• Your 401(K) could cause you to pay higher taxes than necessary when you retire.
• Your 401(K), subject to market volatility, could leave you out of money before you die.

Does your 401k plan provide protection against negative market performance?

Most Americans have lost 20-40% in their investment accounts during the past 18 months. Yes, they’ve rebounded in the past 6 months, but what built in protection is there against another downdraft and future losses?

Does your 401k plan offer strong, solid performing options? Mr Brooks Hamilton, who designs 401K plans for B&J Partners, stated on 60 Minutes that most of the funds in 401k plans are dogs.

How has your retirement account performed over the past 10 years? Are you ahead or behind where you were in 1999? If you invested $100,000 in an S&P 500 Index Fund, here’s what you’d have in January of 2009:

 401(K) Tax Myths:

Do you know how much the tax deductions from retirement contributions you take today will cost you tomorrow?

Is your 401k/tax-deferred retirement plan actually setting you up to pay higher taxes in retirement, and have you out of money before you die?

Tax deferred retirement plans, including 401K plans, were set up as much to benefit the government as you. Calculations show that the average American who lives 20 years in retirement, will pay 5 to 8 times more taxes on distributions in retirement than he saved in taxes from contributions during his working years.

Do you know how’s it going to work out for you?

We live in complex times. Government spending and debt levels are the highest in history. Unfunded government entitlements are over $50Trillion. How are we going to pay for all this? What do you think? Are the low tax rates we’ve enjoyed for the past 30 years going to hold, stay about the same, or do you think tax rates will creep up in the future?

If tax rates go up, and you’ve deferred payment of your taxes to some future date when tax rates are higher, what will that do to your spendable income? If tax rates creep up in the future, then the conventional wisdom that says you’ll be in a lower tax bracket when you retire probably is no longer valid, is it?

How are you preparing for this? Do you know what results await you down the road? Are you certain you won’t outlive your money?

Most Americans have been brought up with the same basic goals-

• Get a good education. 
• Get a good job. 
• Buy a house. Pay it off as soon as you can. 
• Fund the company retirement plan as aggressively as possible. 
• Retire at 65, if possible, and spoil the grandchildren.

If we all know this conventional wisdom and believe it works, then why did the Social Security Administration release these figures:

If you take any 100 people at the start of their working careers and follow them for 40 years until they reach ‘retirement age,’ here’s what you’ll find:

• Only 1 will be wealthy;
• 4 will be financially secure;
• 5 will continue working, not because they want to but because they have to;
• 36 will be dead; and
• 54 will be dead broke – dependent on their Social Security checks, relatives, friends, even charity for a minimum standard of living.

That’s 5% successful, 95% unsuccessful. How could good advice from widely accepted conventional wisdom produce such poor results?

If there were a better way to protect and grow your funds, when would you want to know – now, while you have time on your side, or when you’re about out of money? Small, strategic adjustments can make a significant difference. Over funding a 401(K) or tax-deferred retirement plan is not one of them.

Where you accumulate your money and how you access it in retirement is every bit as important as how much money you have.

If you’re already funding a 401K or tax-deferred retirement plan, you could already be making costly errors. Wouldn’t you want to know the impact of what you’re doing now will have on your future?

Take 17 minutes and view an important case study video about Bob and Carol.  Click Here.   Log in and click on ‘Bob and Carol.’  (The intro and concept videos are important, but the eye-opening numbers are in the case study.)  Note the subtle, simple, cost-less changes that were recommended and the powerful impact these suggestions had on their income taxes and their retirement.  Then call 206-388-4074 to run your own numbers through our proprietary process and see what the difference could be for you.

Clients who’ve implemented this very strategy have not lost a single dollar due to market performance during the last 2 years. Clients who’ve implemented this strategy over the past 10 years are over 2 ½ times ahead of where they’d be in an S&P Index fund. And they’re on their way to saving tens of thousands in income taxes. For some, it’s literally a Million Dollar difference for them and the lives of their heirs.  Find out what the difference could be for you.

