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Posts Tagged ‘ Tim Barton ’

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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Return of Money Trumps Return on Money

Gallup March 31,2014

“United States investors are generally a cautious group when thinking about risk versus return options for their retirement savings.”

Nearly 2 thirds (66%) of investors surveyed by Gallup said a guarantee that their initial investment was secure even if that meant lower growth potential; outranked having high growth potential that carried some risk of losing their initial investment.

The Takeaway – In 2013 – Interest guarantees and income guarantees increased annuity sales 5% higher, to 230,100,000,000 industry wide. According to LIMRA, 2/24/2014

Retirees who take income from an annuity are happier than those who adopt a different approach according to “Annuities and Retirement Happiness” (September 2012)  The report from consultants Towers Watson, concluded-

“…while workers and retirees might have very different needs, almost all of them can benefits from annuitizing some portion of their of their retirement income (beyond Social Security).

Non-Spousal? Non-Problem

Business partners? Yes.     Father and sons? Yes.  Charitable donors and donees? Yes.    Non-spousal joint annuitant structuring provides added  flexibility for income solutions.

 

 

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The January 2014  Bobrow tax court ruling  is an IRA game changer with huge ramifications for IRA owners.   The tax court has ruled the once a year IRA rollover rule applies to all of someone’s individual retirement accounts and not to each separately.  This ruling is stunning in that it changes the Internal Revenue Service’s long standing position in private letter rulings and  IRS Publication 590 that the once a year rule applies to each IRA separately.

According to IRC Section 408(d)(3)(B) IRA owners can roll over only 1 distribution within a 1 year period, 365 days not calendar year.   The 365 days starts on the day the IRA owners receives the money. Until this January 2014 court ruling it was clear the owner of  IRAs could rollover each IRA separately once per year.  If the owner wanted they could rollover each IRA once per year.

This a significant departure from everyone’s previous understanding thus making it prudent to only do one IRA to IRA rollover per year.

If an IRA owner needs to rollover more than one IRA account it is best to use the trustee to trustee transfer commonly  referred to as a direst transfer or institution to institution transfer.  These are the preferred methods to avoid tax trouble.

Is the IRS going to look back on taxpayer IRA rollovers?  Unknown at this time.  If they did -  taxpayers who  rolled over more than one IRA in a 365 day period could be required to pay the 6% penalty for excess contributions if the money was moved into another retirement account.

To avoid the above tax problems always  do direct transfers.  These  avoid comingling  IRA funds with regular “nonqualified” account funds (checking or saving account).  If a rollover is coming from a 401(k) or other tax qualified plan it is common practice for the institution to send the funds to the owner.  Make sure the check is made payable to “new institution FBO owner’s name” This check can be forwarded to the new institution without the comingling of funds.

 

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Naming an IRA Beneficiary

February 13, 2014 by

What Are the Options Available in Naming an IRA Beneficiary?

When you open an IRA account, you are asked to name a beneficiary or beneficiaries to receive the value of the IRA at your death. You can also change beneficiaries during your lifetime. There are generally three classes of beneficiaries:

  • Primary Beneficiaries: A primary beneficiary is your first choice of who you want to receive the IRA value at your death.
  • Secondary Beneficiaries: A secondary beneficiary receives the IRA value if your primary beneficiary does not survive you.
  • Final Beneficiaries: A final beneficiary receives the IRA value if none of your primary or secondary beneficiaries survive you.

If you do not have a named beneficiary who survives you, your estate becomes the beneficiary and will be taxed on the value of your IRA at your death.

If you’re married, you can name your spouse as your IRA beneficiary. Alternatively, you can name multiple beneficiaries. If, for example, you have three children, you could name them as the three primary beneficiaries, specifying the percentage of the IRA each will receive. Or, you could name your spouse as the primary beneficiary and your children as the secondary beneficiaries.

 

If you have several IRAs, you can name different beneficiaries for each IRA. If you have both a regular IRA and a Roth IRA, however, keep in mind the different income tax treatment of these two types of IRAs: the beneficiary of a regular IRA will have to pay income tax on IRA distributions, while the beneficiary of a Roth IRA will receive distributions income tax free.

 

Caution:

Certain situations require special care in designating IRA beneficiaries. These include marriages in which one or both spouses have children from a prior marriage, as well as a child or grandchild with a disability or a drug or alcohol problem that might impair their judgment or use of funds from the IRA. In this situation, naming a trust as beneficiary can establish some control over how the funds are used after your death.

 

 

 

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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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The following is an overview of the options available to an IRA beneficiary. Depending on the type of IRA, whether or not the IRA beneficiary is the spouse of the deceased IRA owner and the IRA beneficiary’s needs and objectives, different options may be appropriate. 

In order to avoid unforeseen and/or negative tax consequences, an IRA beneficiary should seek professional tax advice before selecting an option.

