A.I. will Now Fight Your Overdraft Fees for You

DISCLAIMER: Neither the author, nor Providers & Families Wealth Management, LLC or its employees, are affiliated with, compensated, or endorsed by Cushion. This is not an endorsement of Cushion.ai and should not be read as such.

As a frugal consumer (and one that just hates paying overdraft fees), a new service caught my attention this weekend. Scrolling through my Facebook newsfeed, I was served an ad that said something to the effect of: “Wow! In less than 24 hours I had $427 in overdraft fees returned to me, thanks to Cushion.” Sound click-baity? It did to me, but I clicked (or tapped, rather) nevertheless. I want to talk about my experience, but first, let’s talk about A.I.

Boy, has it ever come a long way.

Back when I was in high school (about 15 years ago), I used AOL instant messenger to talk to classmates and friends online. There was no Facebook, and there was no Facebook messenger. No one owned a smart phone, because they didn’t exist. People communicated online either through e-mail or “AIM”.

One day, a group of individuals at AOL decided to try something radical: create a profile (in 2000’s vernacular, the term was “screen name”) for Artificial Intelligence. Enter SmarterChild, one of the very first artificial intelligence chat bots.

Simple in its design, SmarterChild was created to have basic conversations, learn from conversations it had with users, and adapt. It was rudimentary at best, but it was innovative and ahead of its time.

A screenshot of an AOL instant messenger conversation with SmarterChild.

Fast forward 13 years to 2017. Ever the networker, I connected with the owner of a successful Harrisburg-based technology business (not related to A.I.) while attending an event at a local healthcare institution. I followed up with him about meeting for coffee, to which he agreed, and looped in his assistant Sophie, to schedule it. We got a day on the calendar, only for him to be involved in a fender-bender and have to reschedule.

“So sorry, Scot! David’s been in a car accident and needs to reschedule,” she said.

“I’m so sorry to hear that! Please tell David I understand, and give him my best!” I responded.

“Absolutely,” Sophie said. “Will do!”

After more than a year (yes, a year – apparently David is very in demand) I managed to get an appointment on the calendar with him. My successful attempt was the result of me e-mailing not him, but his assistant. I was very impressed – I e-mailed her at 6:30 at night, and received a response fewer than 20 minutes later with his availability.

When coffee finally happened, I was sure to compliment Sophie. People that are hardworking, courteous, and professional are rare, at best. “Your assistant is awesome,” I told David. “She’s so polite and she responds very quickly.”

His response? “She’s A.I.”

I was flabbergasted. The last time I had communicated with A.I. was with my friend SmarterChild in high school. Had A.I. really advanced so far that I couldn’t even recognize I was talking to it?

Turns out that this A.I. that David used was part of a pilot program by a startup out of Silicon Valley. David managed to snag their services for free. For someone like myself, use of A.I. would cost about $400 per month, he estimated.

Fast forward to this past weekend, when I would experience the wonders of Artificial Intelligence first hand once again. After clicking on the Facebook advertisement for Cushion, I was taken to a website, where I was prompted to enter my e-mail address to get started. Next was a list of financial institutions with a question: which of them do I use? I selected several of them (note – there was no option for “other.”)

What happened next surprised me a little. Expecting to be taken to an app I needed to download, I instead received a message from Cushion’s Artificial Intelligence via Facebook Messenger, where I was prompted to select a financial institution. If you’ve ever used Intuit’s Mint, or Fidelity’s eMoney, Cushion uses similar encryption techniques to securely log on to your financial institution’s website and download your account data – the difference, of course, being that Cushion combs through your transaction history and finds not just fees, but interest charges – and will actually negotiate with your bank to get them refunded to you!

Sound too good to be true? I thought so, so I did a little digging. In setting out to understand how Cushion works, my primary questions were a) how exactly does this artificial intelligence “negotiate” with financial institutions, and b) how did it make any money doing so on your behalf? The answer to the first questions is extremely straight forward: large financial institutions have e-mail, SMS, and online messaging services that allow you to chat with a customer service representative. Cushion connects with them, with your permission, on your behalf, and negotiates with them for you. A.I. had me fooled once – it can surely fool an unwitting customer service representative at a bank.

To make money, Cushion charges a hefty 25% of any overdraft fees or interest charges it manages to get credited to your account. I’m not sure of the exact mechanism the company utilizes to get paid, but I can tell you that because of my banking history, I knew this had to be an extremely profitable venture. Some research proved just how right I was: the most profitable banks in the United States collected $11.16 billion in non-sufficient funds (NSF) revenue in 2015, according to Pew research. Just imagine: if Cushion could capture just 5% market share, it would net nearly $140 million in revenue.

Is it worth a shot? That depends. Are you the type of person who pays a lot in interest charges, but manages to pay down your credit card balance to zero every 3-6 months? If you’re carrying a balance right now, you’ll have to first reduce your balance to less than 10% of your total credit, or Cushion will deliver you some bad news – financial institutions won’t negotiate with you unless you do. The other way you can save money is if you happen to pay a good deal in overdraft fees. If you don’t have time, or have exhausted all options talking to a branch manager, then what do you have to lose? 75% of the fees you already paid is better than 0% of them.

Bottom line: Cushion is simple, user-friendly, and easy to use. The downside is that because it’s so new, it only works with a handful of financial institutions (actually four, as of this writing). Still, it’s amazing to see how far A.I. has come over the past 15 years, and it’s incredible to see the innovative solutions it’s providing to consumers. Who knows where it will take us next.

You can check out cushion yourself here.

About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.


Time Can Be Your Enemy or Your Friend

Like in a sand timer, a few small things add up to something big if enough time has passed. This is a great metaphor for compounding interest.
Image source: www.videoblocks.com

In the 1973 classic Time, Pink Floyd member David Gilmour eloquently states how time can slip away, working against us if we aren’t careful:

You are young and life is long and there is time to kill today

And then one day you find ten years have got behind you

No one told you when to run, you missed the starting gun

These lyrics sum up an interesting point about life and how we move through it. As humans, we tend to focus on the immediate, and find thinking too far ahead difficult. The consequences of this are that by the time we get into a “distant” future, we take look around and have no idea how we got there. My hope is that after reading this article, you may feel empowered to not end up ten years older, trying to get your bearings and feeling broke, but rather happy that you took the time to be a diligent saver.

Three Lives, Three Different Choices

Let’s imagine three friends – Chris, Susan and Bill – graduate from college. They each enter into their respective career fields, fully employed. Their incomes are the same. Their decisions are drastically different.

Out of the three of them, two (Chris and Susan) begin saving right away.

Susan saves money for ten years, and then stops – perhaps she gets married, has kids, and her spouse is the sole bread winner.

Chris saves the same amount, but instead of stopping ten years from now, he continues to save all the way to age 65.

Bill doesn’t worry about saving. He decides that he needs to focus on paying down student loan debt. He uses this as an excuse not to keep a budget. Because he doesn’t budget, he unwittingly spends lots of money on drinks, shopping, and new furniture.

All three of them:

– Save $5,000 annually

– Earn the same rate of return

– Retire at age 65

Who comes out ahead?

The Results

Susan saves $50,000 over her lifetime. Bill saves $150,000 over his lifetime – and he didn’t begin until 10 years after Susan – when he realized that he needed to spend less money on partying. What does this mean for their retirement? Astonishingly, Susan will have over $60,000 more than Bill, who saved three times as much.

Now consider Chris, who started saving right away, and didn’t stop until he retired. By saving $50,000 more than his college friend over the course of his career, he ended up with over $1 million – nearly double both of his classmates.

Of course, this is all just a thought experiment – in real life, each of the three would like have different incomes, different amounts of debt, and different life circumstances. Nevertheless – the choices they made rippled through the years until washing ashore in retirement.

Compounding interest rewards those who begin saving and investing early, as illustrated in this chart from JP Morgan.
Image source: www.jpmorgan.com

The Bottom Line

Time moves quickly, and it’s easy to let it move you forward without being aware of what you’re leaving behind. If you aren’t saving, start now. If you’ve been considering putting away a little more, start now. Review your savings strategy on a regular basis – the difference could be hundreds of thousands at retirement, when you need it most.

What do you think? How have you overcome financial challenges to continue saving? Comment below!

Four 529 Plan Myths Debunked

Source: theharvardshop.com

In a previous post, we talked 529 plan basics. An important college planning tool, more than  5.3 million U.S. households are using 529 plans to save for college. However, many parents and grandparents remain hesitant to use them, uncertain if the intended beneficiary will even end up going to college at all.