Call today.

Prudent diversification enhances safety and return. 

Many employers allow you to reposition 401(K) money into a Self-Directed IRA containing investments of your choice.  Read how a Self-Directed IRA could work for you here… in the Articles section.

Have you heard anyone lately comment about how time flies?

Next time you hear someone say ‘time flies,’ ask them to what are they referring?  Could they be referring to all the time that has passed by while they’ve not bothered to fund their retirement account, which means they’ll probably be working into their late seventies, or longer?  Then they mean, ‘woe is me.’  And that means ‘woe are us.’

For several years, there’s been a peculiar kind of self-denial practiced by Americans.  For over 85% of the prospects and clients we meet with, there is no way they can retire at the age of ’65′ and expect to enjoy a quality of life comparable to what they’re accustomed for their probable life expectancy.  A 65 year old today has a high probability of living into their 80’s.  If they’re happily married, at least one of them will likely live into their 90’s.  They might live to regret it.

Over 85% of those we meet will consume all of their retirement money and have only Social Security support within 7 or 8 years of retirement at age 65, if they budget a lifestyle to which they’re accustomed.  Even when they scale back their lifestyle by 25% to 30%, they find they will likely outlive their money by a number of years.

It seems Americans don’t know how to interpret mathematical messages very well.  Simple math shows them they’re out of money well in advance of their probable life expectancy.  Yet, they go ahead and add a new wing to the house or buy a new car or sit on their hands rather than re-focus their efforts to make sure they’re not eating crackers and cat food in their early to mid 70s.

For the first time in nearly a decade, the savings rate has taken a steep jump UP, albeit for unfortunate reasons.  As a result of the market downturn of 2007-8, people’s retirement accounts got clobbered, losing 40% plus or minus.  That’s a lot of money that needs to be recovered.  It takes longer to make money in the market than it does to lose it.  Folks need to start saving like there’s no tomorrow.

While the stock market was taking a swan dive, real estate values have swooned as well.  Whatever home equity was earmarked for retirement has evaporated for many, dramatically impacting plans for those whose retirement was only a few years away.  Folks really need to start saving like there’s no tomorrow!

Baby Boomers are the largest and perhaps the most influential demographic group in America’s history.  Elder Boomers have begun to retire and the ranks hope to follow suit.  But how well have they prepared for retirement?

Baby boomers have lived large and to the limit.  They’ve taken on debt as if they had the government’s power to print money.  Their homes have been used as an ATM for the past few decades.  That equity has been consumed in hedonistic pleasures rather than conserved and increased in prudent investments.  Home values have declined and stolen whatever equity might have existed and left many poor planning boomers with a mortgage that exceeds the value of their home.  If home equity was factored in as part of their retirement plan, that amount of support now needs to be replaced.  Better work more and save like there is no tomorrow. 

Not only do people need to rebuild their savings, retirement accounts and lost equity in their homes, they need to pay down the record levels of debt they’ve built over the past several decades.  The figures are readily available on the internet.  One USA Today study shows household debt increasing from $84,000 in 2005 to over $112,000 in 2007 – and that doesn’t even include mortgage debt or their share of the government’s promises of unfunded entitlements.  The media uses this as a second major reason why the savings rate has climbed so quickly in mid 2009.

Up to now, we’ve considered only the cash flow management behavior of consumers.  As businesses have seen sales drop, they’ve adopted a similar conservative posture of preserving capital.

So what does this all mean?

If people (and businesses) are saving, that means they’re not spending.  And, if they’re not spending, but with-holding their money from chasing goods and services in the economy, how will that affect the pricing of the goods and services exchanged in our economy and what will be the result?  Can we look forward to a V-shaped recovery, an L-shaped recovery, hyper-inflation or deflation in the years ahead?

