When most people think about life insurance, they
think about replacing the take-home pay earned by the family’s primary breadwinner should he/she
die. Yet it could be just as important to insure a stay-at-home parent.
The issue is one of valuation: how do you set a dollar figure on the contributions that a stay-at-home parent makes to a family?
Start by looking at the functions he or she provides: cooking, cleaning, childcare, shopping,
laundry, paying bills. How much would it cost to pay someone to provide those same services?
For a newly single parent of two children, the price of continuing to work could mean spending as much as $40,000 or more a year on childcare
and household services. If you can’t imagine finding that kind of additional cash flow, covering your spouse or partner with a life insurance policy to pay those expenses for as many years as needed makes sense. You have two choices: you can take out a separate policy on your spouse that names you as the beneficiary or you can add a spouse rider to your own policy. The advantage
of a rider is that it can be cheaper than securing a separate policy for the stay-at-home parent.
On the other hand, if your spouse dies after you do, the rider typically doesn’t pay a death benefit
to your spouse’s beneficiary. In addition, your spouse will have no access to cash value accumulation since the policy and cash values are owned by you. And, with some insurance companies, you can’t secure as much coverage
on your spouse in a rider as you can in a separate policy.
If there are other reasons for your spouse’s life to be insured than simply replacing his/her homemaking services — like designating different
beneficiaries or meeting estate-planning objectives — then a separate policy might be the better choice.
As with all life insurance decisions, the best way to insure a stay-at-home spouse differs for every family. For help assessing which spousal
coverage decision is best for you, please call.
Managing Correlations
The correlation, or relationship, between two different investments can be difficult to determine
without a lot of analysis. However, there are some basic rules of thumb that can help explain how the different forces interact.
Most investments have a high correlation-to-market performance. In other words, when the overall market is rising, they’re rising too. Other investment classes have a low correlation-to-market performance. Investments in this category typically include currencies, commodities, and most hedge funds.
Then there are investments with a negative correlation to the market — they rise when the market falls, and vice versa. While they can
serve to diversify a portfolio and lower risk, by themselves they carry the highest risk of all investments. Investments in this category include
shorted indexes and stocks of companies
dealing with inferior goods.
While each of these investment classes carries its own risk, combined they can lower your portfolio’s
overall risk. When investors combine assets whose returns show low correlation with each other, they can minimize risk while maximizing
return. In other words, it is possible to be a prudent investor even if your portfolio includes riskier assets.
Financial Thoughts
Participants in 401(k) plans became more attentive to expense ratios and portfolio allocations after fee and performance statements were provided. Participants then actively moved away from allocating to expensive funds. Additionally, more investors allocated more to index funds, since these funds tend to be cheaper offerings among plan choices. Trends were stronger among young men (Source: AAII Journal, September 2020).
Even though Social Security’s full retirement age has increased to age 66, most workers still time their retirement and exit from the work force at age 65. However, the change in the full retirement age to age 66 did cause many retirees to claim their Social Security benefits later than age 65. The main reason people continue to retire at age 65 is because most individuals working at companies retire at that age, suggesting that employers play a significant role in shaping the retirement decisions of their employees (Source: National Bureau of Economic Research, May 2020).
Approximately 30% of investors said that ethical trust was the most important component of an advisory relationship (Source: Journal of Financial Planning, March 2020).