Money Saving

Government regulations dictate senior’s retirement income plans.  The question; Is this government “retirement plan” the best option?

If they have a traditional IRA, 401(k) and/or any other qualified retirement plan they must take Required Minimum Distributions (RMD) upon reaching age 70- 1/2.  If they do not take RMD as required the penalty is a harsh 50%.  Most seniors follow the RMD plan so it must be the optimal way to receive retirement income… Right?

The new reality is nothing could be further from the truth.  Expected longevity continues to increase well past the I.R.S. life tables used to calculate RMD withdrawals.  This could  set up a dangerous financial situation later in life.

The alternative solution and one most seniors have not considered  is a Life Income Annuity.  Rollovers from IRAs and 401(k)s are easy and there are no taxes due or 10% penalty even if income is started before age 59.

Advantages of Life Income Annuities are significant and perform better than RMD plans:

1. After enduring a decade of sub economic performance, low interest rates,  disappearing pensions and a decreasing Social Security trust fund seniors need protection from steep market swings. Income annuities eliminate market risk by providing a steady monthly pay check.
2. Saves the golden decade of retirement; the 10 years from age 70 – 80.  RMDs are scheduled to be lower during this time and increase later.  The lifetime annuity has on average a 60% higher payout  during the golden decade and guarantees these payments for life with any remaining principal paid to beneficiaries.
3. Prevents the RMD crash.   A typical life income annuity starts payments at age 70 about 60% higher than RMD withdrawals.  It is true RMDs increase with age but assuming a 3% growth rate at their peak they  will provide an income 15% lower than the annuity.  After the RMD’s peak withdrawal years the  annual income begins decreasing until the money runs out.

Lifetime annuities take the RMD drop off  and longevity risk away while offering a higher payout.

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

Smart retirement planning has become all about the income, as in how much and for how long.  Last year the Journal of Financial Planning conducted extensive research into retirement portfolio withdrawal rates. They concluded the traditional 4% rule was too risky because it leaves a retiree with an 18% chance of portfolio failure; that’s about a one in five failure rate.

Portfolio failure is another way saying “sorry your money is all gone”.  Very bad news to someone in their 70’s potentially looking at many more years of life by surviving only on Social Security each month.

What is the problem with money in a 401 (k)?

It must be withdrawn and a safe withdrawal rate must be determined.

What is the new safe withdrawal rate?

• 2.52% According to the Journal of Financial Planning.

Retirement income  money that is invested in equities; stock market, mutual funds, ETF, variable annuity etc. has an 18% chance of failure if the retiree withdraws more than 2.52% per year.

What is the solution?

With interest rates hovering around 1% certainly not bonds or certificates of deposit.

That leaves fixed annuities because they can insure a retirement income for life.  But their rates are also low and the income is sometimes level with no chance of increase.

Enter the time tested fixed index annuity with income options.  An indexed annuity can offer a guaranteed withdrawal percentage increase, meaning each year you own an indexed annuity the percentage you can withdraw goes up; some as high as 7%.

Let’s compare the recommended 2.52% equity withdrawal and 7% index annuity withdrawal using a nice round figure like $100,000.

2.52% of $100,000  provides a safe income of $2520 per year.

Whereas the annuity’s 7% withdrawal is $7000 per year guaranteed for life  and this $7000 could go up each year if there is an index interest credit and once it goes up, it is guaranteed to stay up.

3 choices are:

• Unsafe withdrawal using the antiquated 4% rule and risk running out of money 1 out of 5 times. ($4000 per year)
• The new “safe” 2.52% rule ($2520 per year)
• The insured, guaranteed 7% index annuity ($7000 per year)

Which choice do you prefer?

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

The Roth IRA may be one of the most under used retirement income strategies.  Due to the deductibility of other retirement saving plans like Traditional IRAs and the 401(k); Roth IRAs are usually just an afterthought. After all who does not want to pay as little income tax as possible?  It seems a very simple rational decision. Initially a Roth has no effect on the amount of income tax due because the taxpayer receives no immediate tax deduction.   