Inflation or deflation results from the amount of money chasing after goods and services in the economy.  When there is more money circulating in the economy to spend on cars, houses, etc., it tends to drive prices up.  But when there is less money circulating in the economy, prices tend to drop to attract those rare funds that are being spent.  It’s a basic supply and demand proposition.

Of course, the government has flooded the economy with freshly printed money, but how much of that has found its way into healthy circulation?  Most of it has gone toward paying for – bailing out – the mistakes of special, favored, presumed important entities that must be saved at all costs.  In order for the government’s tactics -injecting new money into the system-  to work in a credit-based system, borrowers need to borrow and lenders need to lend.  So far that’s not happening.

If you had to recoup significant market losses in your retirement accounts AND rebuild lost equity due to a decrease in home value AND reduce debt loads to a more manageable level, would you want to borrow more money?  Would a lender want to lend you more?

Many main street pundits believe that once the record level of newly printed money finds its way into the economy, we’ll see hyper-inflation never experienced before in America.

But as Americans realize the government will not be able to honor the promises it has made for their future, namely Social Security and Medicare, they’ll be forced to take matters into their own hands and save even more.  What choice is there?  What would you do in those circumstances?  Spend or save?

You might hear a huge sucking sound as money is sucked out of the economy and saved by people frantically trying to correct a lifetime of over-indulgent living and lack of planning.

So how does it look to you?  Short term?  Long term?  Inflation?  Or deflation?

And what’s your plan to survive it?

 The Problem:

 When it comes to mainstream investments these days, viable options are few and far between. The stock market has been in flux over the last several years by virtue of looming inflation, spiraling oil prices and the constant threat of terrorism. Every government bureaucrat, newsletter author, financial expert, and private investor has a different take on the market’s future. All, if they’re ruthful, will agree that the market’s direction is uncertain.

Another stalwart of mainstream investment has taken a turn for the worse as well. Unsustainable appreciation in the housing sector has cast doubt in the minds of many investors, who once viewed real estate as a safe harbor for their investment dollars.

Even seasoned investors, with no place to turn, are accepting big losses and taking cash positions with little to no profits. They’ve acquiesced to market and economic forces beyond their control to avoid uncertainties and risks. Regardless of their market prowess, no investor can time the next act of terror.

While money markets, annuities and government treasuries offer safety, the return is miniscule after inflation. Conversely, riskier investments with higher yields require impeccable market timing [read: down right luck] to keep from losing not only profits, but principal as well!

So it goes. If investors are to enjoy the double digit returns of years gone by, then they must accept enormous risks, right?

The Proposition:

If there were such a thing as the ideal investment, how would it be quantified?

Recently, a panel of individual investors with diverse goals defined characteristics that would produce such an investment. All the panelists agreed that the ideal investment would possess the following traits:

Safety & Security                    Diversification                         No Management Fees

Mainstream                              Liquidity                                  Performance

Clear Exit Event                       Win//Win Investment

The Product:

Fortunately, there is an investment product that not only possesses these traits, but excels at each.

The product is called Life Settlements. Life Settlements are purchased by life settlement companies like Life Partners Holdings, Inc. (LPHI). LPHI is the oldest and only publicly traded life settlement company in the United States (NASDAQ symbol LPHI). For many years now, financial institutions including Warren Buffet’s investment arm Berkshire Hathaway, ABN AMRO, Merrill Lynch, Credit Suisse First Boston, and Deutsche Bank have invested HUNDREDS of MILLIONS in life settlement companies for one simple reason: Life Settlements are not subject to any stock market or economic conditions…none!

Statistically, approximately 90 percent of life insurance policies never pay the death benefit because they are allowed to lapse. When they lapse, the insured loses all the money they’ve invested into premiums and their beneficiaries receive nothing. In times past, the only other alternative for the insured was to take a very small cash surrender value amounting to only pennies on the dollar of their original investment.

