Personal Finance News

The steep downturn in the markets has hit senior citizens the hardest. Many of them have seen the value of their portfolios plummet, at a time when they need their money the most.

An elderly widow I will call Mary is one victim. Her husband died a few years ago, leaving Mary, in her early eighties, with a nest egg sufficient to meet her needs for the rest of her life

Shortly after his death, her trusted "investment professional" invested most of her portfolio in two financial stocks. In less than two years, the portfolio lost over $150,000.

The news is not all bad. The brokerage firm made over $50,000 in commissions by excessively trading the balance of her portfolio.

Mary has now entered a nursing home. Her retirement funds are nearly gone. She risks becoming a ward of the state.

It is easy to blame the markets. They did fall in value. But that is precisely how markets are supposed to work. The foundation of all returns is risk. Markets go up and down, usually in cycles.

Mary's problem was the perfect storm of an inappropriately risky asset allocation and an incompetent or greedy broker. She could not afford any meaningful market risk. Her portfolio should have had an allocation of no more than 20% invested in a broadly diversified stock market index fund with the balance of 80% in a low cost index fund benchmarked to the Lehman Bros. Aggregate Bond Index.

There is plenty of blame to go around. Most of it should be focused on poor asset allocation and broker misconduct, not on the markets.

Read how the financial crisis is affecting other WalletPop bloggers.

Dan Solin is a Registered Investment Advisor and the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books 2008).

We are doing a terrible job saving for retirement. The median 401(k) plan balance is a paltry $18, 986!

While there is raging debate over how much you need to save in order to retire with dignity, everyone would agree that most Americans are falling far short of achieving this goal.

So how much do you need to save?

Ideally, you need to figure out how much your expenses will be when you retire for the rest of your life (and, if you are married, the life of your spouse or partner). This is not easy to do, given the ravages of inflation and a tax code that is subject to change.

Most financial planners simply assume that you will need a percentage of your pre-retirement salary.

Don't miss the rest of our series on 15 Ways to Ruin Your Financial Future!

One comprehensive study by Baclays Global Investors determined that 75% of pre-retirement income is a benchmark for a successful retirement. The study also found that, given the typical 401(k) plan savings rate, most Americans could count on replacing only 41% of their pre-retirement income.

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

What if you had an uncle who was an expert in all aspects of the insurance business? He was retired and no longer sold any products.

What a great resource! He could sift through all of the confusing presentations and illustrations and tell you which policy was best for you.

Here is the next best option. Consider using a fee-only life insurance advisor. They are the best kept secret in the insurance industry.

These advisors receive compensation only from their clients. They will agree in writing to accept fiduciary responsibility (unlike your agent -- see tip #1) and will act solely in your best interest.

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

Ratings are often bandied about as the standard by which you should select an insurance company for cash-value insurance (often called "permanent" insurance). The primary rating agencies are A.M. Best, Duff & Phelps, Moody's, and Standard and Poor's. You can access the Standard and Poor's ratings for life insurance companies here.

Weiss Ratings also rates the strength of insurance companies. Some perceive its ratings as more independent than the primary rating agencies because it does not receive most of its revenues from the insurance industry. Others believe that the Weiss methodology produces ratings that are questionable.

While there is no standard applicable to every situation, since there are so many companies rated either "superior" or "excellent,' it would be difficult to justify the additional risk of purchasing insurance from a company with a lower rating.

However, ratings tell only part of the story.

You want an insurance company that has relatively strong investment performance, relatively low mortality rates, relatively low expenses and has demonstrated a willingness to treat both new and existing policyholders fairly.

One area that you can easily understand is expenses.

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

If you knew the data, you would take a hard look at disability insurance. Now is the right time since you probably don't have any disability coverage.

There is about a 40% probability that you will have at least one disability that lasts three months or longer before you reach age 65.

Women are more likely to become seriously disabled than men.

The most likely cause of disability is illness, not an accident.

The most common cause of disability is back injury.

More than seventeen million Americans have a disability that limits or affects their ability to perform their work.

Nearly 20% of Americans will become disabled for one year or more during the course of their employment.

If you become disabled, you may be partially covered by Social Security Disability Insurance, by Worker's Compensation (if you were injured at work or if your illness was work related) or by other state and federal programs.

You can purchase disability insurance individually, although it can be quite expensive. If you pay the premiums yourself, then any benefits you receive will be tax free, which is not the case with an employer-paid group policy.

