The
Franklin Prosperity Report
®
‘a penny saved is a penny earned’
August 2015 / Vol. 7, No. 8
Baby Boomer Guide to a
Fully Funded Retirement
The 7 Most Costly Mistakes — and How to Avoid Them
We’ve all heard the dismal retirement statistics for the millions of baby
boomers now hitting their mid-60s. By one measure, nearly half the boomers
are “at risk” of not having enough income in retirement.
The Employee Benefit Research Institute reports that 47.2 percent of the
oldest boomers are in danger of running short, while for younger nearretirees, it’s 43.7 percent. Unsurprisingly, more than 70 percent of lowerincome households are projected to have retirement shortfalls, but even
41.6 percent of middle-income households are “at risk.”
Retirement income is a tough problem, one beset by many unknowns: your
longevity, your health, the performance of investments, and the economy.
Unless you have several million dollars free and clear today (very few
people do), the question of retirement income is a serious one.
Looking for answers, Franklin Prosperity Report spoke to financial planners and advisers around the country. They offered up a lot of great
advice about the pitfalls, and mistakes savers and investors make when
considering the question of funding
retirement.
INSIDE . . .
4 5 Phone Calls That Can Save
A Bundle of Cash . . . . . . . . . . . . . . . . . . . . . 10
4 A Quick-Glance Guide to Tipping. . . . . . . 13
4 Warning: These Faulty Assumptions About
Car Insurance Will Cost You. . . . . . . . . . . . 14
4 Can This Popular ‘Smart’ Thermostat Really
Cut Your Heating and Cooling Bills? . . . . . 16
4 Franklin Matters . . . . . . . . . . . . . . . . . . . . . 17
4 Dr. Franklin’s Mailbag . . . . . . . . . . . . . . . . . 20
MISTAKE No. 1: Aiming for a number
without understanding reality
A lot of the focus on retirement
saving in the past few years has
been on reaching the “number” you
need to retire. However, that can be
a trap, says Kris Carroll, a chartered financial analyst at Carroll
Financial Associates in Charlotte,
North Carolina.
“A lot of retirees and near-retirees look at their investments too
frequently and get focused on the
total amount, sometimes on a daily
basis. That’s a lot of emotional
www.franklinprosperityreport.com
capital tied up in the daily random moves that investment markets tend to
make,” Carroll says. “You’ll be a happier person if you look less often.”
Yet the real trouble is focusing on a single number that you need to hit
or have hit in order to retire in the first place. For example, you might
think $1 million is enough to retire comfortably
Kris Carroll, a chartered
and enjoy your lifestyle.
financial analyst and
certified financial planner, is
chief investment officer at
Carroll Financial Associates
in North Carolina.
“When are you most likely to hit the goal?
Typically, it will be after a big move up in the
stock market,” Carroll says. “So let’s say you
hit your $1 million goal at the end of 1999. You
tell your boss to ‘take this job and shove it’ and walk out to enjoy your
retirement. During your first three years of retirement, the stock market
goes down each year, and three years later, you are thinking about going
back to work.”
Moreover, research has shown that when equity values are higher, the
sustainable withdrawal from a diversified portfolio is lower, Carroll says.
“It is easier to delay retirement by one year than to go back to work three
years later. Give yourself some room for error,” Carroll says. “I’m not
calling for another bear market, but I wouldn’t risk my livelihood betting
that it won’t happen.”
Two Key Retirement Calculations
To start the retirement planning process,
everyone faces these two simple questions:
1. How much should I save? While you
cannot easily change how much you earn, and
thus how much you can afford to sock away
with every paycheck, it is easier to control how
long you save. At a market rate of 7 percent,
a saver who puts away $5,000 a year for 40
years will retire with about $1.1 million. A
person who starts later, leaving just 20 years
to save, has to put away a lot more money to
get the same ending figure — $25,000 a year,
every year. The helpful calculation you’ll need
is the “rule of 72.” If you know the interest rate
you expect to earn, divide that into 72. The
result is the number of years it will take for
your savings to double in value.
Example: The rate of return on, say, a real
estate investment fund is 9 percent. Divide 9
into 72 to get 8. Thus, earning 9 percent, your
money will double in eight years.
2
2. How much will I need? Consider
a multiple of your current income as a
benchmark. Benefits consultant Aon Hewitt
has suggested a rule of thumb that you want
11 times your final pay socked away at age
65. So if you make $85,000 in your last year,
Hewitt figures you need $935,000. Of course,
if you retire early, the number is higher, and if
you leave work later, it’s lower.
Chad Nehring, a certified financial planner
in Appleton, Wisconsin, suggests a slightly
more precise number. “Generally, after-tax
retirement should equal your after-tax working
income times 0.75, adding 0.05 for each five
years you are under the age of 70,” Nehring
explains (since younger retirees are more
active, travel more, and thus spend more).
“For example, if you retire at age 65, then 0.80
is the percentage to use.” So, your after-tax
income is $65,000. You decide to retire at age
65. Your after-tax retirement income should be
$52,000.
FranklinProsperityReport.com
August 2015
MISTAKE No. 2: Far too rosy projections
If you plan conservatively and carefully, you can live out the retirement
of your dreams and live a rich, rewarding life along the way, says Elle
Kaplan, CEO and founding partner of LexION Capital Management in New York.
Big assumptions can get you into a lot of trouble down the line.
You’d never get in a car without an idea of your endpoint and think, “I hope
I just end up in the right place,” Kaplan explains. You would, of course,
carefully choose your destination and the best route to get there. Your
financial life is no different, Kaplan says: You
Elle Kaplan is CEO and
need a retirement road map that is customized to
founding partner of New
fit your individual situation and goals.