LPHI offers new hope to these policy holders who no longer need their policies. LPHI will scrutinize each policy closely and will only purchase B+ or better policies as rated by A.M. Best. LPHI only deals with trusted legal reserve insurance companies. Incidentally, since 1845, there has never been a single case where a legal reserve insurance company has not paid a death benefit.

After LPHI elects to underwrite a policy, it will determine its acquisition costs and make a lump sum offer to the insured. Once the offer is accepted, LPHI will divide the policy on the market for multiple investors to buy. The good news is, now, individuals can reap the same rewards the institutional investors mentioned above have enjoyed for years! If an investor buys 10% of the acquisition cost, the investor owns 10% of the policy’s face value. Once the investor’s money is placed into a policy, the investor will know his or her Absolute Payout.

Since 1991, LPHI has a proven track record of greater than double digit annualized ROI; even during crisis abroad and in the wake of 9/11. Why? Again, Life Settlements are completely uncorrelated to the securities markets or economic events. 

The Payoff:

So how do Life Settlements from LPHI measure up to our panels’ characteristics of the ideal investment? Let’s review:

SAFETY: On the risk continuum, Life Settlements offer the equivalent safety somewhere between money markets and investment grade bonds.

SECURITY: LPHI and its escrow affiliate, Dunnam & Dunnam are regulated by the SEC and operate under the oversight of the Texas Board of Banking, national banking laws, and Texas Department of Insurance. They are audited by Murrell, Hall, McIntosh & Co., PLLP and KPMG, PLLP respectively. LPHI maintains an “arms length” policy for its investors so all policies and funds are held in trust. LPHI does not touch the investor’s money.

PERFORMANCE: Since inception Life Settlements as structured by LPHI has produced historic double digit returns. Past performance does not guarantee future results. This financial product has a battle tested track record through both bull and bear markets.

DIVERSIFICATION: Life Settlements are the ultimate diversification tool due to the fact that they are uncorrelated to the stock market, oil prices, interest rates and even terrorism.  Life Settlements, as the cornerstone of any diversified portfolio, offer a hedge during economic downturns as well as during periods of market stability. Life Settlements serve as a better uncorrelated hedge than bonds and have the potential to generate double digit returns. They should be part of the FOUNDATION of every investor’s portfolio 

MAINSTREAM: For many years Life Settlements were only available to institutional investors. Financial icons including Berkshire Hathaway, ABN AMRO, Credit Suisse First Boston, and Deutsche Bank, etc, have invested hundreds of millions in life settlements with the understanding that the return of their principal and return on their principal are the Contractual obligations of highly rated insurance companies. Their pursuit of this market is related to the degree of PROTECTION and the AVOIDANCE of Market and Economic Risk. These institutions involvement provide immense credibility because of the level of due diligence they require of any investment before actually committing their own dollars. Life Settlements presents the rare opportunity for an accredited investor to invest on a level playing field with major institutions.

WIN/WIN INVESTMENT: LPHI provides viable options through the secondary insurance market where none existed before. Senior citizens are released from the burden of high premiums and are provided lump sum payments. In many instances, this much needed capital infusion allows them to live out their remaining years in dignity. We allow seniors the ability to turn a death benefit into a LIFE BENEFIT.

NO MANAGEMENT FEES: All fees associated with Life Settlements are built into the acquisition costs and therefore 100% of the investor’s money goes to work for them. All your money is invested without paying any management fees or underlying fund expenses in cash or IRA investments. Qualified funds are subject of Custodial fees; typically around $100 to $200 annually.

LIQUIDITY: Life Settlements should be viewed as a medium to long term investment. They are perfect for retirement dollars, college savings funds and cash investments.

CLEAR EXIT EVENT: While at certain points in time the DOW has yielded double digit returns, even the best exit strategies are formulated on speculation and conjecture. To enjoy increasing returns, one must accept the ever increasing risk of losing principal along with profits. The investor, at his or her discretion, may exit at every policy maturity. The vast majority of investors however, elect to roll over returns into additional policies. Unlike the securities markets, decisions to exit or reinvest in Life Settlements are never predicated on speculation or mere conjecture. Life Settlements are the ultimate AUTO PILOT INVESTMENT.

