Retirement Planning

Social Security payments are important to most American’s retirement plans.  After all,  a worker has contributed a significant portion of their income to Social Security via payroll taxes;  starting at 2.25% in 1950 - steadily increasing to 15.3% 1990 and later.  Because retirement could last 30 years or more a retiree must consider how and when to receive their income benefits.

The average 2012 Social Security monthly retirement benefit is about $1,230.  The maximum possible benefit for someone retiring in 2012 at full retirement age (66) will be $2,513.  The amount of benefit is permanently affected by the age a retiree starts SS income, it is crucial to consider the long term impact of starting benefits prior to reaching  full retirement age.

Social Security retirement benefits can be started as early as 62 but the benefit amount will be less than the full retirement benefit amount.  If benefits are started early the amount will be permanently reduced based on the number of months benefits are received before full retirement age.

Example for a retiree was born in 1955, full retirement age is 66 and 2 months.  If they draw Social Security at age 62 the benefit is reduced by 25.83%.

For those who start SS benefit early and earn more than $15,120 per year they will have their benefits reduced.  However, when they reach full retirement age any month in which benefits were reduced will be removed from the early retirement  deduction calculation, which may raise the benefit paid.

Delaying benefits beyond full retirement age results in an 8% yearly increase.  This annual increase will max out at age 70.

As much as 85% of Social Security benefits may be subject to federal and state income tax.

A surviving spouse’s benefit is based on the deceased spouse’s income amount; a death scenario should be considered when thinking about taking Social Security before full retirement age.

Retirees should be very careful considering any “break even” analysis. There are many variables to consider such as income tax, longevity, survivor’s benefit, etc. Retirees may want to adjust the age when they take retirement income in order to gain maximum lifetime benefit.

Many people take the reduced Social Security benefit before full retirement age.  Each situation is different and starting early may be appropriate, in some cases.  Keep these issues in mind-

• If life is expected to be longer than average the reduced benefit will stay reduced for a long time.  Consider the amount that may be given up over a lifetime.
• If working while drawing Social Security early consider how those earnings will affect Social Security benefits.
• A reduced SS benefit may also reduce the income benefit a spouse receives after the death of their partner.
• If there is a significant difference in spouse ages Social Security benefits are likely to be paid over a greater period of time than when the spouses are closer in age.  In situations like this it is more important to understand how different assumptions will affect a retirement income plan. Variables such as the age benefits start, longevity, and survivor’s benefits can combine to produce substantial differences in total benefits received.

There are 81 different Social Security combinations and strategies a retiree should consider rather than just a  simple “break even” analysis.

If you would like to explore your Social Security benefit options contact Tim Barton, ChFC for an analysis.  List your SS estimated monthly benefit for both spouses and current age in the comment section.

Why would anyone want to restrict their Social Security payments? 

Well, it’s not the payments being restricted it is the type of application that is filed.  The restricted application is filed when, for example,  a wife wants to receive her husband’s spousal benefit instead of her own Social Security benefit.  The idea here is to allow the possibly still working wife or early retired wife to receive monthly SS payments from the spousal benefit of her retired husband. This allows her own SS benefit to accrue credits each year until age 70 when she would then stop the spousal benefit from her husband’s SS  and begin drawing from her own benefit.  For a middle income couple this could increase total Social Security payments by $40,000 to $50,000 depending on earnings during their working years.

This is one of many combinations of Social Security planning and these options have been around for a longtime, some of them since the very beginning of the program.  What is different now?  Retirees are coming to understand Social Security is a life income annuity with a cost of living feature built in requiring understanding and planning to maximize the benefits.

There at least 81 different Social Security combinations and options to consider when signing up for retirement benefits and it takes a computer program to calculate them all to determine the best one in an individual situation.

If you would like to explore your Social Security benefit options contact Tim Barton, ChFC for an analysis.  List your SS estimated monthly benefit for both spouses and current age in the comment section.

Common mistakes made by savers and investors that are best to avoid.

Mistake 1 – Expecting investments to only  go up

• While buying investments like stocks and bonds for their upside potential, remember that they may go down for periods of time.

Mistake 2 – Following the latest investment trend

•  Many investors follow the latest trend in hopes of finding higher returns only to discover that they would have been better off sticking with their original long-term plan.

Mistake 3 – Not keeping  safe money, SAFE

• Becoming focused on chasing returns at the expense of financial security.

Mistake 4 – Believing in stock market celebrities

• While it is interesting to listen to the recommendations of opinionated stock market celebrities, remember that there is a difference between entertainment and sound financial advice.

Mistake 5 – Betting on one investment

• When investing too much money on one investment, that’s called betting, not investing. Smart investors follow time-tested principles like diversification.

Mistake 6 – Ignoring the impact of inflation

• While it is easy to ignore inflation when it is as low as it is today, that simple mistake could seriously affect buying power in the long run.

Mistake 7 – Doing nothing in uncertain times

• When times are uncertain, it is easy not to make any decisions. Yet uncertain times often present the most profitable opportunities to investors who pay attention and act decisively.

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

While most anything can be given to charity, these are the more common forms of donated property:

Cash:  Cash gifts are the easiest to give to a charity, both in terms of substantiating the deduction and in determining the value of the gift.

Real Estate: Real estate that is owned outright and which has appreciated in value can be given to a charity. The donor can generally deduct the fair market value of the property, up to an adjusted gross income (AGI) percentage limitation. When a charity sells donated appreciated property, the capital gain then escapes taxation, up to AGI percentage limits.

Securities: The best securities to donate tend to be those that have increased substantially in value. As with real estate, the donor can generally deduct the fair market value of the security and the capital gain escapes taxation when the security is sold by the charity.

Charitable Gift Tax Implications:

• Gifts of cash and ordinary income property are generally deductible up to 50% of the donor’s adjusted gross income (AGI).
• The fair market value of gifts of long-term capital gains property (e.g., real estate, stock) is deductible up to 30% of AGI. There is, however, a special election through which a donor may deduct up to 50% of AGI if the donor values the property at the lesser of fair market value or adjusted cost basis.
• Charitable contributions in excess of the percentage limitations can be carried over and deducted for up to five succeeding years.
• The donor must itemize income tax deductions in order to claim a charitable deduction. A portion of itemized deductions is phased out for taxpayers with an AGI above certain limits.

Life Insurance: If a charitable organization is made the owner and beneficiary of an existing life insurance policy, the donor can deduct the value of the policy as of the date of the transfer of ownership. The donor may then deduct all future amounts given to the charity to pay the premiums. If a charity is named just the beneficiary of an insurance policy on the donor’s life, no current income tax deduction is available. At the donor’s death, however, the donor’s estate receives an estate tax charitable deduction for the full amount of the policy death benefit.

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

Americans are uncomfortable with their financial situation and don’t want to talk about it.

According to AVIVA USA and the Mayo Clinic wellness survey.  Aviva and Mayo Clinic surveyed 2,000 U.S. adults on their financial preparations and health habits to determine the affects on their overall well being.

“Many people choose to ignore rather than address their financial wellness” said Mike Miller, Aviva vice president.

Key Wellness Survey results:

• 2 in 3 are uncomfortable with their financial situation
• Only 1 of 3 think they are or will be prepared of retirement
• Only 1 out of 5 work with a financial advisor
• Twice as many who consult with a financial advisor feel comfortable with their finances

Survey results

Why two thirds of American feel so much stress and choose silence rather than seeking help on one hand is a  mystery and on the other a little understandable.   This survey clearly finds that those who discuss their financial situation with a professional feel much better and this makes the rest of their lives more enjoyable too; some even lose weight.

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

How many ways are there to take Social Security benefits?

Would you believe there are 81 different possibilities?

Most people think of 3:

• Early retirement at age 62
• Full retirement at 66 or later depending on birth date
• Maximum retirement at age 70.

Known as the “break-even” analysis method; retirement planners use stock computer models that add up the monthly Social Security payments for each of the above over a chosen life expectancy.  Then the totals of each of the 3 incomes are  compared.  Whichever is higher becomes the recommended choice.

Did you know if you live to age 83 your total Social Security income is the same no matter which option you pick?   That is if you settle for only one of the 3 options above.

But there are 78 more Social Security income combinations available and almost no one is talking about or using them to maximize their clients retirement income streams.  Until now.

At the end of May a new patent pending Social Security Explorer which is capable of estimating the income potential from all 81 SS combinations will be available in Tim Barton’s office.  This will be a comprehensive income planning service designed to  help retirees and those approaching retirement more fully understand all of their Social Security options.  If someone has already started drawing their  Social Security they may still be able to maximize their benefits.  Many do not realize Social Security benefits can be changed even after the checks begin.

If you would like to explore your Social Security benefit options contact Tim Barton, ChFC for an analysis.  List your SS estimated monthly benefit for both spouses and current age in the comment section.

When the market failed the blame game started.  Workers were laid off and they blamed their employers. The government blamed the big banks.  Citizens blamed the government.