Today one of the most relevant retirement/tax planning question is –

Do you think tax rates are headed down, stay the same or will they go up in the future? 

Clearly if you feel tax rates are going rise at some point then the decision is to pay a smaller tax now or a bigger tax on a larger sum later.  A Roth IRA is worth serious consideration, especially if you consider an enhancement by utilizing available lifetime income options.  

The new generations of annuities offered today either have income options built in or offer the option to purchase a guaranteed lifetime income rider. Using either of these options the annuity owner has the ability to start lifetime income at a specified age. 

If retirement planning is being done correctly income points are identified.  These are points in time when a retiree needs to start an income stream.  

To help understand the magnitude of the enhanced Roth advantage let’s use a simple example.  A future retiree is currently 49, they start contributing to a Roth annuity with lifetime income available as early as age 59 ½. The Roth’s income benefit base has grown to $100,000 with an annual tax free lifetime payout of 5% available ($5,000).  Whether or not they actually plan to retire at this early date they should start the lifetime income payout.  Why?  Because the income is for life, the earlier it is started the greater chance they will live long enough to get into company money.  In other words they would receive all of their money, interest earned and then they receive company money for as long as they live.  If cost of living increases are built onto our $5,000 yearly income example so much the better.   

Besides, even if still working, who wouldn’t appreciate some additional tax free income every year after age 59 ½?

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Throughout history many of the greatest discoveries and inventions happened by accident, someone trying to solve an unrelated problem.

Imagine if we had a battery in all of our devices that charged in seconds rather than hours or days. Well actually its a capacitor not a battery but I’ll let the video explain the difference.

Think of the freedom you’d have to travel and explore if a car powered by a capacitor could be charged back up within a couple minutes.

If this graphene capacitor can be developed for a broad spectrum of applications we are looking at a real lifestyle changer.

Outliving one’s assets is a major concern for today’s retirees. One common approach to address this concern has been the “4% rule,” which is a generally accepted rule of thumb in financial planning for retirement income. It says to withdraw no more than 4% of an asset in retirement annually, and then increase the withdrawn amount by 3% each year to help offset the effects of inflation. Many believe the 4% rule provides a strong likelihood for retirement assets to last 30 or more years.

One problem with the 4% rule is that it does NOT GUARANTEE you won’t run out of money. In fact, with today’s historic market volatility and longer life expectancies, it’s predicted that up to 18 out of 100 people WILL RUN OUT OF MONEY in retirement using the 4% rule.

What if there was a different strategy that could provide the same amount of retirement income as the 4% rule and might even require fewer assets to do so? Additionally, this strategy would protect your income from market loss and GUARANTEE that income would last throughout your lifetime.

This strategy exists today and can be implemented using a fixed index annuity with a guaranteed lifetime income benefit or a secure lifetime retirement income annuity.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

What to do with your money in an employer-sponsored retirement plan, such as a 401(k) plan. Since these funds were originally intended to help provide financial security during retirement, you need to carefully evaluate which of the following options will best ensure that these assets remain available to contribute to a financially-secure retirement.

Take the Funds: You can withdraw the funds in a lump sum and do what you please with them. This is, however, rarely a good idea unless you need the funds for an emergency.

Consider:
•A mandatory 20% federal income tax withholding will be subtracted from the lump sum you receive.
•You may have to pay additional federal (and possibly state) income tax on the lump sum distribution, depending on your tax bracket (and the distribution may put you in a higher bracket).
•Unless one of the exceptions is met, you may also have to pay a 10% premature distribution tax in addition to regular income tax.
•The funds will no longer benefit from the tax-deferred growth of a qualified retirement plan.

Leave the Funds:

You can leave the funds in your previous employer’s retirement plan, where they will continue to grow on a tax-deferred basis. If you’re satisfied with the investment performance/options available, this may be a good alternative. Leaving the funds temporarily while you explore the various options open to you may also be a good alternative. (Note: If your vested balance in the retirement plan is $5,000 or less, you may be required to take a lump-sum distribution.)