 Summary

It is exceptionally difficult to find an investment that meets all eight of the Characteristics of an Ideal Investment.  Fractionalized Life Settlements hits a solid 7 out of 8 for most investors.  For the investor with a timeline of 5 years or more, Life Settlements meets 8 out of 8 and warrants serious consideration for a portion of your investment portfolio.  Washington Equity Management can help you determine what that portion might be.

Many are also disenchanted with the traditional investments available through typical retirement plans like an IRA or their company’s 401(K) plan.  The range of investment options via an employer’s retirement plan is generally restricted to a limited number of mutual funds and/or company stock. 

These funds do not provide protection of principal against downward market risks, which can be found among numerous prudent alternatives available today.  Furthermore, mutual funds provide limited opportunity for true diversification beyond stocks or bonds.

Additionally, a Harvard University study in 2006 proved that performance of mutual funds managed by investors working on their own is 6.626% and funds provided by financial advisors averaged 2.924%, net of all expenses (Morningstar.com and Harvard Business School website), bringing advisor recommendations under question. 

More and more investors are moving away from mutual fund managers and the volatile stock market and making their own decisions using Self-Directed IRAs to invest in traditional and non-traditional assets.

An investment portfolio constructed of uncorrelated assets can achieve an overall stronger rate of return with a lower level of risk, mitigate the volatility of the equity markets and conquer the eroding impact of inflation on purchasing power and long term investment performance.  There is a mountain of statistical evidence and Nobel Prize winning research that supports this approach.  However, it’s extremely difficult to achieve these results if you invest mainly in one asset class, for example, stocks via the mutual funds offered in an employer’s 401(K).

So what can you do?

“Everyday Americans are fed up with the failures of so-called financial wizards,” Provident Group Board noted. “People want to be accountable for and control their own investment destinies. With self-directed retirement accounts they can do just that.”

It is a little known fact that Self-Directed IRAs have been available since the creation of traditional IRAs by the Employee Retirement Income Act of 1974.  Also, typicial traditional and Roth IRAs allow for $5000 to $6000 annual contributions.  However, Self-Directed IRAs and Solo 401(K) and Solo 401(K) Roth programs allow for contributions up to $49,000 annually, depending upon age.

In the past, over 97% of retirement accounts have been dictated by the traditional investments available in the market.  This has been largely controlled by fear of the unknown.  Traditional custodians and brokers have falsely claimed that self-directed IRAs are complicated, risky and illegal.  Due to economic concerns gripping America today, people are educating themselves, taking back control and are no longer depending on traditional methods to invest in IRAs. 

Investment News (Sept 2007) reported a projection of a 10-12% increase in IRA rollovers from 2007-2010.  The trend will likely increase with the collapse of the traditional markets in 2008 and 2009 and as investors look to other means to recover losses and achieve greater financial success and security.

Many people are turning their attention to the variety of investment options available within the self-directed IRA including:

• Residential and Commercial Real Estate
• Life Settlements
• TICs (Tenants in Common)
• Tax Liens, Tax Deeds
• Mortgages, Loans, Notes
• Real Estate Options
• Small Businesses, Franchises
• Private and Publicly Listed Stock
• Limited Liability Companies
• Limited Partnerships

IRA investment regulations are largely regulated by what you can’t do with them rather than what you can.  This is what makes self-directed IRAs of non-traditional investments possible.  There are very few prohibited transactions:

• life insurance for yourself
• collectibles
• metal, gems, and stamps
• rugs and antiques
• coins
• artwork
• alcoholic beverages
• Sub Chapter S Corporations.