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

I agree with the traditional advice that term insurance is appropriate for most people. It is relatively inexpensive if purchased at a young age. It's simple to understand and it makes it easy for most people to obtain enough coverage to protect their families in the event the primary breadwinner dies prematurely.

Insurance that builds cash value (often called "permanent" insurance) comes in a dizzying array of options. There is whole life insurance, adjustable life, universal life and variants of each of those policies.

So why not just "buy term and invest the difference" in the cost between term and the higher cost of cash value insurance?

The primary reason is that few people have the discipline to invest the difference. Most likely, this money will be spent just staying afloat.

Even if you do "invest the difference," how will you do it? The data indicates that Americans are terrible investors. The projections that are so casually tossed around usually assume that your investments will achieve at least market returns. The reality is that the average stock investor earns around one-third of market returns. When you consider inflation and taxes, these investors lose money! This is one of the big secrets of the securities industry. Market returns are yours for the taking, but they don't want you to know how easy it is to do it. Hint: It does not involve using their services.

If you are in it for the long haul, buying term and investing the difference can be a dumb move for many reasons.

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

When it comes to buying auto insurance, the focus is mainly on the premiums.

Premiums are important. Fortunately, there are many web sites that permit consumers to do comparison shopping.

However, everyone knows that there is more to shopping for auto insurance than getting the lowest price. Among the issues to consider are:

• Bodily injury and liability insurance -- covers injury to others if you are at fault
• Collision insurance -- covers damage to your car
• Comprehensive coverage -- covers damage to your car caused by an event other than an accident
• Car rental -- while yours is being repaired
• Glass -- eliminates deductibles for broken glass
• Medical -- covers your medical expenses
• No-fault personal injury protection -- covers medical and related expenses for everyone injured in an accident, regardless of fault
• Liability -- covers damage you cause to the car or property of others
• Uninsured motorist -- covers injuries (bodily and property) caused to you by uninsured drivers

Here's a tip on buying auto insurance that most agents won't tell you:

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

I am for universal health care. The present system -- which leaves almost 50 million Americans (16% of the population) uninsured -- is a confusing mess.

You have many options for selecting health insurance. The one you pick may be your most important financial decision.

If you are covered at work, you may be able to select from various options. Check out the coverages and costs carefully. My advice generally is to focus on big ticket items. It may not be worth the additional premium to cover smaller costs.

If you need to purchase individual insurance, things get more complicated.

If you can afford the higher premiums, check out indemnity insurance. It lets you pick your own doctors and hospitals and to consult with specialists without being referred by your primary care physician.

Since indemnity policies often have a limit on lifetime benefits, be sure the cap is realistic. Personally, I would want a $2 million cap, but many experts believe $1 million is sufficient.

Most Americans have "managed care" plans. These plans are more cost effective, but they require you to see providers who are part of the plan network.

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

I know it sounds counter-intuitive.

Children don't earn income and singles typically have no dependents. Since the primary purpose of life insurance is to replace lost income, why would you insure the lives of children or singles?

Insurance on the lives of children is not generally necessary. But there are circumstances where it might be a good idea.

First, insurance at a young age is very inexpensive.

Second, by purchasing permanent insurance on a child (term insurance is generally not available until age 18), you are guaranteeing the child will always be insurable, regardless of any change in her medical condition.

Third, permanent insurance can be used as a vehicle for accumulating cash value. This can add up over time. More money would probably accrue in an appropriately diversified portfolio of low cost index funds. However, the mandatory nature of insurance, combined with its other benefits, makes it more likely that one day your child will awaken and find that she has a considerable nest egg.

Finally, under the right circumstances, a policy on a child could be structured in a way to permit a tax-free death benefit to future generations.

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

Let's say you have determined that you need "permanent" insurance. Probably, you made this decision because you are convinced that you will hold the policy for a very long time, maybe even up to the time you will die.

However, as an educated consumer, you know that the commission on many of these products can be 100%, or even more, of the first year's premium. Obviously, this is going to cause the policy to accumulate relatively little cash value in the early years, to compensate for this high selling cost.

What if you could get the best of both worlds: permanent insurance with high initial cash values?

The good news is that you can.

The bad news is that your agent probably won't tell you about it because it may clobber her commissions.

A blended policy combines term and whole life coverage into a single policy. Over time, the term portion of the policy is replaced with whole life. Generally, the term portion has a lower commission rate.

The bottom line is that a blended policy can result in lower premiums, higher cash values and higher death benefits because of lower sales costs.