Roll the Funds Over:

You can take the funds from the plan and roll them over, either to your new employer’s retirement plan (assuming the plan accepts rollovers) or to a traditional IRA, where you have more control over investment decisions. This approach offers the advantages of preserving the funds for use in retirement, while enabling them to continue to grow on a tax-deferred basis.

Why Taking a Lump-Sum Distribution May Be a Bad Idea:

While a lump-sum distribution can be tempting, it can also cost you thousands of dollars in taxes, penalties and lost growth opportunities…money that will not be available for future use in retirement.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

There are a number of obstacles that you may face in planning for your retirement:

Longer Life Expectancies

• Longer life expectancies increase the risk of retirees outliving at least a portion of their retirement income. Those reaching age 100 are fastest growing population segment in the United States.

Discipline to Save

• Many people find it difficult to form the habit of “paying themselves first,” by making regular deposits to a savings plan.

Saving to Spend

• Money is saved for retirement purposes, but then is spent to make purchases.

Income Taxes

• Income taxes can erode the growth of your retirement savings and as I write this we do not know what the 2013 tax rates will be.

Inflation

• Longer life expectancies also increase the risk of inflation eroding the purchasing power of retirement income. For example, if inflation increases at 3.5% a year, it would require over $14,000 in 10 years in order to maintain the original purchasing power of $10,000.

Since Social Security and your company pension plan probably will not provide the income you need for a financially-secure retirement, how can you overcome the obstacles you face in planning for retirement?

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

The Securities and Exchange Commission (SEC) has issued a new Investor Alert highlighting how to prevent affinity fraud.

According the SEC

“Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud.  The group could be a religious group, such as a particular denomination or church.  It could be an ethnic group or an immigrant community.  It could be a racial minority.  It could be members of a particular workforce – even members of the military have been targets of these frauds.  Fraudsters target any grup they think they can convince to trust them iwth the group member’s hard-earned savings.”

 The SEC indicates, affinity fraud usually involves:

• a phony investment
• promote false information such as historical returns, track records of investors, risk of loss and/ or idenity of the investment promoter.
• many affinity frauds are pyramid schemes.

How do you protect yourself from affinity fraud:

• Even if you know the person make sure you research their background no matter how trustworthy they seem.
• Research the investment on your own.
• Be aware the person explaining the investment to you may have been fooled into believing the investment is legitimate when it is not.
• Never make an investment based solely on a recommendation of a member of the organization.
• Do not buy investments that promise huge  profits.
• Be very wary of any investment that claims there is no risk of loss.  No investment is risk free.
• Become very suspicious if you are told to keep it secret.

Don’t let anyone rush you into buying before you have had time to do your research.  Just because someone else claims to have made money does not mean you to will make money.  Be very leery of any sales pitch claiming the investment is  ”once in a lifetime” or based on “inside information”.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

The “Fiscal Cliff” is the description some economists have used to describe the potential situation at the end of 2012 when several U.S. tax and fiscal changes are scheduled to occur.  This “perfect storm” of change includes the expiration of the Bush income tax cuts at the end of 2012, and in January 2013 some new taxes plus scheduled increases in income and estate taxes. Some Federal spending cuts are also scheduled to occur as part of the automatic spending cuts Congress agreed to in the Budget Control Act of 2011. The concerns are that all of these changes could lead to a double-dip recession. In other words a recession followed by a short recovery, then another recession in 2013.
What is involved with the fiscal cliff?