York-based LexION Capital
Management, an assetmanagement company
focused on women.
“Every assumption you make should be extremely
conservative,” Kaplan says. “Plan like you’ll
live to be 100, and make contingency plans for
everything. Your plan should take into account all the factors that might
affect you in retirement, like each and every one of your anticipated
expenses, what you’ll be receiving in Social Security, what kind of investment risks you’re able to tolerate, and so on.
“Your savings become your paycheck and must last the rest of your life,”
she adds. It’s easy to find ways to spend extra money but much more difficult to deal with a shortfall.”
MISTAKE No. 3: Confusing your future with your parents’ past
Boomers need to know this is not their parents’ retirement, says Tom
Scanlon, a certified financial planner in Manchester, Connecticut. “Many of
our parents had a pension plan when they retired. Now pensions are mostly
limited to federal, state, and municipal workers. Boomers that want a fully
funded retirement need to know they are on their own,” he says.
That means having planned, saved, and invested to have that fully funded
retirement by taking advantage of a 401(k) plan and both traditional and
Roth individual retirement accounts. Along with Social Security, private
retirement funds will provide a basis for retireTom Scanlon, a certified
ment income, Scanlon says.
public accountant and
certified financial planner,
is president of Borgida
& Co. in Manchester,
Connecticut.
If the plan is funded correctly, many retirees are better off waiting until full retirement
age before collecting Social Security, Scanlon
advises. Additionally, they should consider downsizing their large homes sooner rather than later because it will cut down
on monthly living expenses. “They should also consider working part time
during retirement. The extra income will be nice to have, but staying
active and engaged is a huge benefit,” Scanlon says.
MISTAKE No. 4: Putting all your retirement plan eggs in one tax basket
Americans pay a lot of taxes during their working years — Social Security
and Medicare taxes, income taxes at the state and federal levels, real
estate and investment taxes, and so on. Some of those taxes can be deferred
August 2015 NewsmaxFinance.com
3
Maximizing Strategies
In addition to basic
strategies to increase your
Social Security — the main
one being waiting longer to
start collecting benefits —
there are ways to amp up
your benefits even more. (For
even more ideas, check out
our November 2013 issue
at franklinprosperityreport.
com.)
“File and suspend” to
enable spousal benefits.
Also known as “claim and
suspend,” it works like
this: You file for benefits
and immediately request a
suspension of those benefits
before any payments are
made. This triggers your
spouse’s ability to apply for
spousal benefits on your
record, which the Social
Security Administration won’t
pay out unless you’ve already
filed. It’s commonly executed
so one spouse can receive
some benefits while the
other accumulates delayed
retirement credits. Note that
you have to be at least full
retirement age, and only one
member of a married couple
can file and suspend benefits
at once.
“Claim now, claim more
later” by using a restricted
application. As times change,
more and more Americans
qualify for benefits both as
a spouse and under their
own earnings history. Yet
Social Security pays only the
higher of the two and always
considers a person’s own
record first, which usually
cancels out the spousal
benefit. That is, unless you
use the restricted application
strategy — claiming spousal
benefits while you wait for
your own benefit to mature
to age 70. With a restricted
application, you can forgo
taking your own benefits and
take your spouse’s benefits
instead. Again, this is only an
option if you have reached
full retirement age.
“Claim now, claim more
later” using an ex-spouse’s
record. It works just the same
as for a married individual.
If you are eligible under your
own earnings record as well
as a former spouse’s, when
you reach full retirement
age, you can file a restricted
application for divorced
spousal benefits, postponing
your own benefits in lieu of
the former spouse’s. (If your
ex-spouse is deceased, you
can file for survivor benefits
and do the same thing.)
During this time, your own
record will be accumulating
delayed retirement credits,
and you can switch over to
it when you reach age 70 if it
makes sense to do so.
Hedge your bets with a
protective filing statement.
If you’re not sure when you
will want to file, one way to
protect your benefits is to
submit a protective filing
statement to the Social
Security office, which is like
reserving your place in line.
It’s not an application, but it
will preserve that filing date
for up to six months. You can
keep filing those statements
without limit, thus hedging
your bets and keeping your
options open.
“File and suspend” to
build a cash reserve. Another
strategy involves using the
file-and-suspend option a
bit differently than in the
scenarios above. A person
can claim and suspend his
or her benefits as a kind of
contingency plan. If you find
that you need money down
the road, you can request a
check for the benefits you
suspended. At the same time,
benefits are still growing.
and some not, so the key to a strong retirement income is being able to
control those tax rates.
Retirement savers thus should seriously consider opening a Roth
Michael Clark, a certified financial planner in Orlando, Florida.
money in a tax-deferred account such as an IRA or 401(k), Clark
some in a Roth, which is tax-free because you made the original
tion with already taxed income.
4
FranklinProsperityReport.com
IRA, says
Have some
says, and
contribu-
August 2015
Find Your State
Many retirees of means choose to move to
lower-tax U.S. states, often with better weather
and familiar shopping routines and easy air
transportation back to see kids and old friends.
A 2014 Kiplinger’s study found that the most taxfriendly states were largely in the sunnier parts of
the South: South Carolina, Louisiana, Mississippi,
and Alabama, along with Arizona, Nevada, and
Wyoming in the West, and Delaware in the East.
Income tax rates, property taxes, and sale taxes
are low. (Note that West Virginia and New Mexico
also made Kiplinger’s list, but as they are among
a handful of states to tax Social Security benefits,
retirees should think twice.) Largely, these are
politically conservative “red” states.
The heaviest tax burdens fall on those in the
liberal-leaning “blue” states, including California,
New York, Oregon, Minnesota, Vermont, and
Connecticut. For instance, California’s top tax rate
is 13.3 percent. It also has a 7.5 percent sales tax.
New York has a 8.82 percent income tax and a sales
tax of 4 percent.
If moving to a sunnier, lower-tax state is your
best move, consider the following caveats from tax
pros:
You really do have to move: Setting up a PO box
and a phone number in your target state won’t
cut it. You’ll need to actually spend more than half
the year living in your new state to claim it as your
home for tax purposes. You can keep your old
home, but you’ll need a legitimate new address or
risk a big tax bill and penalties down the line.
Move your financial life, too: It’s not about
where you pay your water bill. The tax collector in
your former home state will be looking for bank
accounts in your name, evidence such as a new
driver’s license, and address changes in legal
documents, such as a will.
Create a credible paper trail: Use your debit or
credit cards in your new location frequently. Get a
local cellular phone number and use that number,
not your old one from back home, and get new
license plates for your cars. Change your insurance
addresses, as well. These are the kinds of details
you might put off and that can come back to bite
you if an auditor believes you are faking the move.
August 2015 “We have all heard we should
diversify
our
investments.
Believe it or not, it’s the
exact same thing with your
future tax liability,” Clark
explains. “When you use both
Roth and pretax accounts, you
are diversifying the taxes that
you are going to have to pay in
the future. You are going to
have some taxable accounts, and
you are going to have some taxfree accounts. This will give
you options in retirement.”
If tax rates are high in a given
year, Clark continues, then you
can take tax-free distributions from your Roth instead.
If halfway through retirement
your tax rates drop (say you
move to a state with no income
tax), you can take taxable
distributions from your taxdeferred accounts.
“Having both accounts will
allow you to play around with
your tax bracket,” he explains.
MISTAKE No. 5: Assuming a rule
of thumb applies to you
A lot of financial advisers
assume that a retiree’s spending will go up by the rate of
inflation, yet a J.P. Morgan
study found that many costs
such as clothing and meals go
down and really only medical
spending consistently rose,
says Neil Brown, a certified
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financial planner in West Columbia,
South Carolina. “Their spending did
not go up as much as people assumed.
Your health care is going to rise,
and your other spending is going to
fall,” Brown says. “If you don’t
spend as much, the amount you need
to save will be lower.”
The longstanding rule of thumb was to
spend no more than 4 percent of your
portfolio
annually
Neil Brown is a certified
public accountant and
if
you
certified financial planner at wanted the
Burkett Financial Services
money
to
in West Columbia, South
last. But
Carolina.
in today’s
near-zero-interest-rate world, that
is now more realistically 3 percent.
There are other things you can do
to manage spending, like moving to
a tax-friendly state for retirees
(see “Find Your State”) and delaying
Social Security.
“You can add 10 to 20 percent to
Social Security with planning. It
can add two or three years to your
retirement planning,” Brown says.
“If you have other assets, it’s
usually a good decision to delay
Social Security.”
Asset allocation matters, too. “If
you don’t need a lot of risk to meet
your goal, you don’t need a lot of
equities,” he says. “Don’t undersave
and retire early and then take on a
risky portfolio because you didn’t
have the discipline to reach your
goals during your working years.”
Need a Financial Adviser?
“It’s a huge question — getting it right
is critical for retirees,” says Randy Kurtz,
founder and chief investment officer of
BetaFrontier in Chicago.
Already, we’ve told you to determine
what level of yearly income you need in
retirement — and with that, you need
to know how much of it needs to be
generated by investments. If that annual
income number is $80,000, subtract Social
Security, pensions, and any other income
you expect to bring in. “Let’s assume that
totals $30,000 per year, meaning you need
$50,000 per year from your investments,”
Kurtz explains.
A portfolio that draws down 4 percent a
year would need to be worth $1.25 million
to close the gap. “Now that you know what
type of lifestyle your portfolio will support,
how do you construct a portfolio that is
structured to withstand a range of possible
outcomes while aiming to minimize the risk
while maximizing the odds of your success?
This is where a great financial adviser can
really prove his worth,” Kurtz says.
The more difficult question comes into
play when you need 6 percent or more
from your portfolio per year. “Now you are
in a situation where you need real financial
advice, not just cookie-cutter portfolios,”
Kurtz says. “How can you use strategic debt
to maximize your odds of success? How
should you structure your investments to
likely deliver a slightly higher return while
not putting all your eggs in one or two
baskets?”
Nevertheless, as you get older, equities can play a growing role, Brown
says. “Be conservative in the first year you retire, but add 1 or 2 percent
in equities as you age. If you have a big loss early, it hurts more than
having a big loss later,” he says.
MISTAKE No. 6: Ignoring what may be your single greatest asset, your home
Most people have heard of a home equity conversion mortgage, often called
a reverse mortgage. But few realize how powerful it can be as a standing
6
FranklinProsperityReport.com
August 2015
credit line, says Bill Parker, a CPA and reverse mortgage specialist at
Wallick & Volk mortgage bankers in Scottsdale, Arizona.
“One of my favorite uses is when one spouse has taken out a single-person
pension payment, set up a home equity conversion mortgage early, let it
grow at government-guaranteed rates, and then we use it to supplement the
income of the surviving spouse when the pension
receiver passes away,” Parker says.
Bill Parker, CPA, is a senior
loan officer and a reverse
mortgage specialist at
Wallick & Volk mortgage
bankers in Scottsdale,
Arizona.
The key is that, by federal law, the unused portion
of the credit line grows at the same interest rate
of the loan. You could compound interest over
several years until you really need the cash flow
later on. “Over 15 years, a $200,000 line of credit can grow to $400,000,
and it’s guaranteed by the government. Unlike a home equity line of credit,
the value of your house has nothing to do with it,” Parker says.
“I think over time planners are going to start using it as a planning tool,”
he says. “Imagine if you could avoid taking out Social Security and instead
use the line of credit, then at age 70 get full Social Security benefits.
This will help millions.”
MISTAKE
One of
Douglas
a King:
No. 7: Making too many decisions in a short period of time
the problems facing near-retirees is “decision fatigue,” says
Goldstein, a certified financial planner and co-author of Rich as
How the Wisdom of Chess Can Make You a Grandmaster of Investing. In
short, they try to make too many decisions in a
Douglas Goldstein founded short period of time — even in a single day — and
Profile Investment Services
wind up making poor choices.
and co-authored Rich as
a King: How the Wisdom
of Chess Can Make You a
Grandmaster of Investing.
You run into this tactic in everyday life,
Goldstein points out. “Car salesmen are trained
to walk you through a series of decisions in
order to create decision fatigue,” he says. “The more decisions you have
to make, the more likely you are to choose the default, like worthless
anti-rust coating.” The brain simply turns off as fatigue builds. The
same thing can happen with investment and retirement planning, Goldstein
warns. When people make too many decisions late in the day, for instance,
they tend to be too conservative.
In the case of investors, they might decide to keep money in the bank
when they should be invest— SPONSOR —
ing for growth. A good financial planner will not force too
many decisions on an investor
too quickly for precisely this
reason. “A retirement plan is
a great tool, but make your
Get Your Free 2015 Retirement Income Guide to Learn More
investment decisions when you’re
Online: CrownAtlantic.com/Generate
fresh the next day,” he says.
EARN UP TO 30% MORE
IN RETIREMENT INCOME
— Greg Brown
August 2015 Toll-free: 855-537-3662
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7
Investing
Long-Short Mutual Funds: Boost or Bust?
Hedge funds long ago worked out the seemingly perfect strategy for rocky
markets. Go long (usually on stocks) but also buy a short position for
protection if things go south. The idea was dubbed a “long-short” strategy, and the big-fund chiefs bragged in the press about its effectiveness
in all markets.
Now retail mutual funds are getting into the long-short game in a bid to
attract mom and pop investors into a strategy once reserved for high rollers
and institutional money. Is a long-short mutual fund a sensible investment?
The simple answer: It’s ridiculous, says Randy Kurtz, president and chief
investment officer of BetaFrontier, a Chicago money management firm.
“You could just as easily buy the SPDR S&P 500 ETF (SPY) and the ProShares
Short S&P 500 (SH),” Kurtz says. “But if you are trying to reduce risk and
volatility, I have a better idea for you: Invest the core of your portfolio
in a multi-asset class, globally diversified portfolio.”
Such a portfolio would include U.S., international, and emerging market
stocks, U.S., international, and emerging market bonds, real estate, gold,
and commodities, he says. “You can substantially reduce your risk without
substantially reducing your expected return, based on historical returns
and correlations,” Kurtz advises.
Part of the overarching problem with the long-short is unnecessary complexity. Warren Buffett, the billionaire investor and capitalist icon, has
written about how he sorts incoming investment ideas into three piles:
“yes,” “no,” and “too hard.”
That last group, Buffett notes, ends up being a pretty big pile. Far too
often, great-sounding investment ideas are theoretical winners that prove
difficult to make work in a chaotic world of active markets filled with the
psychological expectations of millions of individual investors.
“Long-short mutual funds on paper sound like a great idea, but in theory,
they haven’t worked well and probably won’t, so investors should steer
clear,” says Matthew Tuttle, a certified financial planner in Stamford,
Connecticut, and portfolio manager of the Tuttle Tactical Management US
Core ETF (TUTT).
“The idea of buying high-quality stocks and shorting low-quality stocks
academically makes sense,” Tuttle explains. “The problem is figuring out
accurately which is which.”
In 2007, for instance, many short sellers panicked out of stocks as markets
8
FranklinProsperityReport.com
August 2015
rose, Tuttle points out. As the legendary British economist John Maynard
Keynes once put it, the market can stay irrational longer than you can stay
solvent. Even a good idea can fail spectacularly for a very long period,
certainly long enough to drive everyone out of the strategy over time.
“Investors who are looking for downside protection, which should be everybody at this point, should go for a tactical ETF or fund instead,” Tuttle
advises.
You don’t have to look far for evidence that long-short investing has had a
hard road. In the last few years, notably, hedge funds have underperformed
the overall market indexes, says Michael Needleman, a senior partner at
Fusion Analytics in New York, who oversees the firm’s long-short strategies
and specializes in management of small-cap to midcap funds.
During 2014, for instance, the Barclays Capital U.S. Aggregate Bond Index
rose a bit more than 5 percent while the Standard & Poor’s 500 Index gained
more than 13 percent. Part of the problem with long-short is the recent
popularity of the concept.
“When everyone gets into the same strategy, beware,” Needleman says.
There simply is no silver bullet, just more appropriate or less appropriate strategies for a given investor, he explains. “Any investment one does
should be fully aligned with your investment strategy that you have [developed] with your adviser or with your own due diligence —
­ know what you own
and why you own it,” Needleman says.
Even if you could rely on the repeatability of the long-short model at the
mutual fund level, who’s to say the manager you pick will be able to pull
it off?
Too often with managers, it’s a game of “round robin” as far as performance is concerned, with funds trading off good years and bad, says Jeffrey
A. Bogart, a registered investment adviser with Sila Wealth Advisory in
Mayfield Heights, Ohio.
“How much of one’s portfolio should be allocated to a long-short fund? To
have any effect on risk, one would need to commit about 30 percent of their
portfolio to a long-short strategy. If you do so and the manager just ends
up being lousy, what have you accomplished?” Bogart says.
“Also, long-short funds tend to be expensive because someone has to pay for
all those puts and calls,” Bogart adds, “and it isn’t the fund company who
foots that bill; it’s the investor. Long-short funds, like hedge funds, are
very tax-inefficient, too.”
Instead, Bogart advises that investors address risk through diversification using stock and bond index funds or exchange-traded funds, which have

much lower fees.
— Greg Brown
August 2015 NewsmaxFinance.com
9
Spending
These 5 Phone Calls Can Save You a Bundle
We often forget that everything in life is negotiable, especially things
like your cable, Internet, and wireless services. Living in a digital world,
we also tend to forget that doing things the old-fashioned way — picking up
a phone and dialing — can save us a few precious bucks now and then.
Rich Gallagher, founder of Point of Contact Group in Ithaca, N.Y., and
former call-center executive turned psychotherapist who has written bestsellers on customer relations, says it’s possible
Rich Gallagher is the
to haggle and negotiate things like utilities
founder of Point of Contact
or other bills many consumers think have “set”
Group in Ithaca, N.Y. He is
prices.
the author of The Customer
Service Survival Kit and
What to Say to a Porcupine.
Negotiating a lower rate or greater discount is
best done via phone, Gallagher suggests. “You get
to explore options with a human being, while with email or social media,
your response will often be a cut-and-paste form letter,” he says. “You
can’t easily ask in an email, ‘Is there a better deal than this?’”
Here’s a look at a few phone calls you should make today to trim a little
fat from your monthly budget.
1. Cable Company.
Cable company customer service representatives are typically incentivized
by the size of their sales. That means savvy callers need to deploy a little
finesse when phoning with the intention to score a discount or lower rate.
Gallagher says calling to ask for a discount or package upgrade may not
do you much good. However, taking the stance that you intend on switching
carriers is likely to yield results.
“To any service such as cable, Internet, or telecommunications where the
customer represents a revenue stream, it often benefits the company to
give you a better deal in return for keeping you and your money into the
future,” Gallagher says.
Your call: Let the company know you intend on switching providers and then
be prepared for the customer service rep to do his or her best to convince
Ben’s Good Cents
“After crosses and losses, men grow humbler and wiser.”
10 FranklinProsperityReport.com
August 2015
you otherwise. Stay strong, outlining your desire to switch because of
pricing (be sure to have the competitor’s price on hand), and get ready to
be transferred to a “retention representative.”
“This person’s job is to hold onto your business by offering discounts,
service upgrades, or other bonuses,” Gallagher says. Just be sure to not
be obvious, he cautions. “Never ask to be transferred to a retention rep
or let on you know they exist.”
2. Cell Service Provider.
Your cellphone service contract shouldn’t feel ironclad. Gallagher says
even in situations in which you’ve signed a contract with a financial
penalty associated with backing out, you still have leverage.
“The provider wants to make you want to stay with them after your contract
expires and also to keep you from being courted by a competitor’s ‘we’ll
pay your penalty if you switch’ promotions,” he says. “Most cellphone
providers know some consumers will even pay the early termination fee on
their own and switch service.”
Your call: You’re probably dealing with disempowered front-line employees
who are under pressure to keep calls short and preserve revenue. Because
they’re frazzled, they’ll tune you out in a heartbeat if you hassle them.
So the old adage of catching more flies with honey comes into play on this
call.
Gallagher suggests approaching this conversation with a lot of respect
and personal touches. “Use the customer service rep’s name and empathize
with his restraints to tap into the rep’s sense of compassion and human
nature,” he says. “Being polite and personal helps them be much more likely
to problem-solve with you.”
3. Credit Card Company.
Whether you’re toting around heavy credit card debt or have one or two cards
you’d love to pay off, Nick Clements, a former executive at Barclaycard
turned consumer advocate, says there are some instances when a phone call
to your credit card issuer can help you pay less.
“A bank may waive a single late payment or a monthly maintenance charge,”
he says. It also could lead to paying less interest every month. Just make
sure to exercise self-control.
“If you start to make a habit out of paying late or going over your limit,
your bank probably won’t be forgiving,” Clements says.
Your call: The obvious call is asking your bank whether they’ll lower your
interest rate. Clements says staying calm and being friendly could be
rewarded. Don’t be afraid to let the card issuer know other credit cards
are flirting with you.
August 2015 NewsmaxFinance.com
11
Clements says if you’re able to transfer a balance to a card that has an
introductory period of 0 percent interest, let your current card company
know. “Sometimes the threat of transferring a balance to another credit
card issuer can trigger a rate reduction,” he says.
4. Internet Provider (if different from your cable provider).
Internet service often is bundled with other utilities like cable or a
landline. But in the event yours isn’t, you usually can negotiate a better
rate, an upgraded package at your current package’s price, or other goodies
like free premium channels if you call with the voice of concern because
your Internet connection (or cable) has been spotty.
Your call: “Service issues are a very legitimate point of leverage for
negotiating discounts or upgrades,” Gallagher says. Make note of times
your service has flaked out or when it started slowing down. Then call your
provider to state your concerns and intent to change providers or desire
for a credit because of the issues.
“You may want to approach the call with the goal of netting benefits such
as upgraded service levels because those are cheaper to a company than
refunding money. You often can leverage service issues against these to get
a better deal,” Gallagher says.