What happens to the money in those circumstances? Is there a penalty, and if so, how much is it? We address these concerns and more in this week’s edition of our finance blog.

Myth #1: If they’re not used for their intended purpose, the full balance in the plan will be subject to a penalty.

2018 tax legislation has expanded the use of 529 plans to cover private elementary and secondary education expenses. But even before this legislative change, the 10% tax penalty only ever applied to the growth in the plan, not the contributions. Since all contributions are made with after-tax dollars, the IRS does not penalize you on your out of pocket investment. What’s more, the only income tax you will possibly be subject to will be on the growth as well.

Myth #2: If the beneficiary doesn’t go to college, the money will be taxed and penalized no matter what.

Definitely a myth! Did you know that you can change the beneficiary on 529 plans? If you didn’t, you do now – and it doesn’t have to be to someone that is of traditional “college age.” Though many parents would find it useful to use unused 529 plan balances for a different college-bound child, the fact is that the beneficiary can be any qualifying family member – including the parent of the child. Which leads us to our next section….

Myth #3: They have to be used by a certain age.

One of the most common misconceptions about 529 plans is that they need to be used by a certain age. The fact is, there is no age restriction on 529 plans at all. Unlike their counterpart, the Coverdell ESA, 529 plans can sit dormant without restriction for any amount of time, and still be used tax-free for college down the road.

Myth #4: I’ll lose money if my child gets a scholarship.

Not so! While the 529 plan balance may be subject to income taxes (but only on the growth!) in this circumstance, you don’t have to worry about losing your entire balance just because your child qualified for a scholarship. In fact, this is one of the few circumstances that allows plan owners to avoid paying a 10% penalty on growth.

The Bottom Line

There aren’t nearly as many restrictions and tax penalties as many people think when it comes to 529 plans. As college tuition continues to rise, it’s more important than ever to get a head start on saving. 529 plans aren’t the only solution, but for many, they’re a great place to start.

We can help you make the right college savings choice! Drop us an e-mail and ask about a complimentary phone consultation.




About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.

Financial Planning Basics: Permanent Life Insurance 101

Nothing lasts forever, but what if you could own something that at least lasted for a lifetime?

Last weekwe covered term life insurance, and discussed the difference between your coverage through work and owning your own individual policy. We mentioned that it’s important to consider buying a term policy from a company with a good mix of life insurance products, and that offers you the option to convert your policy to a permanent one. This week, we’re going to pick up where we left off, and discuss the different types of permanent insurance and its upsides and downsides.

The Permanent Insurance Universe

There are four major types of permanent life insurance: whole life insurance, guaranteed universal life insurance, indexed universal life insurance, and variable universal life insurance. While not exhaustive, this is the list of permanent insurance products that impact most of our clients, so it’s what we’re going to focus on.

Whole Life Insurance

Whole Life Insurance is the original permanent life insurance – well, actually, it’s the original life insurance, period. Designed to provide a death benefit that will last forever, whole life insurance builds cash value over a lifetime, can pay eventually pay for itself, and even help cover the costs of long-term care.

Choose Whole Life Insurance if you want:

  • Life Insurance you never have to worry about getting again
  • Automated (and effectively mandatory) savings
  • Supplemental retirement income
  • An alternative source of cash you can use throughout your life without being penalized
  • To avoid the risks that come with investing in the market

How it works:

  • Sometimes referred to as “the Cadillac” of life insurance policies due to its features
  • Builds cash value that can be used throughout your lifetime, or in retirement
  • A “non-correlated” asset, meaning the performance insider is not linked to the stock market
  • Can often pay for itself after enough cash has been accumulated
  • Can provide tax-free income in retirement

Universal Life Insurance

What exactly does the “universal” in Universal Life Insurance mean? To be honest with you I have no idea. But I can tell you universal life policies have been around since the early 1980’s, and have changed a lot since then – for the benefit of the policyholder.

When they were introduced, interest rates – and inflation – were at all time highs. Major insurance carriers took advantage of this by creating a new product: one that was similar to whole life in that it built cash values, but different in that its interest rates were variable and paid no dividends.