Automatic spending cuts are set to begin in 2013 in the following areas:

•   Defense
•  Non-Defense areas such as education, food inspectors, air travel safety, etc

The Bush tax cuts expire including:

•  Income tax rate increases
•  Capital gains rates increase
•  Qualified dividend rates increase
•  Child tax credit is reduced
•  American Opportunity Tax Credit expires
•  Earned Income Tax Credit changes
•  Marriage penalty relief expires
•  Estate tax exemption decreases
•  Gift tax lifetime exemption decreases
•  Top estate and gift tax rates increase

 Other tax changes include:

•  Increase in the employee payroll tax withholding
•  No Alternative Minimum Tax patch
•  New 3.8% Medicare surtax
•  New .9% Medicare additional withholding

 Miscellaneous changes include:

•  Unemployment benefits extension expire
•  ”Doc Fix” which is a cut in reimbursement rates that physicians receive for treating Medicare patients is implemented.

 This is not intended to be a complete list.

We cannot predict the future or how the President and Congress will act.  However, there are opportunities that are available before any potential changes occur.

Items to consider before 2012 year end:

•  Did a Roth conversion take place?
•  Capital Gains/Dividends:  Discuss the 0-15% rates with your tax advisor
•  Charitable donations: No itemized deduction phase-outs
•  Gifts:  $5.12 lifetime gift tax exemption and $13,000 annual gift tax exclusion
•  Nonqualified annuities: If appropriate for your situation, may provide income-tax deferral of earnings and retirement savings

 Items to consider after 2012 year end:
Get updates on current tax information; estate and gift tax information, see your tax advisor as needed.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

In the 1960s and 70s the nation’s largest keyboard company  Baldwin Piano & Organ Company began expanding into banking and insurance eventually creating a large conglomerate of financial services companies.  In 1977 Baldwin merged with United Corp., an investment company, and became Baldwin-United Corp.

Unfortunately for buyers, these contracts proved to be unsustainable and directly contributed to the bankruptcy of Baldwin-United in 1983.  In fact, the $9 billion in liabilities of Baldwin-United exceeded the combined debt of the four previous largest bankruptcies up to that point. 

In the 1983 the states of Indiana and Arkansas took over the majority of Baldwin-United’s assets and began the long process of rehabilitating the two insurance carriers and distributing assets to policyholders.

According to a recent Wall Street Journal article companies

“betting they can wring more profit from annuity contracts” than traditional insurance companies.

Another article in Bloomberg Business Week states these money managers are

 “betting they can wring more profit from annuity contracts” than traditional insurance companies.

Important questions to ask about insurance companies you are considering doing business with.

• Are they controlled by outside entities that don’t have an insurance background or experience?
• Do they offer products with features and rates that are far above what the competition is offering?

 The lessons from the past should be kept in mind.

Properly managed insurance companies are among the safest places for your retirement dollars even in the example of Baldwin-United the state guaranty associations made the policyholders whole.  This process is time consuming so it wise to research companies you are considering.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

This is a common question.  Many believe there are no income taxes due on Roth withdrawals after reaching that magic age of 59 ½.   However there are conditions on nontaxable withdrawals.  The IRS has rules that define a withdrawal as qualified distributions. Qualified distributions from a Roth IRA are received free of income tax and are not subject to the 10% premature withdrawal penalty tax.

Roth IRA distributions that do not meet the qualified distribution requirements will be included in income to the extent that the distribution represents earnings on Roth IRA contributions and may be subject to a 10% premature withdrawal penalty tax. 

Qualified distributions from a Roth IRA are not included in gross income and are not subject to the additional 10% penalty tax for premature distributions.

To be a tax-free qualified distribution:

• The distribution must occur more than five years after the individual first contributed to the Roth IRA;  and
• The individual must be at least 59-1/2 years old, disabled, deceased or the funds must be used to purchase a first home ($10,000 lifetime limit). 

There is no requirement that distributions from a Roth IRA begin by age 70-1/2.

Unlike regular IRAs, contributions to a Roth IRA can be made after age 70-1/2.

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

Retirement planning has become all about the income, as in how much and for how long.  Last year the Journal of Financial Planning conducted extensive research into retirement portfolio withdrawal rates. They concluded the traditional 4% rule was too risky because it leaves a retiree with an 18% chance of portfolio failure; that’s about a one in five failure rate.   

