Survivors Don't Care About Too Much Life Insurance | Series 1.3 - Enjoy More 30s: Family Finance

Episode 3

Survivors Don't Care About Too Much Life Insurance | Series 1.3

Published on: 1st February, 2021

Young Families Are Often Underinsured, Are You?

  • Future income potential (01:27)
  • Having conversations: know what you're solving for (03:55)
  • Living worry-free (05:57)

Quote for the episode: "If your family basically has too much life insurance from you- not a problem. If your family does not have enough life insurance- very, very large problem."

Securities offered through TFS Securities, Inc., Advisory Services through TFS Advisory Services, a SEC Registered Investment Advisor Member FINRA / SIPC.  TFS Securities, Inc. located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Transcript
Voiceover Audio:

Welcome to the Enjoy More 30s: Family Finance

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podcast, the only podcast dedicated to making life more

Voiceover Audio:

enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out and distract our focus

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from simply enjoying life.

Joseph Okaly:

Hello, and welcome to the Enjoy More 30s: Family

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Finance podcast. Today is the third episode in the "Your Money

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Mindset" initial series and it's titled "Survivors Don't Complain

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About Too Much Life Insurance". So in this episode, we're going

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to cover what you need to know about having enough life

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insurance to protect your family, and what you can do to

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actually achieve it. We've all been to the movie theater

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before, I know everybody out there has been to at least one.

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And when you go to buy your popcorn, you almost have to buy

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that giant, enormous bucket that you can refill a million times.

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You know that after you finish eating all of it, you're going

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to feel sick and nauseous and terrible, but at the end of the

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day, you can save like $1. If you get the smaller one, you get

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a bag that's 50% smaller and no refills, so why not pay a little

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extra and get so much more.

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So what you need to know is that life insurance, when you're

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young and healthy, is much the same way- a little bit more can

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really, really go a long way. This tends to be ironic because

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the vast majority of young families we come in contact with

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are exceedingly underinsured. The reason is most families are

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not aware of what their biggest asset by far is. And that's your

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future income potential- you have the next 20-30 years or

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maybe more, depending on when you're listening, of income and

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all the raises that come with it as you progress through your

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career. Let's say that you're making $100,000 right now. Over

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just the next 20 years, assuming no raises ever during that whole

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period, you already have $2 million in future income

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potential coming to you. Now, if you add on raises, if you add on

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10 more years, it could be $3-$4 million or even more. Now, I'm

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young, and I obviously don't plan on dying anytime soon, God

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willing. So it's an easy thing to simply ignore, despite it

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being our biggest asset. Who really wants to think about

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dying, right? The problem is that because we have families, a

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lack of insurance could be catastrophic, and I'm not

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overestimating that. I don't want my wife to have to sell our

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home. I don't want her to have to work more and see her kids

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less, in a scenario where I'm not here, when they probably

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need her the most. I still want her to be able to send our kids

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to college, still want her to retire, still hit all the goals

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we have together, even if I'm not here.

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And that brings us to the title of the episode, "Survivors Don't

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Complain About Too Much Life Insurance". If they don't have

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enough, though, that's a whole different story. So the

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difference between, say a $1.5 to a $2 million dollar policy

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for a preferred plus- so top-health kind of individual

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for 30 years, that's a 30 year old person- might be an

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additional $25-$50 a month to go from that $1.5 million to the $2

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million policy. Depends on the carrier, the situation, what

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state you live in, but as a rough estimate, if you're in

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really good health as a 30 year old, it could be somewhere in

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that $25 to $50 a month additional range to get that

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extra $500,000 of coverage. Now I'm willing to bet you're not

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going to notice an extra $25 a month. If I look at your credit

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card statement, I'm sure it varies month by month more than

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$25. But I guarantee you your family's going to notice an

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extra $500,000 if you're no longer here. If your family

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basically has too much life insurance from you- not a

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problem. If your family does not have enough life insurance-

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very, very large problem. So what can you do?

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The first step, like for a lot of these, is having a

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conversation with your spouse. What would you want to have

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happen if either of you passed? Stay in your home, move closer

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to other relatives? First you need to really know what you're

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solving for. You have some people that say, "Hey, I want to

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move in with my parents if that were to happen." Great. Now we

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know the situation that we're solving for and we want to make

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sure that we're protected against enough for that. For the

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primary caregiver, this should also include childcare. A

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caregiver spouse may not earn any salary, but they are saving

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$20 to $25,000 a year. I mean, if you're in New Jersey, you're

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certainly saving $25,000 a year, which should be accounted for.

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So for example, $25,000 a year for 18 years- say someone just

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had a child today- that comes out to around $450,000 to cover

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the entirety of that person's childcare if something, God

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forbid, were to happen to the caregiver spouse today. So a 20

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year term policy, $450,000, that could easily cover the caregiver

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spouse.