And clients blamed their financial advisors.  After all wasn’t it the advisor who laid out the financial plan that was suppose to provide the retiree a solid foundation? In many cases yes.  In other cases it depends.

There are basically 2 methods of retirement planning;

Dictation

• Some advisors dictate all of the investments their clients buy.  In some cases the advisor has personal preferences, the things they like and feel good about. Or they simply use their company’s computer models to make recommendations.  Usually these recommendations are based on set preconceived personality and risk tolerance assessments.  The client is then “type cast” into a certain group and instructed what to buy based on the group.

Collaboration

• These are advisors who operate more like coaches and work in collaboration with their clients to make decisions.  They present a variety of concepts for the client and avoid “type casting” them into certain risk tolerant groups.   In this method the client is making the decision about what is best in their situation at any given point in their life.
• In this model retirees are free seek the advice and do business with more than one planner.

Which advisor model are you more comfortable with?

• My money is going to stay in the market.  It is rising and I want to recover my losses.

This is called Confirmation Bias.

• We all have tendencies to look for information that confirms our beliefs while ignoring the data which proves our belief’s untrue.

My money is not going into totally safe investments.  The market is gaining I better get in too.  

This is known as Short Term Memory Syndrome.

• Never mind what happened  last quarter, last year or 3 years ago we favor what happened last week or last month. We have strong tendencies to focus on news reports that happened this week making it easy to ignore the long term perspective.

My losses are just paper loss everything will be fine eventually.

This is called Mental Accounting.

• Has to do with the idea earned income is worth more than money made from investing.   Another example is the slot machine player who remembers their  winning sessions and forgets all their losing.  This is where the idea of ”found money” or “mad money” comes from after all it’s not really my money.

-Tim Barton, ChFC

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

At one time, there were only two ways to tap into the value of your home:

Sell your home

BUT… then you would have to move somewhere else.

Borrow against the equity in your home

BUT… then you would have to make monthly loan repayments.

Many people have retired with what they assumed would be a comfortable retirement income into the future, only to find that inflation, rising health care costs and unexpected expenses have worked to make their retirement less secure. These people may have substantial equity in their homes…equity they would like to convert to cash without having to move or assume debt that has to be repaid.

A reverse mortgage, which converts a portion of a home’s equity into cash without requiring that the home be sold or that the equity be repaid currently, may provide the answer.

What Is a Reverse Mortgage?

A reverse mortgage is a loan against the value of your home that does not have to be paid back for as long as you live in the home. Simply put, a reverse mortgage converts some of the equity in your home into income.

The proceeds from a reverse mortgage can be paid to you:
•In a single lump sum;
•As a regularly monthly income; or
•At times and in amounts of your choosing.

While reverse mortgages typically require no repayment while you are living in your home, they must be repaid in full, including interest and any other charges, at the earliest of:
•The death of the last living borrower (meaning that a surviving spouse may continue to live in the home without repaying the reverse mortgage);
•The sale of the home; or
•The last living borrower moves permanently away from the home, such as to an assisted living facility or nursing home.

Think long and hard before moving forward on a reverse mortgage while exploring other options such as an out right sale or finding a less expensive place to live.

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

Americans in retirement and those soon to be retirees have serious concerns. According to the Reclaiming the Future Study conducted in 2011-2012 by Allianz Life:

Fear # 1 - American Retirement Crisis/Unprepared:

• 92% of Americans believe there is a retirement crisis and fear they are unprepared

When asked “Do you believe there is a retirement crisis in this country?”

• 92% answered absolutely or somewhat.

In the age group 44-54

• 54% said they feel unprepared for retirement.
• 57% of all respondents worry about their nest egg safety and it may not be large enough.
• 47% fear they will not be able to cover basic living expenses.

 Fear #2 – Americans fear outliving money more than they fear death

• Increasing longevity mean more people are spending more years in retirement.  
• 77% of all age groups worry about living too long.  So much so a shocking 61% feared outliving their assets more than they feared death. 

The market meltdown of 2008-2009 caused a profound financial rethinking for Americans. 

• 53% reported their net worth was significantly eroded in a very short period of time.
• 43% had their home values drop
• 41% realized they were not “in control” of their financial futures as they’d thought.

 As a result of this financial turmoil many research participants said they changed their behaviors.

• Cut back on spending
• More interest in financial news and studying the markets

The majority agreed- “That the safety of my money matters more.” 

“Asked to consider the features that would be most important to them if they could build the ideal financial product?”