Portfolio failure is another way saying “sorry your money is all gone”.  Very bad news to someone in their 70’s potentially looking at many more years of life by surviving only on Social Security each month.   

What is the new safe withdrawal rate?

• 2.52% According to the Journal of Financial Planning.

Let’s be clear retirement money that is invested in equities; stock market, mutual funds, ETF, variable annuity etc. has an 18% chance of failure if the retiree withdraws more than 2.52% per year.

What is the solution? 

With interest rates hovering around 1% certainly not bonds or certificates of deposit. 

That leaves fixed annuities because they can insure a retirement income for life.  But their rates are also low and the income is sometimes level with no chance of increase. 

Enter the time tested fixed index annuity with income options.  An indexed annuity can offer a guaranteed withdrawal percentage increase, meaning each year you own an indexed annuity the percentage you can withdraw goes up; some as high as 7%.   

Let’s compare the recommended 2.52% equity withdrawal and 7% index annuity withdrawal using a nice round figure like $100,000.

2.52% of $100,000 in equities is $2520 per year.

Whereas the annuity’s 7% withdrawal is $7000 per year and this $7000 could go up each year if there is an index interest credit and once it goes up, it is guaranteed to stay up. 

The choices are:

• Unsafe withdrawal using the antiquated 4% rule and risk running out of money 1 out of 5 times. ($4000 per year)
• The new “safe” 2.52% rule ($2520 per year)
• The insured, guaranteed 7% index annuity ($7000 per year)

Which would you prefer?

For help you may ask questions in the comments or contact me privately here:

Tim Barton

Chartered Financial Consultant

A SIMPLE IRA plan is an IRA-based retirement plan designed for small businesses. The employer adopts the SIMPLE IRA plan. The employer notifies the employees to open a SIMPLE IRA where they wish. The employee chooses an amount to defer from their paychecks up to $11,500 per year, or $14,000 if the employee is age 50 or older.  Their deferred amount is not counted as income so taxable income is less thus lowering their tax bill.  Distributions from the SIMPLE IRA will be subject to ordinary income tax and may be subject to a federal additional tax if the distribution is made prior to age 59½. 

The employer must choose one of two kinds of contribution:

• A matching contribution of $1 for each $1 the employee contributes up to 3%. For example, suppose employees Jack and Matt each earned $20,000. 3% of compensation for each is $600. Jack puts in the full $11,500, so the employer matches $600. Matt, however, puts in only $500. The employer only has to contribute $500 to Matt’s SIMPLE IRA.
• There is some flexibility to reduce the match to 1%.
• A 2% contribution for every covered employee, whether they contributed or not.
• To provide a reduced match or a 2% non-elective contribution, the employer must provide a timely notice to employees and may have to meet other requirements.
• To calculate the employer contribution, the employer must use the compensation the employee earned during the entire year, even if the plan is not established by January 1.

The employer can deduct its contribution to its employees’ accounts. 

The plan must cover eligible employees even if they are older than age 70½.

If the employer adopts a SIMPLE IRA plan, it is the only retirement plan they can have for the year.

Planning tip:

The SIMPLE IRA plan may be of particular interest for two kinds of business owners:

• An employer with several employees that wants to offer a low-cost retirement plan but wants most of the contributions to come from the employees themselves.
• A person who is self-employed who has low earnings (less than $40,000) but wants to make a relatively high contribution. The SIMPLE IRA plan will allow a higher contribution than a SEP IRA plan, without the cost of a 401(k) plan or defined benefit plan.

Once funds are in a SIMPLE IRA they are subject to SIMPLE IRA rules.

• The employee cannot add other traditional IRA contributions or rollovers from any account other than a SIMPLE IRA.
• The employee can’t roll funds out of the SIMPLE IRA (except to another SIMPLE IRA) for two years.
• Any distribution from a SIMPLE IRA during the first two years of participation is subject to an additional 25% federal tax, unless an exception applies.