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For an income earning spouse, you may need to take a look at

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what you're actually living on. Life Insurance comes to tax

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free; that's one of the great things about life insurance. So

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if you're living right now for your expenses- so you added up

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all your gas, mortgage, all that- and came out to $5,000 a

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month. And then you looked at what you're saving, and that's

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$1,000 a month, let's say. First step is pretty easy. I'm living

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on five, I'm saving one, five plus one equals six. So pretty

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easy so far. So you need roughly $6,000 a month to replicate. If

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both spouses are working, you can back out their net income

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from that equation, but with no other income to consider, this

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family in this example, is needing around $72,000 a year.

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So over 20 years, this might be around one and a half million

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dollars of coverage. This type of policy generally should take

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you out to retirement. So if you're 30 years old, or 30 years

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out, then a 30 year term provides you with the majority

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of your insurance you'd likely need, and you're done with

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having to have this weigh on your mind. I have the

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conversations already in the past with my wife, where we went

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over the scenarios, we obtained the coverage that we needed to

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protect against those scenarios, and now I don't have to worry

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about it anymore. I never worry about "if something were to

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happen to me, would my family be taken care of financially? Or if

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something happened to my wife, would I be able to afford the

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childcare that I would need and want from my kids?" I don't have

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to worry about that. And it's a question that you don't have to

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worry about either, if you follow through with these steps.

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The last part of this whole situation that is also important

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to take into account is unless you plan on never leaving your

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employer, and your employer can essentially not fire you ever-

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think kind of like a tenure teacher kind of thing- you

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should likely not rely on your work insurance as part of your

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total. Work insurance may not be something that you can take with

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you many times, or if you can, you need to generally convert it

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into what would be a very expensive permanent type policy

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in most scenarios. So basically, if you rely on work insurance,

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and then you have to leave your firm, and your health is no

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longer good, you can find yourself in a bad situation.

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no insurance- not a good choice. Or

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converting the work insurance policy to a permanent type of

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insurance- which would be extremely expensive, and who

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knows if you'd be able to afford that or not, or even if the

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coverage amount would be what you wanted it to be or needed to

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be. Essentially it would be outside of your control. If you

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get life insurance on your own, that policy is within your

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control forever, as long as you pay your premiums, doesn't

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matter what your employment is or anything else.

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As a young family, you want to just basically buy the bigger

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popcorn bucket when it comes to life insurance. The great part

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is once it's done, you have the majority of your income needs

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locked in now long term. And that 'what if' question again

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about your family is covered. Now if you start making a lot

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more, your expenses come up, you can always add on that

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additional policy if you need to, or even build in a little

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bit of a buffer now. But the majority of your insurance needs

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should be handled and covered after this. There should be no

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vast underinsured person after going through this exercise if

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it's done properly.

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So main points to remember after today's episode. First thing,

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just buy that bigger popcorn bucket- look at it that way-

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it's a little bit more, it's not going to really affect your

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lifestyle and you get a lot of bang for your buck, especially

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when you're young and healthy. Second thing is having that

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conversation. What are you trying to cover for, what are

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you trying to protect for, and make sure that everything is

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lining up for what you're trying to accomplish between you and

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your spouse. Thanks very much for tuning in today. As always,

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if you enjoyed this episode, please make sure to review us on

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Apple podcasts or wherever you listen. There are literally

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millions of young American families out there I'm trying to

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reach and help just like you. Check back in soon for our next

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episode, "You May Already Be a Future Millionaire". Thanks very

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much as always, and I'll talk to you again soon.

Voiceover Audio:

The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS securities Inc and TFS advisory services and SEC

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registered investment advisor member FINRA/SIPC.

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About the Podcast

Enjoy More 30s: Family Finance
Family Finance for Young Professionals.
Young families receive little to no personal finance help. We all grow up to have jobs and money, yet our education system focuses on Shakespeare and Algebra. Even professional advice can be hard to come by, with the majority of the industry chasing retirees and existing wealth.

Joe Okaly's podcast is aiming to change this, providing personal financial advice geared specifically to professionals with young families. This podcast is dedicated to making life more enjoyable for young families, by hitting on the financial topics that tend to weigh on us, stress us out, and distract our focus from simply enjoying life.

Joseph P Okaly is a CFP Certified Financial Advisor who fits directly in with who this podcast is focused on - a young professional with a family. With over a decade of experience as an advisor, there is passion and knowledge to make a difference.

Securities offered through TFS Securities, Inc., Advisory Services through TFS Advisory Services, a SEC Registered Investment Advisor Member FINRA / SIPC. TFS Securities, Inc. located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.