5. Electric Company.
You wouldn’t consider a utility bill negotiable, but Gallagher says think
again. Even though utilities are generally regulated and their base rates
are set by law, they have ways of offering financial assistance if you ask
for it.
“My utility offers emergency assistance in paying your bill, as well as
forgiveness of balances in arrears,” he says. Even if you can pay your
monthly bill, utilities often have options ranging from lower-cost energy
suppliers to cost-saving energy audits. But Gallagher says you have to ask
for any of these benefits.
Your call: Asking for payment forgiveness or investigating other provider
options takes persistence. If you’re not getting what you want, or the
customer service rep isn’t amenable to working with you, politely end the
call and try again.
“This is particularly important if you’re trying to ‘escalate’ the call to
someone with more authority,” Gallagher explains. “If you angrily demand
to speak to someone’s supervisor, you’re threatening to get the person on
the other end in trouble. If instead you act like you understand their
situation and thank them for trying, and then politely explore whether a
more senior person could help, you are much more likely to get connected

to someone with real authority.”
— Gina Roberts-Grey
12 FranklinProsperityReport.com
August 2015
How Much to Tip? A Quick-Glance Guide
Those in the U.S. who are employed by service-based industries work hard for the money —
but with notoriously low base salaries, they rely heavily on tips to supplement their earnings and
pay their bills. “The wages they make are simply not enough,” says Jacqueline Whitmore, author
of the best-selling book Business Class: Etiquette Essentials for Success at Work and founder of
The Protocol School of Palm Beach (EtiquetteExpert.com). “Tipping is customary in the service
industry. It’s also a way of rewarding someone for attentive or superior service.” Whitmore
suggests the following amounts, regardless of whether you are in a big city or a rural suburb:
Waiter: Tip 15 to 20 percent of the bill before discounts, or taxes, higher for exceptional service.
Host, hostess, or maître d’: If the maître d’ goes out of his or her way to accommodate a special
request, you may want to discreetly tip $10 to $20.
Barista: Tip your loose change or 10 percent if you pay by credit card.
Busboy: Usually, this person gets a share of the server’s tips, so tipping is not necessary. If there
is no server, tip the busboy $1 to $5.
Your method of tipping matters.
“It’s best to tip in cash,” Whitmore says.
“That way the store or salon owner does
not have to pay credit card fees.” Because
some establishments won’t even accept
tipping on a credit card, it’s a good idea to
always have some tipping cash on hand.
Delivery person: Tip $3 to $5 for pizza delivery and
10 to 20 percent for delivery of all other foods to
your home.
Cab driver: Tip 10 to 15 percent of your fare.
Valet: There’s no need to tip when you arrive.
However, tip $2 to $5 when the car is returned.
Airport bus drier/skycap/bellhop: The rule of thumb
is $1 per bag and $2 for extra-heavy bags.
Hairstylist or nail tech: Tip 15 to 20 percent for a haircut, nails, waxing, or other services.
Bartender: If you’re just grabbing a drink, tip $1 to $2 per drink. If you’re there for several hours,
leave 10 to 20 percent of the total bill.
Car wash: Give $1 to $2 for the person who dries your car and shines your tires.
Doorman: Depending on the degree of difficulty, tip $1 to $5
for hailing a cab.
Hotel housekeeping: Leave $2 to $3 per night, but don’t wait
until the end of your stay. It’s best to reward the housekeeper
who services your room each night. Put the tip on the
bathroom sink or on the desk in an envelope marked “For
Housekeeping — Thank You!” so they know it’s for them.
Restroom attendant: Leave 50 cents to $1 in the basket if the
attendant hands you a towel or you use the toiletries (hair
spray, mouthwash, gum, etc.).
What if you experience
awful service?
Should you teach the offender
a lesson by withholding your
tip? “If I receive terrible service,
I leave the minimum tip: 10
percent,” Whitmore says. “You
never know, it might not be the
server’s fault. Instead, take your
complaint up with the manager.”
Housekeeper or mobile pet groomer: Whitmore suggests
tipping these in-home services annually during the holidays.
“I recommend giving the equivalent of one service,” she says. “In other words, my housekeeper
charges $90 each time she cleans my house, so I give her an extra $90.”
— Jill Schildhouse
August 2015 NewsmaxFinance.com
13
Insurance
4 Wrong Assumptions About Car Insurance
That Can Cost You
Trying to make sense of car insurance policies can be frustrating. Add to
that the fact that people often make faulty assumptions about insurance, and
you have a potential for unwanted costs and unpleasant surprises down the
road. To help, we’ve identified the truth about four common misconceptions:
Costly Assumption No. 1: Auto insurance rates automatically go down as you
get older. The truth: “Age is an important factor in annual car insurance premiums,” says Keith Moore, CEO of CoverHound.com, an auto insurance
comparison site. And like other factors, including gender, miles driven
daily, and region where you reside, age is used to gauge the likelihood
that the insured will make a claim in the future.
But there is no firm rule that once a member of your household (your child,
younger brother living with you, etc.) hits a certain age — often thought
to be 25 — the cost of car insurance will decrease.
“While people under 25 are statistically more likely to get into an accident, each company handles the impact of age on the price of the policy
differently,” Moore says. “Some carriers may offer a pricing break at age
21, 23, or 30.”
Because there’s no way to alter a birthday, take advantage of other ways to
reduce car insurance premium costs. “There are a variety of other ways to
receive discounts on your policy, such as bundling a homeowners or renters
policy with your auto coverage, paying your premium in full, or even choosing to receive paperless billing,” Moore says. Ask your insurer about all
discounts you may qualify for.