The results? Catastrophe. Policies collapsed once interest rates fell from double digits. Agents and insurance companies did not project the historically low interest environment of the late 2000’s. Thus, the cash value couldn’t even keep up with internal costs, causing policies to collapse.

Today’s Universal Life policies really share nothing more than a name with their predecessors. Rather than being dependent on interest rates, new policies function with performance linked elsewhere. There are three major types of of Universal Life policies used today:

Guaranteed Universal Life Insurance (“GUL”)

  • Resembles term insurance in that it doesn’t build cash value
  • Resembles whole life insurance in that it is often guaranteed until your mid-90’s or beyond
  • Great for individuals 55+ with a permanent need for coverage, but who don’t want to pay the much higher cost of whole life insurance
  • “No-lapse” guarantee – the policy will last forever as long as you pay your premiums on time

Indexed Universal Life Insurance (“IUL”)

Choose Indexed Universal Life Insurance if you want:

  • Life Insurance you never have to worry about getting again
  • Automated (and effectively mandatory) savings
  • Supplemental retirement income
  • An alternative source of cash you can use throughout your life without being penalized
  • More opportunity for cash value growth than you’d get in whole life insurance

Variable Universal Life Insurance (“VUL”)

You might consider variable universal life insurance if you want:

  • Life Insurance you never have to worry about getting again
  • Premium flexibility – you want to be able to use policy cash values to pay for the premiums
  • Supplemental retirement income
  • An alternative source of cash you can use throughout your life without being penalized
  • The maximum opportunity for cash value growth in a tax-favored vehicle

Criticism of Permanent Life Insurance

You won’t hear many financial pundits say favorable things about permanent life insurance. The common criticisms are that it’s expensive, and the cash value build up – at least inside of whole life insurance – would perform better if invested elsewhere, specifically a stock market index like the S&P 500.

Here’s my response to that criticism: first, financial security is expensive. The powerful things whole life can do for you that term cannot more than warrant the premium. Second, who was it that decided to compare whole life insurance to the stock market – or even call it an investment- in the first place?

“Buy term and invest the difference” makes a lot of assumptions (and it’s wrong to make assumptions in financial planning!) First, it assumes that anyone who wants whole life insurance would also be comfortable being 100% in stocks. As you can see from the chart above, whole life offers lower growth potential, but it offers more guarantees. Second, if you have permanent life insurance, you have to pay for it, or you’ll either lapse your policy or have to reduce your death benefit. What’s at stake if I decide to turn off that automatic investment plan? Whole life insurance encourages one of the most important financial behaviors anyone can possess – disciplined saving.

Finally, the idea that one needs to either select term insurance or whole life insurance is a false dichotomy. Few individuals will be able to cover their entire insurance need with whole life insurance, because it would be cost prohibitive. However, there’s nothing wrong with having a foundation a permanent insurance – perhaps that’s guaranteed to be paid-up at retirement – so that when your term insurance is gone, you’re not left unprotected.

Why Someone Might Need Permanent Insurance Later

It’s common for people to think that beginning in retirement and beyond, life insurance isn’t necessary. Their rationale is that once they’ve retired, they’ll have accumulated wealth and have guaranteed income sources, and that they no longer have children who depend on their income. However, it’s important to understand that while the scope of your needs might change in retirement, the need isn’t altogether gone.

Many people aren’t aware that if both they and their spouse are collecting social security, the smaller of the two benefits disappears at the first death. This might not be a big deal if the smaller benefit is a negligible amount, but what if it makes up half of a retiree’s income? Though less common, pensions have the same problem – the benefit is often reduced or even eliminated upon the first death. What will you have to sacrifice to live on that kind of reduced income?

If you’d thought about whole life insurance 30 years ago, you’d be relieved. Unfortunately, many people haven’t, which puts them in the unenviable situation of applying for insurance later in life, which dramatically increases the cost.

It’s also important to remember that life insurance death benefits are almost always tax free. For those in states that have inheritance taxes (including Pennsylvania), this suddenly makes permanent life insurance much more attractive, especially after you consider income taxes beneficiaries will have to pay on inherited retirement accounts, court costs, and the time-consuming and expensive probate process.

The Bottom Line

Permanent life insurance has a place in everyone’s financial picture. The key to financial success is to think big and start with a small action. Getting permanent insurance into place, or reviewing what you already have, could be that first step.

About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.