• March 2014

Prepare to Invest for the Generations: The Financial Planners at Egan, Berger & Weiner Show You the Way

Are you a proud member of Generation X? If you were born between 1965 and 1980, you are one of the 51 million Americans closing in on 50. Called the “sandwich generation“—because you are squeezed between the Baby Boomers and Millennials—odds are good you have some traits in common with both:

  • You are individualistic because you came of age in an era of two-income families, rising divorce rates, and a faltering economy;
  • You are technologically adept because you grew up when the United States was shifting from a manufacturing economy to a service economy, and you are the first generation to grow up with computers;
  • You are flexible because many Gen-Xers lived through tough economic times in the 1980s and saw their workaholic parents lose hard-earned positions. As a result, you are less committed to one employer and more willing than previous generations to change jobs to get ahead.
  • And you value work-life balance. Unlike previous generations, members of Generation X work to live rather than live to work. They appreciate fun in the workplace and espouse a work-hard/play-hard mentality.

As the parents of the Millennials, born 1980 to 2000, you are planning for your retirement, paying for college, and possibly taking care of your aging parents. It can be daunting. In this article, two partners at Egan, Berger & Weiner LLC help you get your financial house in order.

Scroll down for Dave Beck’s thoughts on whether you have enough insurance coverage. Also below, you’ll find Bryan Beatty’s tips for financial planning and the Millennials.

Life Insurance for Gen X: How Much Coverage Do You Need?

By Dave Beck
Partner, Insurance Expert
Egan, Berger & Weiner LLC

What three ideas are critical to keep in mind when deciding how much life insurance you need?

For Generation X (anyone born between 1965 and 1980), you may need more than you think.

To find out if you should increase your coverage, consider these tips.

1. Work coverage is not enough. Relying on group life insurance to be your personal life insurance foundation could be a very costly mistake to both you and your heirs.

Here’s why: Group life insurance is typically capped to the amount of coverage that you can have, primarily due to the limited amount of underwriting being done today.

As a result, the insurance company has to find a way to mitigate the lack of underwriting scrutiny, and they do that in three different ways:

  • First, they limit the amount of coverage that you can have.
  • Second, they increase your rates every five years (typically), so though cheap early on, it becomes very expensive later on.
  • And finally, they typically charge more if you are younger and in average health or better to offset those in the group who are older and in worse health.

Think of it as a seesaw.

The 50-year-old, obese, chain-smoking diabetic sitting on one side is being charged the same rate as his or her 50-year-old counterpart who runs marathons and has no body fat.

To keep the seesaw in balance, clearly the insurance company is overcharging the healthy employee to offset for undercharging the unhealthy employee.

Further complicating this is the fact that when you leave a job, your work coverage typically ends, or the policy has to be converted to an individual permanent policy at a substantially higher rate.

2. Coverage isn’t as expensive as you think. A 45-year-old man can purchase a $500,000 20-year term for $52 per month. That rate and face amount is guaranteed not to change for the next 20 years. The ads on the radio are right: Life insurance rates have come down and the premiums are not that expensive. But if you wait and purchase that same policy at age 50, the rate is now $80 per month—an increase of over 50 percent.

3. You need to protect your home and family. In today’s society of two-income families, the need for life insurance is more critical than ever. So often people think that if they pay off their mortgage, the surviving spouse should be able to make it.

But unless your income is equal to your mortgage, the surviving spouse is still losing money.

Consider this scenario, in which Adam and Eve both make $50,000 per year and buy a home with a $200,000 mortgage.