In other respects the SIMPLE IRA follows the traditional IRA rules. For example, the owner must begin required minimum distributions (RMDs) by April 1 of the year after age 70½.

You may ask questions in the comments or contact me privately here:

Tim Barton

Chartered Financial Consultant

On August 21 the Wisconsin Department of Financial Institutions (DFI) released a list of the top 10 financial products and practices that threaten to trap unwary investors.  DFI has added 3 new threats this year because they are concerned these practices will be used to exploit new federal laws intended for job creation and economic recovery.

 According to Patricia Struck, Administrator of the Division of Securities:

DFI is particularly concerned about two provisions of the recently passed JOBS Act that could unwittingly open the door to fraud. These include provisions to expand crowdfunding to allow businesses to raise money from investors and to allow the general solicitation and advertising of private placement offers. According to Struck, the top 10 investor threats are:

• Crowdfunding and Internet offers (new)
• Use of self-directed IRAs to mask fraud (new)
• EB-5 investment-for-visa schemes (new)
• Oil and gas drilling programs
• Promissory notes
• Ponzi schemes
• Real estate investment schemes
• Reg D/Rule 506 private offerings
• Affinity fraud
• Gold and precious metals

Full DFI press release

Examples of crowdfunding include sites like www.kickstarter.com used by entrepreneurs to fund their new business ideas and http://power2give.org/ used by nonprofits to fund charitable causes.  It is estimated about $250,000,000 has been raised using these sites and others like them.  There are no government security forms to file meaning small startups and charities do not need to pay high legal fees in order to begin raising money.  Many legitimate concerns use crowdfunding to get started.

DFI fears unscrupulous types will setup shell companies to lure in unwary investors and skip out leaving no paper trail for regulators to follow.  

Self-Directed IRAs may provide respectability to hollow investments.   Some investors mistakenly think if an investment can be used in an IRA then the government has approved this investment.  This of course, is not true.

EB-5 investment-for-visa schemes are methods for investing outside the U.S. 

Investors should always independently verify investment opportunities.  Investors who think they have encountered fraudulent practices should contact DFI at 608-266-1064.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

Some people who receive Social Security benefits will have to pay federal income taxes on their benefits.  With good planning some of the tax can be minimized.  Here is a brief summary of Social Security taxation.

Lump Sum Death Benefit:

• Income tax free

Retirement, Survivor and Disability benefits:

• Income tax free

Unless income exceeds a specified base amount of: 

• $25,000 if you are single or head of household.
• $32,000 if you are married filing jointly.
• $25,000 if you are married filing separately and lived apart from your spouse for all of the year.
• $-0- if you are married filing separately and lived with your spouse at any time during the year.

To find out whether any of your benefits may be taxable, compare the base amount for your filing status with the total of:

• One-half of your Social Security benefits, plus
• All your other income, including tax-exempt interest. If you are married and file a joint return, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Even if your spouse did not receive any benefits, you must add your spouse’s income to yours to figure whether any of your benefits are taxable.

If the total is more than your base amount, part of your benefits may be taxable.

How much is taxable depends on the total amount of your benefits and other income…the higher that total amount, the greater the taxable part of your benefits.

Generally, up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable if either of the following situations applies to you:

1. The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly).
2. You are married filing separately and lived with your spouse at any time during the year.

If part of your retirement income is paid or could be paid using a non-qualified fixed annuity with an exclusion ratio you might be able reduce your income taxes each year.

More information, including worksheets and examples, is available in IRS Publication 915: Social Security and Equivalent Railroad Retirement Benefits.

Or-

You may ask questions in the comments or contact me privately:

Tim Barton  Chartered Financial Consultant

You are wondering what to do after your doctor explains you have a serious medical condition.  Not only is the thought of living out your remaining time, perhaps a bit impaired disturbing,  you and your spouse are wondering how to make your money last.  With the possibility of a future filled with increased medical bills and current yields at record lows,  you fear your savings are going to have to be drawn down to the point of depletion.