Setting up a self-directed IRA: 

The IRS requires a custodian to administer the retirement funds.  After the funds are moved to a non-traditional custodian, you direct your funds to the investment of your choosing.  The custodian will facilitate the investment purchase as required by IRS code.  If setting up legal services, such as an LLC is necessary, they can also assist with that.  Once investments are made the custodian will administer the account and hold the investment documents for safe-keeping.  Any profit or income from the investment goes directly back to your IRA account.

Two categories to consider for a Self-Directed IRA:

Life Settlements

A life settlement is simply the sale, or transfer of ownership, of an existing life insurance policy to another party. Typically, the individual selling the policy no longer wants or needs or can afford it, and desires to sell it to a third party via a secondary market. 

Historically, larger institutions have been the primary purchasers of these policies.  Now, fractions of policies may be purchased by accredited retail purchasers. These investors purchase the policy at a discount to its face value, keeping the policy in force until maturity. Upon maturity, the investors receive the full face value of the policy as their return on investment. These funds return to your self-directed IRA and grow tax-deferred in a traditional IRA or tax-free if using a Roth IRA.

The typical policy is purchased from someone over 78 years of age with a definable life expectancy. The owner has decided that the policy is either no longer affordable or necessary, and thus chooses to sell the policy rather than let it lapse, thereby converting the death benefit into a life benefit for their use. These special use policies might be for Estate Planning, Key-Man or Large-Loan policies. Typically, these policies are $1 million – $20 million in face value.

Life settlements provide contractual guarantee of principal and are completely uncorrelated to any other markets.  The return on investment is not impacted by the equity, bond or commodity markets, interest rates, oil prices or other economic events.  A life settlements investment represents true diversification, principal protection and has delivered a strong double digit rate of return each and every year for over 18 years.

Real Estate

The first thing to remember when your IRA purchases real estate is that the property is for investment purposes only. Your IRA must take title to the property. For example: Custodian Name FBO (for the benefit of) John Smith IRA. Your IRA may purchase property from an unrelated party (anyone who is not disqualified). Any income from the property such as rent goes back into the IRA. Likewise, any expenses, such as property management fees, maintenance etc., are paid from your IRA. It is advisable to use a property management company to avoid any prohibited transactions. When the property is sold, funds also go back into the IRA and remain tax-deferred or tax-free if using a Roth IRA.

There are various ways to purchase real estate. You may form an LLC and pool different funds together to purchase. For instance, you may use your IRA funds together with personal funds, a non-recourse loan, or with other investors. These different entities all own a part of the LLC, percentages being based on the amount of money invested.

Below are just some of the types of real estate you can invest in with your IRA:

• Residential homes, condominiums, duplexes, four-plexes
• Commercial retail, apartment complexes, office condominiums, homes
• Industrial manufacturing, warehouses
• Land

A non-recourse loan may also be secured to purchase investment real estate with your IRA. Typically the down payment for these loans is 30% to 40%. Guidelines for these loans do not normally use credit scores or income for loan qualifications.  These loans enable diversification across several properties within an IRA.

Truly Self Directed IRAs:

Where you open your IRA usually determines your available investment options.  You may be comfortable with your bank or financial institution, but your investment opportunities may be limited by their own self-interest.  A truly self-directed IRA custodian acts as a passive partner in your transactions.  They will be able to answer any administrative and legal questions pertaining to your IRA, but the power is in your hands when it comes to investment options and decisions.

Many major employers allow employees to re-position funds they’ve placed in their company’s qualified plans into a self-directed IRA that they can manage themselves.  You should observe the prescribed process pertaining to the chosen investment to preserve the tax advantages and avoid any penalties.  The process is not complicated and can produce net benefits that make the exercise worthwhile.  This enables the individual to have access to a wider range of investment options than may be available via an employer’s qualified plan.  Investors can achieve greater safety and performance of his entire investment portfolio with a prudently executed and managed strategy.

Washington Equity Management designs strategies that build secure wealth for families seeking success, security and significance. These customized strategies may use a combination of tools that provide principal protection, true diversification, tax benefits and still deliver a strong rate of return.

Strategy Objectives: