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At this point in our lives we’ve raised our own kids and hopefully the values we struggled to impart before they left home have become part of their family lives.  Now they’re raising  our grandchildren and like us, when we were new parents our kids will try to bring all of their life lessons into the mix.  The hard part, at times,  at least for me, is to keep my mouth shut not give unasked for advice.  Anyone else have that problem?

This narrows my options to – just setting the best example I can no matter the subject matter.  When it comes to money and finances.  Money does not grow on trees.

  • Young children can  understand the concept of money.  When I take them out and we’re going to buy a little something like an ice cream I give them the money to pay for it.   This teaches them money is exchanged for things we want.
  • Save all my “change” for grandkids. I split up this money into 3 coin purses for each kid marked 20% for savings,  10% sharing, and all the rest for whatever they want. (with parent’s permission of course)   The savings is used for their bigger desires/wants. The sharing can be used to buy things like ice cream, candy bars and other treats for family on outings or they will deposit it into Salvation Army kettles or other charitable containers found at the checkouts.  Elementary school age is a good time to start.
  • Demonstrate to the grandkids how to reach a savings goal.  Show them how saving X amount of their money each month and in how many months this money will equal an amount needed to buy a computer game, book or whatever.
  • When the grandkids are coming for a barbeque, a couple like to help cook.  We plan a menu, make a list of needed ingredients, figure out the budget (money to purchase listed items) and go to the store.  As we pick things out we discuss pricing,  brand names and how to evaluate the best deal.
  • Needs versus wants concept is very important throughout life for all of us.  As they age and gain understanding there are  things associated with my hobbies that reflect needs versus wants which make  good subject matter for discussion with my grandkids. Particularly an activity they have an interest in, like fishing for example.

These are just few examples of actions and conversation points  I use to demonstrate how to use money with my grandkids.  Actually I did the same things with their parents as they grew up and remember how I appreciated any support from other adults.  As a grandpa I just wait for the “teachable” moment or when the conversation flows that way.  To be effective today’s kids are no different than yesterday’s kids- the brains shut off during “the talk”.

Need more ideas?  Download my PDF booklet

“Money Doesn’t Grow on Trees…  Teaching Kids about Money”

 

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Is it time to take some risk money off the table?
Not if you believe the market will always go up and that all the risk of future downturns have been made illegal.

This graph certainly looks good.  As of June the Bull market has been around for 64 months that’s the third longest bull market in a half a century. The 1990′s bull lasted 9 years with much higher gains. Are we in the early stages of a new phenomena where the market never goes down?

Cause for concern

Investors still sell low & Buy High

To get an idea of the temperature of financial attitudes we can check the ”Advisor Confidence Index”  It shows financial advisors are strongly optimistic about the economy and markets.  Eerily just like they were in 2007 and more disturbing is the confidence of the small investors who are choosing to invest now.

I do not give investment advice nor can I see into the future, but I do study behavior and in the past the average investor  almost always buys high and sells low.  There is are no indications that has changed.

Perhaps it’s time to consider a lateral transfer of your gains to safety.  www.FixedindexAnnuity.com

 

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A married couple may file a joint tax return and be treated as one taxpayer, so that taxes are paid on the couple’s total taxable income. While a married couple may file separate returns, this usually results in higher taxes than filing jointly. The so-called “marriage penalty” results when the combined tax liability of a married couple filing jointly is greater than the sum of their tax liabilities calculated as though they were two unmarried filers.

Beginning with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001), various tax bills took steps to alleviate the marriage penalty through 2012. The American Taxpayer Relief Act of 2012 finally made the following marriage penalty relief provisions permanent.

Marriage Penalty Relief – Standard Deduction Increase

The following standard deduction schedule applies to a married couple filing jointly:

Calendar Year 2013 and later:

  • Joint Return Standard Deduction as a % of Single Return Standard Deduction - 200%
  • (in 2014, $12,400 married/$6,200 single)

Marriage Penalty Relief – Expansion of 15% Tax Bracket

The following schedule applies to the size of the 15% tax bracket for joint filers as a percentage of the 15% tax bracket for singles:

Calendar Year 2013 and later:

  • Top of 15% Joint Bracket as a % of Top of 15% Single Bracket – 200%
  • (in 2014, $73,800 married/$36,900 single)
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At retirement, if you have a pension, you have to make a difficult decision that could negatively impact your future financial security and that of your spouse.  Most people with company pension plans give this decision little thought and simply select the first payout option listed on their pension estimate; Joint and Equal Survivor Option.

For example, assume your maximum lifetime pension benefit is $2,000 monthly.

With the joint and equal survivor option, you’ll receive a significantly lower lifetime pension payment. Your surviving spouse, however, will continue to receive 100% of your pension benefit if you die first.

  • For as long as you live, you receive 75% of $2,000 the maximum life income option benefit.  Your benefit is reduced to $1,500 per month, for life.
  • If you die first, your spouse will receive a lifetime monthly pension benefit equal to 100% of your benefit, or $1,500 per month.
  • If your spouse dies first you will continue to receive $1500 per month.  There is generally no going back to the maximum $2,000 benefit. 

Second choice is  – Joint and One-Half Survivor Option:

If you elect the joint and one-half survivor option, you’ll receive a lower lifetime pension payment. On the other hand, if you die first, your surviving spouse will continue to receive a lifetime pension benefit equal to 50% of your pension benefit prior to your death. For example:

  • For as long as you live, you receive a monthly pension benefit of $1,700 or about 85% of the maximum life income option benefit.
  • If you die first, your spouse will receive a lifetime monthly pension benefit equal to 50% of your benefit, or $850 per month.
  • If your spouse dies first, however, your monthly pension benefit remains at $1,700.

Next choice is – Life Income Option:

If you receive your pension benefit under the life income option, you receive the maximum lifetime pension payment. If you die first however, your surviving spouse receives nothing after your death. For example

  • For as long as you live, you receive a monthly pension benefit of $2,000.
  • If you die first, however, your spouse will receive a monthly pension benefit of $0.
  • If your spouse dies first, your monthly pension benefit remains unchanged at $2,000.

At retirement, you will have to decide how your pension benefit will be paid out for the rest of your life:

  • If you elect to receive the maximum retirement check each month for as long as you live, with the condition that upon your death, your spouse gets nothing.
  • If you elect to receive a reduced retirement check each month, with the condition that upon your death, your spouse will continue to receive an income.
  • This pension decision is permanent.
  • The decision you make will determine the amount of pension income you receive for the rest of your life.
  • The decision is generally irreversible.
  • In making this decision, many people unknowingly purchase the largest death benefit (life insurance) they will ever buy and one over which they have no control.

How Can Retirement Income Protection Help Solve the Pension Benefit Dilemma?

Federal law allows a pension plan participant to waive the “joint and survivor” annuity payout requirement, with the written consent of his or her spouse.  This means that, with your spouse’s consent, you can elect to receive the MAXIMUM life income annuity payout at your retirement.

  • However, what happens to your surviving spouse’s income and lifestyle if you should die first?

The solution, you maintain sufficient life insurance to replace the pension income lost at your death, assuring that your spouse will have an adequate source of income after your death.  This is a death benefit you control and if your spouse predeceases you the life insurance can be surrendered paying you back part or all of your premiums;  Depending on when death occurred.

In making this important decision, you should evaluate the risks associated with retirement income protection funded with life insurance:

  • Your income after retirement must be sufficient to ensure that the life insurance policy premiums can be paid and coverage stay in force for your lifetime. Otherwise, your spouse may be without sufficient income after your death.
  • If your pension plan provides cost-of-living adjustments, will upward adjustments in the amount of life insurance be needed to replace lost cost-of-living adjustments after your death?
  • Does your company pension plan continue health insurance benefits to a surviving spouse and, if so, will it do so if you elect the life income option?
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How Can an Income Annuity Protect Against the
Risk of Living Too Long?

The purpose of an annuity is to protect against the financial risk of living too long…the risk of outliving retirement income…by providing an income guaranteed* for life.

In fact, an annuity is the ONLY financial vehicle that can systematically liquidate a sum of money in such a way that income can be guaranteed for as long as you live!

Here’s How an Income Annuity Works:

The annuity owner pays a single premium to an insurance company.

  • Beginning immediately or shortly after the single premium is paid, the insurance company pays the owner/ annuitant an income guaranteed to continue for as long as the annuitant is alive. There are other payout options also available.
  • With a cash refund provision the insurance company pays any remaining funds to the designated beneficiary after the annuitant’s death.

Seeking a secure life long retirement income?  Click the video box to left of this post.

 

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What Is the Retirement Savings Tax Credit?

This is often an overlooked tax credit. Remember you have until April 15, 2014 to make your 2013 IRA contribution.

 The Retirement Savings Tax Credit dates back to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001)which  introduced a new temporary tax credit for IRA contributions and elective deferrals to qualified plans made by certain lower income taxpayers. The availability of this “saver’s credit” was made permanent by the Pension Protection Act of 2006.

The credit is applied against the total of regular income tax and the alternative minimum tax and is allowed in addition to any other deduction or exclusion that would otherwise apply to the contribution/elective deferral.

Calculating the Credit

The credit is determined by multiplying “qualified retirement savings contributions” up to $2,000 times the “applicable percentage,” which is determined by the taxpayer’s adjusted gross income (AGI):

Adjusted Gross Income (2014) *

Married, filing jointly                Single                     Applicable Percentage

More than      Not over               More than Not over

$ 0                    $36,000                   $ 0        $18,000                              50%

$36,000           $39,000                $18,000   $19,500                               20%

$39,000           $60,000                 $19,500   $30,000                             10%

$60,000                                             $30,000                                              0%

* As adjusted for inflation

“Qualified retirement savings contributions” are equal to the total of IRA contributions and elective deferrals to a 401(k), 403(b), 457 or SIMPLE plan, a SAR-SEP and voluntary employee contributions to deemed IRAs for the tax year, reduced by distributions from such plans that are included in income (or not rolled over in the case of Roth IRAs).