A possible solution is the medically underwritten annuity.  When applying for a medical annuity you provide your medical records to the insurance company who will then review them to determine your actuarial age.

After determining  the actuarial age it is compared to your chronological age and if  actuarial age is greater the annuity’s monthly income is increased accordingly.  This adjustment can be done jointly  even if your spouse’s health is good.

It has always been important and more so in this low interest rate environment to make sure a retiree’s savings lasts the rest of their and their spouse’s life.  The effort put into getting quotes on a medical annuity can bring a welcome peace of mind making it time well spent

On the positive side; medical science continues to advance at a fast pace so the initial prognosis could  in the end, turn out to be wrong, in which case you get to enjoy good health and a higher than normal lifetime income stream.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

The purpose of a special needs trust is to provide financial assets for your disabled spouse, parent or child’s future care and well being, while maintaining their eligibility for government benefits.

Under current federal law, an individual with more than $2,000 in assets is disqualified from most  needs-based government benefits. State assistance programs may also be based on need.  If your disabled spouse, parent or child were to receive an inheritance from you directly, it’s highly probable that the inheritance would disqualify your child from receiving needed benefits. Do not leave assets directly.

With a special needs trust, however, you leave assets to the trust. The trust is managed by a  trustee, who then can use trust assets on your loved one’s behalf. Special needs trust requirements  are stringent, so it’s important that you consult with an experienced attorney to set one up.

In a properly-structured special needs trust, the trust holds title to the property for the benefit  of the disabled child or adult. The assets in the special needs trust can then be used to provide  for the needs of the disabled individual, as well as to supplement benefits received from  government assistance programs.

For example, trust assets can be used for:

•  transportation, including purchase of a vehicle
•  training, rehabilitation or education programs
•  equipment
•  medical, dental and eyesight expenses
•  entertainment
•  insurance premiums
•  companion/home health aide expenses
•  items to enhance quality of life/self esteem

In order to retain eligibility for government benefits, it’s important that well- intentioned family members, such as grandparents, understand that their will should bequeath assets to the special needs trust, and not directly to the disabled individual.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

copyright VSA/LP

VSA, LP

An IRA Rollover

When you change employment or an employer-sponsored retirement plan is terminated, a special type of IRA called a rollover can be used with a qualified plan distribution in one of two ways:

1. As a Qualified Plan Conduit:

The qualified plan distribution is transferred to a traditional IRA rollover, where it is held and maintains its tax-deferred status until it is transferred into the retirement plan of a new employer. (assuming the new plan allows incoming transfers)

 Retirement Plan Distribution—>Conduit IRA Rollover

–>New Retirement Plan 

2. As a Retirement Accumulation Vehicle:

The qualified plan distribution is transferred to a traditional IRA rollover, where the funds are invested and enjoy tax-deferred growth in an IRA until needed for retirement income purposes.

Qualified Retirement Plan Distribution –>IRA Rollover

In almost all cases it is better to rollover your qualified retirement plan to either your new employer’s plan or your own IRA.  This will keep you in control of your retirement funds rather than being at the mercy of a past employer’s decisions.

You may ask questions in the comments or contact me privately Tim Barton, ChFC

Do you feel like you’re a prisoner?  With regards to your savings that is.  Remember the days when all of your retirement income came from the interest paid to you from your investments?  Miss those days?  Yes; we all do and unfortunately it does not seem likely that those days will return anytime soon.

Apparently some retirees have found a solution.

I know we have all heard this before- “the experts are surprised”—Well they are surprised again.

According to Beacon Research the top selling annuity product in the first quarter of 2012 was an immediate annuity.  That’s right the product that generates a negative knee jerk reaction from so many “financial advisers” and their partners in the financial press is being purchased at a record pace.  Yet, again the people are ahead of the so called experts. 

So what do these so called experts dislike about an immediate annuity?

Yes, I attend the training meetings, so you can think of me as your mole and here is what I hear: 

Outdated thinking point # 1 – Loss of future purchasing power due to inflation.

