-up policy” for a reduced death benefit which will still be paid to your beneficiary upon the death of the insured.   

Older retirees can sometimes find themselves in need of a lump sum of cash later in life due to health circumstances (i.e., long-term care expenses), divorce, or even debt.  These are some of the primary reasons why seniors are opting to sell their policy and use the money for these types of needs.  It’s your cash and can be used for any purpose.  Other examples include investing the cash to generate monthly income, paying for college expenses of grandchildren, or perhaps funding a long-desired family vacation.   

One other point to make about selling a life insurance policy in this manner is that this type of sell is not a “viatical settlement.”  You may have heard this phrase before but not fully understood the meaning.  A viatical settlement is where a person with a terminal illness sells their life insurance policy for less than its mature value to benefit from the proceeds (cash) while the insured is still alive.  You do not need to be terminally ill to sell your life insurance policy in the open market.  However, it is true that if you have impaired health or you are in your mid to late 80’s or 90’s your policy can be worth more due to these factors.  However, again, it is not necessary to be ill to take advantage of selling one or more of your life insurance policies.  Do yourself a huge favor and get a quote from a qualified insurance agent and know your options and the value of your policy before you choose to surrender it back to the life insurance company. 

Until recently, there have not been many options to pay for long-term care (LTC) costs. Some people may be fortunate enough to self-fund their care or purchase a traditional long-term care policy from an insurance company. Even then, the cost of the premiums could be quite high if the plan is started later in life. Today, the costs of long-term care are astronomically higher than previous generations, and there are less traditional LTC policies being offered by insurance companies.

What are the alternatives? If you have not researched today’s annuities or life insurance with long-term care riders, it is worth your time. Products with these riders have the potential to protect and grow your cash value while offering ongoing income payments with the added protection of long-term care benefits.

Some Alarming US Statistics: There is a 69% chance that a 65-year-old will develop a disability before they pass away and 35% will eventually enter a nursing home (1). What’s even more appalling is the amount of money needed to support an individual who requires long-term care. The U.S. Department of Health and Human Services says the average cost for a semi-private room in a nursing home is $6,844 per month and $7,698 for a private room (2). They also stated the average amount of time spent in a nursing home is between 2.5 and 3 years (3). Keep in mind that even if home health care is needed, those costs can mount up as well. According to Forbes magazine, the average cost of having home health administered is nearly $50,000 per year from a caregiver working just 40 hours per week (4). For most people living in the US, these costs are not affordable.

While it would be beyond the scope of this article to review every possible product with long-term care riders, there are common benefits offered by these types of annuities and life insurance. Typically, insurance companies which provide long term benefit riders will often categorize an illness as either chronic or terminal. Depending on which type of care is needed the benefits will vary. Some life insurance and annuity policies will allow you to access your entire cash value penalty-free if you are confined to a care facility or diagnosed with a terminal illness. Some policies which have “income accounts” will pay for long-term care expenses (up to 6 or more years) without depleting your cash value. Some annuities can double or triple your cash account balance from day one to be used for various long-term care needs.

While these annuities or life insurance policies with long-term care riders are NOT long-term care insurance, they can often be an effective alternative to buying traditional long-term insurance. Keep in mind that if you start a long-term care policy at an advanced age, the premiums for a LTC policy could end up costing more than the care needed. A critical decision is to discuss your specific situation with your financial planner or insurance agent who can make the appropriate recommendation and find the right products for your needs.

Remember that annuities and certain life insurance policies do offer a guarantee of funds which are backed by an insurance company. For example, utilizing fixed annuities (and a form of fixed annuities called “fixed indexed annuities”) which offer chronic and terminal illness riders can provide LTC benefits without depleting your annuity’s cash value and still provide you with monthly income. This is important because without a guarantee of funds your savings could be consumed, or your income/benefits could be substantially decreased. If you end up in the middle of a health crisis, the last thing you need is to worry about is whether the money will be available at the time care it is needed.

1. https://www.caregiver.org/selected-long-term-care-statistics
2. https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html
3. https://www.longtermcarelink.net
4. https://www.forbes.com/sites/nextavenue/2017/09/26/the-staggering-prices-of-long-term-care-2017/#3dc8ffa02ee2