 Inherited Traditional IRA Options: 

The options available to an individual who inherits a traditional IRA include the following: 

  1. Immediate Lump-Sum Distribution: Surrender the inherited IRA and receive the entire value in a lump sum. The taxable value of the IRA is then included in the beneficiary’s income in the year of surrender.
  2. Distributions Over Five Years: If the IRA owner was under age 70-1/2 at death, the beneficiary can take any amounts from the inherited IRA, so long as all of the funds are distributed by December 31 of the year containing the fifth anniversary of the original IRA owner’s death. This option is not available if the IRA owner was over age 70-1/2 at death.
  3. Life Expectancy: The IRA assets are transferred to an inherited IRA in the beneficiary’s name, where the date by which required minimum distributions must begin depends on whether or not the beneficiary is the surviving spouse and by the IRA owner’s age at the time of death.
  4.  Spousal  Transfer:    Under this option available only to surviving spouses who are the sole IRA beneficiary, the spouse beneficiary treats the inherited IRA as his/her own and the IRA assets continue to grow tax-deferred. IRA distribution rules are then based on the spouse’s age, meaning that distributions may not be available prior to the spouse’s age 59-1/2 without paying a penalty tax and required minimum distributions must begin by the spouse’s age 70-1/2.

For spouse beneficiaries: 

    • If the deceased spouse was younger than age 70-1/2 at the time of death, the surviving spouse may delay required minimum distributions until the year in which the deceased spouse would have reached age 70-1/2.
    • If the deceased spouse was older than age 70-1/2 at the time of death, the surviving spouse must begin taking required minimum distributions by December 31 of the year following the spouse’s death.

 For non-spouse beneficiaries:

    • Required minimum distributions from the inherited IRA can be spread over the non-spouse beneficiary’s life expectancy, with the first payment required to begin no later than December 31 of the year following the year of the IRA owner’s death.

 

Inherited Roth IRA Options:

 The options available to an individual who inherits a Roth IRA include the following: 

  1. Immediate Lump-Sum Distribution:  Surrender the inherited Roth IRA and receive the entire value in a lump sum. The earnings, however, may be taxable if the Roth IRA is not at least five years old.
  2. Distributions Over Five Years: The beneficiary can take any amounts from the inherited Roth IRA, so long as all of the funds are distributed by December 31 of the year containing the fifth anniversary of the original Roth IRA owner’s death. Any earnings distributed before the Roth IRA is at least five years old, however, may be taxable. Since all amounts other than earnings can first be withdrawn tax free, it may be possible to minimize or eliminate any taxation on earnings by withdrawing them last.
  3. Life Expectancy: The IRA assets are transferred to an inherited IRA in the beneficiary’s name. For non-spouse beneficiaries, required minimum distributions based on the beneficiary’s life expectancy must begin no later than December 31 of the year following the year of the deceased Roth IRA owner’s death. For a spouse who is the sole IRA beneficiary, required minimum distributions may be postponed until the year in which the deceased Roth IRA owner would have reached age 70-1/2. Since contributions are considered to be withdrawn first, it’s unlikely that any taxable distribution of earnings will take place if the Roth IRA hasn’t been in existence for five years.
  4.  Spousal Transfer: Under this option available only to surviving spouses who are the sole Roth IRA beneficiary, the spouse beneficiary treats the Roth IRA as his/her own. Roth IRA distribution rules are then based on the spouse’s age, meaning that distributions of earnings may not be available prior to the spouse’s age 59-1/2 without tax or penalty. Since Roth IRAs have no required beginning date and no required minimum distributions, the spouse can leave the money in the Roth IRA as long as he/she wants.
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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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2014 Individual Federal Income Tax Rates

Federal income tax rates are available on this handy chart to help with your tax planning and preparation.

Download the 2014 Tax Digest  PDF For additional information regarding:

  • Individual income tax rates
  • Deductions & Tax Credits
  • Social Security/ Medicare rates
  • Health Savings Accounts
  • Retirement Plan Contribution Limits including Traditional and Roth IRAs  

For additional information Requests contact Tim Barton, ChFC at www.timbarton.net

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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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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.

 

 

 

 

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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.

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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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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.

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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 # 1American 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 #2Americans 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

 

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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.

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

Reprinted with permission- Allianz

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The Pension Crunch

February 27, 2013 by

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

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Snow in Arizona?!

February 21, 2013 by

Last night large sections of Arizona received significant snowfall.  What the heck?  My Arizona clients were expressing at the start of our conversations this morning; some used a slightly stronger version of that expression.  After all, we should feel sympathy for those who pulled up their Wisconsin, Minnesota and North Dakota roots choosing to move to Arizona in order to enjoy their endless sunny days of retirement.

Here is a news video from an Arizona news station.

The definition of “significant snow” differs by region. Arizonians apparently define it as .30 to 1.26 inches.

When many of us are feeling the pangs of spring fever while staring at snow outside our doors measured in feet rather than inches and the wind howling out a sub-zero windchill…

How much sympathy do you feel?

Do you know anyone in Arizona?  What will say to them?

Anyway, try and be polite when you speak with your friends in Arizona.

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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.

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

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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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