• 69% of survey respondents said they would prefer a product that was “guaranteed not to lose value”
• Only 31% would choose a product that is not guaranteed with the goal of “providing a high return.”

Annuity-like solutions are gaining relevance and appeal.

For help you may ask questions in the comments

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

As we move forward into tax season, we wanted to take a moment to remind you of some unique benefits that are available to the brave men and women serving in our Armed Services

Heroes Earned Retirement Opportunities (HERO) Act:

On May 29, 2006 President Bush signed into law the Heroes Earned Retirement Opportunities (HERO) Act. The HERO Act allows members of the Armed Forces serving in a combat zone to include nontaxable combat pay as compensation for purposes of determining traditional IRA or Roth IRA contribution amounts.

Prior to this act, because combat pay is nontaxable and excluded from gross income, a serviceman or servicewoman with only combat pay was unable to make an IRA contribution.

Additional time to make traditional IRA or Roth IRA contributions:

Generally, traditional IRA or Roth IRA contributions are due by the tax filing deadline (April 15, 2013 for the 2012 tax season), not including extensions. However, military members and their spouses may qualify for a deadline extension of up to 180 days after the last day served in a combat zone, hazardous duty area, or certain other deployments, plus the number of days that were left to make the IRA contribution at the time service in the combat zone began. The extension doesn’t just apply to traditional IRA or Roth IRA contributions, but also to filing tax returns, paying taxes, and claiming a tax refund.

Heroes Earnings Assistance and Relief Tax Act (HEART) Act:

On June 17, 2008 President Bush signed into law the Heroes Earnings Assistance and Relief Tax (HEART) Act. One of the major provisions of the HEART Act relates to the ability to roll over Servicemembers’ Group Life Insurance (SGLI) payments to a Roth IRA or a Coverdell ESA.

The Act permits an individual who receives a military death gratuity or SGLI to contribute the funds to a Roth IRA and/or one or more Coverdell education savings accounts. In addition, the contributions would be treated as rollover contributions and not subject to normal income or contribution limits. The contribution must be made within one year from the date the taxpayer receives the military death gratuity or SGLI payment. This provision is generally effective for payments made on accounts of deaths from injuries occurring on or after June 17, 2008.

For help you may ask questions in the comments

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

Reprinted with permission- Allianz

You’ve probably heard about the problem our country faces with “Social Security, corporate pensions, state pensions, county pensions, municipal pensions…virtually all defined benefit pensions.” The following are abstracts from an industry publication.

OUR COUNTRY’S PENSION CRISIS IN A NUTSHELL – Pension plans that promise a specific benefit in the future are essentially a contract between current and future generations, and those future generations aren’t represented at the bargaining table.

PENSION PLAN PRESS – With IBM freezing its pension plan, a plethora of articles on the dim future of the defined benefit pension plan concept have hit the press. Here is a summation of what you need to know.

Brief history - The corporate pension has been around since the 19th century, but really came into its own in the U.S. in the years just after World War II. The defined benefit plans assumed lifetime jobs with a company, which seemed reasonable at the time, but has long since ceased being the American norm.

Why is it happening? – Companies are trying to become more competitive and adapt to changing times. They must compete with younger companies that never made pension promises or foreign companies where the government provides retirement benefits or there are no benefits at all. IBM is paying about $270 million to make the change but will save $2.5 billion over the next 5 years.

Why now? – Pension crises at steelmakers and airlines have brought the issue to a head, but arcane accounting rules and low, long-term interest rates mean the accounting benefit for freezing a pension is higher than it would be if long-term rates rise.

Who’s most vulnerable? – Salaried employees since companies have to negotiate to cut benefits for workers covered by collective bargaining.

What about earned benefits? – Companies can’t cut pension benefits already earned, but the earned benefits in a defined benefit plan may be a lot less than expected.

Who gets hurt the most? – Workers in their 40s and 50s who have been at the company many years. Benefits build up fastest in an employee’s final years at a company…50% of a person’s pension may be earned in the last five years on the job. Even with bigger 401(k) contributions, these workers may never catch up.

Who isn’t hurt? – Current retirees, younger workers and those who switch jobs frequently.

Freezing versus terminating – Freezing locks the pension in place where it currently stands actuarially and the company is obligated to pay in the future. When employers terminate a pension, they must pay out all of the benefits immediately, either in lump sums or by buying each worker an annuity. Most terminations are due to bankruptcy.

Companies at risk – Those with a large percentage of older, longtime employees; those with employees not covered by a collective-bargaining agreement; those have already cut some retiree benefits in the past.