Costly Assumption No. 2: Going to a direct insurance company like Geico or
Progressive is always less expensive than using a local agent. The truth:
Moore says it’s true that direct companies like Geico and Progressive don’t
employ agents while writing the insurance policies they sell (rather than
having another company write their policies) and can offer less costly
options than the other guys. By not incurring agent commission fees, these
companies spend less to offer a similar product as their competitors.
“But that does not necessarily mean the savings will be passed on to you,”
Moore points out. “Many direct auto insurance carriers will use those
savings to spend more on marketing their brand and product.” Without the
benefit of local agents marketing for them, direct carriers may need to
spend a bit extra on national advertising and marketing to create brand
awareness.
14 FranklinProsperityReport.com
August 2015
In addition, the pricing algorithms
that dictate the price of car policies can be wide-ranging. As a result,
Moore says the typical driver can
expect to see a large span in price
for a given policy. “As long as you
are comfortable working with a local
agent and a direct carrier, it’s
always best to shop all available
policies to ensure you receive the
best price and policy for you.”
Costly Assumption No. 3: Comprehensive
coverage covers theft of your vehicle
and all items contained within. The
truth: “Comprehensive coverage of an
auto insurance policy only covers
items physically attached to your
vehicle,” Moore says. That means a
stereo or GPS device that’s factory
installed is covered in the event
it’s stolen or vandalized.
Before You Let Someone
Borrow the Car . . .
Is your vehicle covered if you let a
family member or friend borrow it? Well,
it actually varies by policy and insurance
carrier. You’ll want to find out from your
insurance company before handing over
your keys, Moore suggests. There are some
typical coverage situations, though.
Generally, liability car insurance
follows a driver, not a car. Therefore, in
most instances, no matter what car you
— or anyone else who has liability car
insurance — drive, the policy likely covers
damages up to the stated coverage limits.
Comprehensive and collision coverage,
meanwhile, is tied directly to a vehicle,
not a driver. Moore says that portion
of a policy’s coverage should provide
protection against any damages to your
vehicle. If in doubt, ask.
But items not factory installed such
as iPods, tablets, clothes, designer
sunglasses, and CDs stolen from your
car or damaged in an accident will not be covered by a car insurance policy.
“Those would typically be covered if there is a homeowners or renters
policy in place,” Moore says.
Costly Assumption No. 4: You can’t switch car insurance carriers until your
current policy expires. The truth: Being unhappy with the level of customer
service, price, or handling of a claim can leave you unsatisfied with your
car insurance company. But did you know you can drive out of a policy you no
longer love? Because they want to keep your business, insurance companies
guard this little-known secret that you’re not bound to an auto insurance
policy for the full term of six or 12 months.
The truth is, you can cancel a policy at any time — for instance, if shopping
around turns up comparable coverage for less money, Moore says. However,
your current carrier may charge a fee (often 10 percent) on any unused
premium. “For instance, after three months of coverage, if you cancel a
$600 six-month car insurance policy, you may be subject to a $30 fee.”
Moore suggests when shopping for car insurance, in addition to comparing
apples to apples on items like deductibles, coverage limits, annual premiums, etc., make sure to ask your current — and prospective — carrier about
any fees and penalty charges. These may offset the potential savings stem
ming from switching your coverage.
— Gina Roberts-Grey
August 2015 NewsmaxFinance.com
15
Your Home
Can a ‘Smart’ Thermostat Save You Money?
It’s that nagging feeling — did you remember to adjust the thermostat
before heading out of town, or are you throwing away money heating or
cooling an empty home? Perhaps it’s time to upgrade to the Nest Learning
Thermostat (Nest.com), which learns your schedule, programs itself, and can
be controlled from your phone.
“According to Nest, a correctly programmed thermostat can save you about
20 percent on your heating and cooling bill,” says Dan Paavola, a technical
support specialist in the Home Comfort department of Abt Electronics, one
of the largest independent single-store appliance and electronics retailers in the U.S. “The Nest has the ability to help save energy over a conventional thermostat, but it all depends on how it’s
Dan Paavola of Glenview,
used and the type of system it’s attached to.”
Illinois, is a technical
support specialist in the
Home Comfort department
of appliance and electronics
retailer Abt Electronics.
This savings percentage, Paavola explains, is
based on the idea that a typical consumer’s thermostat is set to a certain temperature and doesn’t
automatically vary. “The Nest can be programmed,
or you can use its ‘Nest Sense,’ which will make a personalized program for
you on its own based on your activity.”
While Paavola can’t verify Nest’s 20 percent claim, he notes that “a
consumer should see savings on their energy bill if they install a thermostat that has a schedule compared to a thermostat that you set and forget.”
Here are Paavola’s three tips for getting the most out of a Nest:
1. Put it in the right spot. The Nest has an intuitive learning capability
through a built-in sensor, but it’ll only function correctly if installed
in a high-traffic area such as a living room or hallway. If it is in an area
where you don’t walk by it often, the “Nest Sense” feature could assume
you’re absent and shut down the system until you pass by it again.
2. Over time, Nest Sense will create a schedule to maximize efficiency. So,
for example, if you get home from work every day at 6 p.m., the thermostat
will learn how long it takes to reach your desired temperature and it’ll
turn on the system in enough time to ensure your home is at that temperature
upon arrival. It works the same way with waking up and leaving for the day.
3. Nest requires five wires at a minimum. Many households only have four
wires running to its thermostat. Although the Nest can function on four by
switching to battery power when the furnace or air conditioning is on, the
fifth ensures the unit always has power. Before you purchase a Nest, check
how many wires you have. If only four, you can buy an “add-a-wire” — this
additional part costs about $100 and should be professionally installed. 