  • Under the old approach—purchasing a life-insurance policy equal to the mortgage—they would typically buy a $200,000 term policy.
  • Under the income approach described above: After taxes, Adam makes about $40,000 per year. Yet, there is a cost of living of having Adam around, so let’s say that calculates to about $15,000 annually (accounting for food, utilities, insurances, cars, vacations, etc.).
  • So with Adam’s death, the loss of income to Eve is $25,000 per year. The amount of insurance to replace that income for the next 20 years, assuming a 7 percent investment return and 4 percent inflation, totals $386,000.
  • Obviously, Eve would have to change her lifestyle if Adam had only purchased enough life insurance to pay off the mortgage. Specifically, Eve would have to reduce her expenses by $1,000 per month—even with having the mortgage paid off.

The bottom line for Gen-Xers to keep in mind: The proper insurance plan should focus on the needs of the survivor, specifically, replacing the lost income of the person who dies.

About Dave Beck

Dave Beck has three decades of experience working in the financial services industry, and more than 15 years of experience working for two of the largest insurers in the United States, including six years as the principal in a private insurance agency.

He is a graduate of George Mason University, with a BS in Business Marketing and a minor in Economics, and has been a partner at Egan, Berger & Weiner, LLC since July 2006.

Contact Beck by email at dbeck@ebwllc.com.

Is There a Millennial in Your Family? Here are Three Smart Ways to Plan Ahead

By Bryan Beatty, CFP®, Partner
Egan, Berger & Weiner, LLC

When it comes to planning ahead for the financial future of the Millennials in your family, the key is for parents—and their offspring—to know their goals, and understand the options. Here are three ways to get started:

1. Create a centralized paperwork hub, and offer Millennials access to it. At Egan, Berger & Weiner, we have the capability to store documents and share access to particular documents with the next generation. This includes wills, estate-planning documents, and other important legal papers. As needed, these can be shared with adult children in a private setting. The children can also see the actual retirement accounts—but only if the parents authorize it. Having everything in one place and readily accessible can relieve clients of a burden of organizing and keeping track of these important papers.

2. Attend educational seminars. At Egan, Berger & Weiner, we host two annual events for our clients and their families.

The first has nothing to do with money. We have a family-fun day where we invite kids and grandkids to an outdoor event, such as a picnic and a day at the batting cage. There is zero talk of investments or financial planning. We get to know the kids—and your children get to know members of our firm. This comes in especially handy down the road, when the younger generation is facing the serious illness or death of a parent, or any other situation when they need to work with our firm. Meeting us in an informal setting when they are young is a tremendous benefit. That way when they need to work with us in the future, they are not picking up the phone and calling a stranger.

Our other event is a half-day educational program aimed primarily at adult family members. This popular program draws 50 percent to 60 percent of the firm’s clients, and many bring a guest. There are classes on financial topics as well as social activities such as food, a wine tasting, and a classic car show. And there is live entertainment.

3. Set up a Teen IRA. For the younger members of the Millennial generation, another option to consider is starting a Roth IRA. Doing this early means extra years of compounding interest for the younger generation—and, potentially, this could lead to a considerably larger nest egg. We realize that persuading a teenager with an after-school or summer job to set aside money for a goal 50 years off can be tough. Parents can make it easy on their teens by funding the account. That way, the teens can spend their own pay and still get a jump on retirement savings.

Questions? Email bbeatty@ebwllc.com.

Need some more guidance?

Sign Up for EBW’s New Seminars: Financial Strategies for Successful Retirement

This is a four-session course. Classes run 7:00-9:30 pm.

Cost: $59, spouse or guest at no additional cost; includes one set of seminar materials and a workbook.

Monday: 3/17, 3/24, 3/31, 4/7
Location: Oakton High School, 2900 Sutton Rd., Vienna, VA

Tuesday: 3/18, 3/25, 4/1, 4/15
Location: Robinson High School, 5035 Sideburn Rd., Fairfax, VA

Wednesday: 3/12, 3/19, 3/26, 4/2
Location: South County High School, 8501 Silverbrook Rd., Lorton, VA

Thursday: 3/13, 3/20, 3/27, 4/3
Location: McLean High School, 1633 Davidson Rd., McLean, VA

To register: Call (703) 506-0030 × 109

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