If you’re preparing for retirement, you are likely familiar with the broad range of tools that can be used to accumulate assets, manage income and provide a sound financial foundation. From IRAs to 401(k) plans to long-term care insurance and more, there are many financial strategies at your fingertips.
Annuities are one tool used by retirees and those approaching retirement. While annuities offer a number of specific benefits, they are often viewed with skepticism. They may seem confusing or overly complex. You may feel they pose risks or that they may not fit your situation.
If you’re like many Americans, a large portion of your retirement savings may be held in qualified accounts such as 401(k) plans, IRAs or other tax-deferred vehicles. These accounts are popular because they allow you to accumulate assets without paying taxes on the growth. In most cases, you avoid taxes until you take distributions. In the case of a Roth IRA, you may never pay taxes on your growth or distributions.
Of course, the trade-off of this tax-favored treatment is that you must wait until age 59½ before you can take distributions from a qualified plan. If you take distributions prior to age 59½, you may face a 10 percent early distribution penalty.
Do you have a goal to leave a sizable legacy to your children, grandchildren and other loved ones? Maybe you want to leave an inheritance that your grandchildren could use to pay for college. Or perhaps you want to leave a nest egg for your children to use to fund their retirement. Whatever your specific objectives, it’s natural to want to help those who are closest to you.
However, you may have found that funding retirement is a bit of a challenge. Perhaps you’ve relied on debt to fund living expenses or pay for things like medical bills. Maybe you’ve used credit cards or even refinanced your home. Or it’s possible you might have co-signed loans for your children or other family members.
Risk management is the foundation of any solid financial plan. It takes only one sizable risk to threaten your ability to reach your long-term goals. You probably have strategies in place to protect you from a wide range of risks such as medical issues, accidents, home damage and even death.
There may be one risk, though, for which you haven’t prepared. It’s the risk of disability. Many people associate disability with injuries caused in accidents. It’s true that some disabilities are caused by workplace injuries or other accident-related issues. However, the truth is that many different issues, including chronic ailments, serious diseases and much more, can cause disability.
Are you planning to work past traditional retirement age so you can shore up your savings? That could be an effective strategy. Working later in life gives you a few more years to save money, and it also may let you delay Social Security, which can increase your benefit amount.
Many workers have a similar strategy in mind. According to a study from Transamerica, two-thirds of baby boomers are planning to work past age 65. In fact, 15 percent of baby boomers say they will never retire. Why the strong desire to work past traditional retirement age? Most say they will work late into life because of financial reasons. They believe that working longer will help them overcome their retirement savings gap.1
What is your attitude towards financial planning? Do you look at it from a comprehensive perspective, analyzing all your financial goals and developing a strategy to achieve all your objectives? Or do you plan for specific goals and needs as they arise? Or, perhaps, do you not do any planning at all?
The Certified Financial Planner Board of Standards published a study about Americans’ attitudes towards financial planning. It found that most Americans fall into one of four distinct groups: Comprehensive Planners, Basic Planners, Limited Planners and Non-Planners.1
Maybe the subtitle for this post should be Tiny Bubbles, Temper Tantrums and 3 Ways to Go North or South with Your Portfolio as 2017 unfolds but let me more blunt and to the point. The Bible tells us:
"Ecclesiastes 5:10 tells us Whoever loves money never has enough;
whoever loves wealth is never satisfied with their income.
This too is meaningless."
Way before the Longest Bull Market in History started in the late 1980s there stood a confident Humpty Dumpty Bull Market that started with the ascension of the Reagan Revolution. This Bull Market in the early 1980s began with the confidence that President Reagan initiated through overturning cumbersome business regulations, crushing staggering inflation and reducing the tax burden on all Americans. Retirees were even able to pad their portfolio with : AAA tax free and tax deferred savings & investments vehicles producing double-digit returns with liquidity. Many survivors of the sideways 1960s-1970s market that went nowhere recalled the big Don Ho hit of the times which helped them forget the civic and social unrest of the decade that saw the stock market stagnate from Dow 1000 in 1966 to the same level in 1982 16 years later.
Economic forecasting is like trying to drive a car blindfolded and following directions given by a person who is looking out of the back window. It seems rather curious, however, that the last two Federal Reserve Governors, Ben Bernanke and Janet Yellen, along with ardent annuity adversary, Senator Elizabeth Warren, would all own annuities as part of their own investment portfolios. Warren’s first crusade, as head of the newly- created Consumer Finance Protection Bureau’s, was to lambast the sales practices of over 15 annuity companies and brokerage general agencies, sometimes known as Independent Marketing Organizations(IMOs) that market a fast- growing product called a fixed index annuity(FIA) and its sister product fixed index universal life(FIUL). Last year, middle class- Americans bought over $250 billion of annuities. As the self -ordained crusader for the middle class, despite a net worth, according to disclosures of over $15 million, Warren has quoted a plethora of sales incentives that drive the $250 billion annuity market such as exotic trips and stock options. Can the financial crusader be both for retirement income annuities as a solution for middle class retirement and be against them? It's kind of like saying your part Cherokee indian and later saying you are not. My friend's wife is part Cherokee Indian and fair as a white sheet but she is fair in not taking advantage of the 5% of her DNA that is indian. Come on Miss Warren.
After visiting with my CPA the other day, I realized exactly what he means now by a red flag: That’s the amount many of us have left in our bank account after paying taxes. Here in Marietta, Georgia, according to the Tax Foundation, “Tax Freedom Day” comes after settling up with the Federal and State governments in early May for this calendar year. For purposes of this blog, I will not discuss the controversial proposal to cap mortgage and charitable interest deductions as it will most likely affect tax payers at the top brackets the most. Let’s touch, however, on the topic of stretch or inherited IRA’s for a minute which can be vital tools for preserving a legacy, increasing beneficiary income and reducing taxes in a retirement plan.
After a record-setting run to glory approaching a pinnacle for the most consecutive days of market gains that date back to 1898, just two years after the founding of the Dow Jones Industrials, it appears the stock market is on terra firma. It’s true there is little more firma and there’s lot less terror than last Summer. On March 9, the bull market for the S&P 500 reached 8 years in length surpassed only by the big run from 1987 until 2000, according to BTN Research. Since then we have stalled and are stuck as a result of one of 28 stock markets risks: Political Uncertainty. This time the culprit is the failure to replace and repeal the ACA and upcoming tax reform legislation.Stock market volatility and the potential for a significant correction, as measured by the number of days with 1% gains or losses, remains near all-time lows but is increasing significantly after the March 24 collapse of Health care reform.
Here at MasterPlan Retirement Consultants, we strive to keep you up-to-date with informative articles. Read on for more details of the latest and greatest news.