— Jill Schildhouse
16 FranklinProsperityReport.com
August 2015
Franklin Matters
Franklin, on Achieving
the American Dream
By Mark Skousen
“Working people had plenty of employ and high pay for their labor. Everybody
was well clothed and well lodged, and the poor provided for or assisted.
And our commerce being no longer the monopoly of British merchants, we were
well furnished with all the foreign commodities we needed, at much more
reasonable rates than heretofore. These appeared to me as certain signs of
public prosperity.”
That was Ben Franklin in 1875, a statement that resembles American aspirations today. At this year’s FreedomFest, an annual gathering I organize
in Las Vegas to discuss “great books, great ideas and great thinkers,” one
of the debate questions on the agenda is, “Is the American Dream alive or
dead?” There are strong opinions on both sides.
We can define the American dream in terms of Thomas Jefferson’s refrain in
the Declaration of Independence, that all Americans are “created equal and
endowed by their creator with certain inalienable rights,” including “life,
liberty and the pursuit of happiness.” Through Ben’s Franklin’s thoughts
and actions, we can see how he not only fostered the pursuit of the American
dream for others, but lived it himself.
The United States stood tall in declaring that any immigrant could come to
America and pursue his own career path, and not be limited by his social
class, religion, or race. Ours is a democratic meritocracy, not a European
aristocracy.
As Ben Franklin wrote, “There were many in Europe who hoped for offices
and public employments in America, who valued themselves and expected to
be valued by us for their birth or quality, tho’ I told them those bear
no prices in our markets. In America, people do not inquire concerning a
stranger, ‘What is he?’ but ‘What can he do?’”
The American dream also means that people could develop skills and succeed
without a formal education. They could learn on their own by borrowing
books and reading. According to Franklin, the American dream was rooted in
the ability to read and write. He sought to reduce America’s low literacy
rate by establishing the first public circulating library, and the Junto.
Affordable housing has always been part of the American dream. For most of
continued on next page
August 2015 NewsmaxFinance.com
17
Franklin Matters continued from previous page
his adult life, Franklin and his wife Deborah lived with his young family
in smaller rented dwellings in Philadelphia. Mortgages were not typical in
this era. However, in late 1762, Franklin returned from London and decided
it was time to build a house of his own. Being financially independent, he
financed the construction of a three-story 10-room brick house set in the
center of the courtyard off Market Street in Philadelphia. Although he went
back to London and was not directly involved
in its construction, he wrote frequently to
“In America, people do
his wife, who oversaw the build.
not inquire concerning a
When Franklin returned in 1775, his wife
stranger, ‘What is he?’ but
had died and he continued to make improvements on his home, such as the completion
‘What can he do?’”
of a music room. Eventually, he built an
— Ben Franklin
addition for his growing family, including
a long room for his library and scientific
instruments, a dining room that could handle 24 persons, and two bedchambers and garrets. Having a home of your own is truly an American dream, and
Franklin fulfilled it in his lifetime.
Finally, the American dream requires a comfortable, dependable retirement
income. There was no government-mandated Social Security back then. Having
enough to live on into retirement was an individual and family responsibility, and that meant obeying Franklin’s three commandments of “industry,
thrift and prudence.”
He had followed these rules through most of his career, always working
hard, saving money, and prudently diversifying into a variety of successful
businesses and investments.
As a result, he was able to retire at the age of 42 and live the life of an
independent gentleman, free to pursue scientific and civic interests. “No
revenue is sufficient without economy… A man’s industry and frugality will
pay his debts and get him forward in the world,” he said.
Be free,
Mark Skousen, Ph.D., is a sixth-generation grandson of Benjamin Franklin and holds
the Benjamin Franklin Chair of Management at Grantham University. An economist
and monetary historian, he’s the author of The Compleated Autobiography of Benjamin
Franklin, which draws on Franklin’s papers to chronicle the 33 years of his life
subsequent to the publication of his autobiography at age 51.
18 FranklinProsperityReport.com
August 2015
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Dr. Franklin’s Mailbag
Cash-Back Clarification
Do cash-back rewards count as income for tax purposes? Say I make a purchase
with a credit card of $5,000 from which I’ll later receive 3 percent cash
back ($150), does the $150 count as income? — Jerry D., Fond du Lac, Wis.
Generally, no. The IRS considers cash-back rewards (as well as points/
frequent flier miles) like a rebate or discount — not taxable income,
according to Barbara Weltman, a tax and business attorney and author of
J.K. Lasser’s 1001 Deductions & Tax Breaks 2015: Your Complete Guide to
Everything Deductible. “Rebates are not taxable; they’re just considered a
reduction in the purchase price,” she says.
However, credit card rewards should be accounted for in your tax return in
two situations, Weltman adds. 1) When you receive a bonus for opening an
account and no purchase is required. (That’s rare; nearly all such bonuses
hinge on a specific amount spent within a set time frame.) 2) When you make
a business purchase that’ll be taken as a deduction. In that case, calculate the final amount paid, with any rebates applied or cash-back rewards
earned, to determine your write-off amount.
Send your questions for our experts, as well as your favorite savings
tips and comments on various Franklin Prosperity Report articles. Email
[email protected] or send by regular mail to Franklin Mailbag, P.O.
Box 20989, West Palm Beach, FL 33416.
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Founding Father
Benjamin Franklin
Financial Publisher
Christian Hill
Editor
Michael Berg
Contributing Editor
Dr. Mark Skousen
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20 FranklinProsperityReport.com
August 2015