Reality Check- In the distant past this was mostly true. Currently there are new income annuities that offer cost of living increase or will increase income payments based on changes to the S&P 500.  Once increased the monthly payment is guaranteed to never decrease over your lifetime.  

Outdated thinking point # 2 – If you die the insurance company keeps any unpaid money.

Not anymore.  Most annuities will pay any remaining cash balances to your beneficiaries.

Outdated thinking point #3 – If a financial emergency happens you have no access to your money.

Reality Check – Most modern annuities allow the withdrawal of unpaid funds after a nominal early withdrawal charge and in some cases a percentage can be withdrawn each year without charge. 

With proper planning, emergency funds should be kept in very liquid accounts.  However, in the case of unforeseen extreme emergencies annuity funds can be accessed.   

Outdated thinking point #4 – Funds placed in an annuity are “dead money.”

The question is dead for whom?

Unfortunately some advisers feel this way because most annuities do not pay ongoing fees (commissions).  The entire equity financial service industry gets paid from ongoing fees generated by money under management and “money on the move.”  Every time your money moves it generates a commission for someone.

Not so with fixed annuities.   

Consider annuities as a “get out of Saver’s Prison card.” 

Fixed annuities average 3 to 4 times more interest than CD’s are currently paying. 

Index annuities could pay considerably more interest depending on the performance of the index they follow. 

Immediate income annuities which are currently the most purchased provide guaranteed lifetime with cost of living increases; Thus making it possible for you to spend all of your money plus some of the insurance company’s money before you die.  All the while you never have to worry about running out of income even if you live to be 120 years old.

You may ask questions in the comments or contact me privately Tim Barton, ChFC

Home owner’s insurance is purchased by all of us with hopes that we’ll never have to file a claim. Of course there is no way to know if you will have property damage making a claim necessary.  In the event of a claim do you have a home inventory ready and up to date?

According to Wisconsin Commissioner of Insurance:

Preparing an inventory accomplishes two important things. First, it will make the process of filing a claim more orderly and less stressful should you experience a covered loss. Second, it can help you determine whether your current coverage is adequate.
Documenting possessions with a home inventory is the most important step homeowners and renters can take to make sure they have enough coverage to fully protect and replace their valuables if something happens.

OCI offers the following tips to complete a home inventory:

10 Steps to Complete a Home Inventory
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1.Make a list of possessions, including “celebration” purchases, such as jewelry and fine art.
2.Think about family heirlooms, collections and furniture. Also, consider items related to everyday leisure time, from flat-screen televisions to custom guitars.
3.Take note of commonplace items such as toys, CDs and clothing. Do not forget items you may only use occasionally such as holiday decorations, sports equipment, tools, and high-ticket items kept outside your home such as landscaping and swing sets.
4.Attach copies of original sales receipts and/or appraisal documents to your inventory. Be sure to note model and serial numbers.
5.Group your possessions into logical categories, i.e., by hobby, by room in your home.
6.Carefully photograph or videotape each item and document a brief description, including age, purchase price and estimated current value.
7.Remember to open drawers and closets to document what is inside.
8.Store your home inventory and related documents in a safe, easily accessible place, such as a secured site/file online, a fireproof box or in a safe deposit box. You may want to share a copy with your insurance provider to make necessary updates to your coverage.
9.Review and update your inventory annually and anytime you make a significant purchase.
10.To get started, download and print our free  home inventory checklist

Modern technology makes this easier using these free mobile apps from The National Association of Insurance Commissioners (NAIC):

iPhone® Users
myHOME Scr.APP.book—The NAIC’s free application allows users to quickly photograph and create descriptions of possessions room by room. The list is stored electronically for safekeeping.

Android® Users
myHOME Scr.APP.book—The NAIC’s free home inventory application allows users to capture images, descriptions, and serial numbers of possessions. Users can also organize the information by room or by category. The application also creates a back-up file for e-mail sharing.