An Example

A single taxpayer, who does not participate in an employer-provided retirement plan and has $18,000 in adjusted gross income, contributes $2,000 to a regular IRA in 2013. In addition to deducting the $2,000 IRA contribution, this taxpayer can also claim a $400 ($2,000 x 20%) retirement tax credit for 2013.

 

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This could be some money saving good news for Wisconsin residents who have or would have received nonrenewal notices from their health insurance company.   On November 21, 2013 Wisconsin Office of the Commissioner of Insurance issued a bulletin to the state’s health insurance companies-

Consistent with state requirements and the Office of the Commissioner of Insurance’s (OCI) enforcement power of state and federal law, OCI will allow carriers to renew at their option non-ACA compliant individual and small group coverage that was in effect on October 1, 2013, for a policy year starting between January 1, 2014, and October 1, 2014.

It is important to note that coverage must have been in force on October 1, 2013, and that this OCI guidance does not apply to “newly obtained coverage.” “Newly obtained coverage” does NOT include normal enrollment changes (i.e., adding dependents or new employees) nor does it include coverage that has merely received a price change before OR after October 1, 2013. Consistent with Wisconsin Statutes related to plan changes, the small business or individual may change their plan options from one non-ACA compliant plan to another and renew that coverage in 2014 provided:

  1. Coverage was in force for the individual or small employer before October 1, 2013; and
  2. The new plan was available for purchase prior to October 1, 2013.

Carriers opting to renew non-ACA compliant plans must provide disclosure to their enrollees including notice that an enrollee’s premium may be affected either on the date of renewal or the date on which the premium will be affected. Since the letter was sent too late for some carriers to comply with notice provisions under Wisconsin law, the 60-day notice provision under s. 631.36 (5), Wis. Stat., will not be enforced for affected products from the date of this bulletin until March 1, 2014.

Many Wisconsin carriers have already offered their enrollees an early renewal option. OCI will continue to allow carriers to offer an early renewal for non-ACA compliant individual and small group coverage in 2014. As required under state law, renewals must be treated uniformly and without regard to health status.

For carriers that are transitioning individuals from an existing plan to a new plan, it is the position of OCI that nothing in the Wisconsin Statutes or regulations prohibits carriers from offering their enrollees auto-enrollment into a similar new plan. Auto-enrollment allows for minimal disruption to consumers as a result of changes required by the ACA. In communicating with enrollees regarding plan change options and auto-enrollment, insurers must inform them of their guaranteed issue right to choose any plan. While consumers have the right to choose any plan, the auto-enrollment feature helps ensure they are provided with the right to guaranteed renewable coverage afforded under Wisconsin law.

The above is an excerpt from the November 21st OCI bulletin.

Tim Barton, ChFC

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Stock market indexes have been for the most part rising this year;  high enough that some portfolios have made up for their losses from the last market decline.  Some investors and their advisors are starting to think of themselves as Albert Einstein’s of the market investing.   Although over the last 40 years I have yet to meet one who feels that way over the long term.  The equity markets have a way of equalizing financial pain or causing one to eat humble pie.

The question on everyone’s mind:  How high and how long will stocks go?  TV experts fill air time day after day with theories, usually a new one each day.  Same with some advisors; you know those who when asked will lean back in their desk chair and begin to expound on Monte Carlo Simulations, withdrawal rates, market direction, historical signs and graphs…

My answer is always simply – “I do not know, my crystal ball is just as foggy as the next guys.”  To which the reply is something along lines “Yeah but you are paid to know.”   I’ll let you in on a financial planning secret – no knows which direction the markets will turn next.  Markets will go up and markets will go down, that is what markets do.  Oh sure sometimes if a guy guesses enough he or she will be correct at some time causing them to look “smart.”  As for me I’ll admit I don’t know and work with my clients to transfer market risk from them to an insurance company.  After 9/11 that is what I did with my own personal retirement funds using fixed index annuities and they have paid off with good returns, no declines and peace of mind.

The first fixed index annuities were developed in 1996 and at first I like many others thought they were too good to be true. However, the last 17 years have demonstrated index annuities are in fact very good secure retirement products.   When you purchase an index annuity none of your funds are invested in any equity market.

Rather the annuity owner selects a market index like the S&P in order to determine the interest rate the insurance company pays them for the previous 12 months.  If the index has increased in value a portion of that increase is paid as interest to the annuity, if the index has gone down no interest is paid.  However, the annuity does not decrease in value while it resets the index value to the lower level so that when the index regains its loss part of the regain is interest paid to the annuity after the next 12 months.  Annuity principal and any interest credited are guaranteed to not go down.

An old investment cliché: “You don’t suffer a loss until you sell a stock- Until then it’s just a paper loss.”   Well, then the reverse would be true regarding gains:  Until you sell stock gains are just unrealized paper gains.

Is it time to turn your paper gains into real dollars?

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

 

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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

 

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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.

Retirement income failure (running out of money before you die) is disastrous. In the financial planning business they call it “portfolio failure”

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

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Roth IRA Enhancement

March 17, 2013 by

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

 

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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.

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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

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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

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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

 

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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

 

 

 

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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

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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.

 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

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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

 

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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

 

 

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