GOOD RIDDANCE TO DEFINED BENEFITS? – Fortune magazine sees the IBM pension plan freeze as the beginning of the end of traditional pensions in the U. S. and editorializes that “corporate pensions are an unstable, unfair and economically perverse means of paying for retirement.”

For help you may ask questions in the comments

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

Taxes are inevitable.  You know that part.  Each April 15, you tally up all of your 1099 forms that you have received and pay taxes on your investments, even if you haven’t actually spent a penny of those dividends and interest earnings.  Unfortunately, the money lost to taxes will never be available to you again.  But if you use the principles of tax diversification, you could benefit by paying taxes on what you spend – Not on what you earn. 

Tax diversification is as important as investment diversification when it comes to managing retirement saving risks.  With the proper advice you can create flexibility by selecting the best tax situation for your specific needs and time horizon.

Think about your financial goals for today, the next 10-15 years and down the road as you near retirement and answer these questions:

• What investments do you currently hold?
• What is the intent for that money?
• Can it be allocated more tax efficiently?
• How many years until you retire?  If you are retired how much and long do need your income?
• Are you planning a major purchase?
• What do you pay in taxes on each year- as reflected in IRS Form 1099

Now divide your investments into these three categories:

1. Money that is taxed now
2. Money that is taxed later (tax deferred/taxed when withdrawn)
3. Money that is never taxed (paid in with after tax dollars and tax free during accumulation and at withdrawal)

Reallocate your investments into the appropriate category, if necessary.

For help you may ask questions in the comments

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

The following IRI survey comes as no surprise to retirement income planners who witnessed their annuity client’s relief and security while they heard stories of large losses from their friends and associates in the aftermath of 2008’s financial meltdown.   Not only did these clients not lose any money or income; they experienced strong growth as the market indexes slowly recovered.

Insured Retirement Institute survey, by IALC

According to a recent survey by the Insured Retirement Institute (IRI)  of Americans aged 50-66, a majority (53%) of annuity owners are extremely or very confident that they will have adequate income in retirement, compared to less than a third (31%) of non-annuity owners who say the same.

And not only are these consumers more confident, they are also satisfied with their annuity purchases. A recent LIMRA study found that 83% of fixed indexed annuity buyers reported being satisfied with their annuities and five in six would recommend annuities to others.

So what’s driving people to buy fixed annuities, in particular? Certainly the 2008 crash taught consumers that their foundations are not as sturdy as they once thought. So in order to regain a sense of stability they are looking for sources that provide some minimum guaranteed income. In fact, when asked about the intended uses for indexed annuities in another recent LIMRA survey, respondents’ top three responses involved retirement planning, including supplementing Social Security or pension income, accumulating assets for retirement, and receiving guaranteed lifetime income.

For help you may ask questions in the comments

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

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

The sale of real estate including your home or farm could be subject to Medicare taxes. The Affordable Care Act’s increased Medicare taxes are in effect now for tax year 2013. Some workers are wondering why their take home pay has been reduced. Part of the reason is the payroll (SS) tax cut has expired and the Fiscal Cliff fix did not reinstate this tax cut, this affects all wage earners from dollar one.

The other part for higher wage earners may be the ACA mandated Medicare tax increases, these started January 1,2013.

The following graphics explain the 2013 Medicare taxes on earned income, unearned income and how the sale of real estate including your home or farm could trigger this tax.

Once upon a time retirement was simple you could count on money from a pension and Social Security with bit of personal savings.  Not any more.  Pensions have mostly gone away causing you to depend on Social Security and personal savings more than in previous generations.

Personal savings

• 401(k)
• IRA
• Stocks

In the last few years people have found these to be risky and have lost a significant portion of their retirement savings forcing them to postpone retirement and work longer.

Retirement Realities

• Save more you may need to save more than you think because we are living longer than ever before you may live 20 years or more in retirement. So you have to make sure your money lasts as long as you do.
• You may need to retire earlier than you plan due to a job loss or poor health.

Longer retirement means higher living expenses

• More leisure expenses
• Increased medical cost
• Inflation

Active money management is required

• Seek clarity determine how much money you have saved and how much money you’ll need each month
• Access your comfort level.  How worried are you about thought of losing money?  If it keeps you awake consider protecting part of it.
• Think about the cost of living and how increases over time.
• Plan for certainty make sure you will not run out of money no matter how long you live.

To help learn and think about the new retirement realities watch this short educational video.

For help you may ask questions in the comments

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