Time to Upgrade Your Annuity?

50s working at homeMany of today’s annuities have features that were not available years ago. If you have an existing annuity, it may be worth looking at the options provided by today’s newer annuities to see if they offer features that better serve your retirement income needs.


There are possible advantages and disadvantages that have to be considered on a case-by-case basis. Some things you may want to consider when deciding to upgrade your annuity include:


Guarantees of the new contract


If your existing annuity guarantees a higher return than what is currently available, it may not make sense to replace your existing annuity.


If, however, better guarantees are available with a new annuity and there are newer features that better meet your retirement goals, it may be worth exploring.


For example, a fixed index annuity with an income rider may offer lifetime income guarantees that provide more money during retirement.


Possible penalties


Most annuities have a surrender period. Many also have a bonus. How soon will you need the money? Does the bonus make up for some of the surrender period?


Your contract will specify how long the surrender period is and the amount the penalty decreases over time.


Also check for possible Market Value Adjustments (MVA) that could affect the value of your annuity if you surrender it.


Tax considerations


In order to avoid creating a taxable event, the IRS requires the exchange of one annuity for another to be done as a 1035 exchange. The only requirement is, the new annuity must be on the same insured.


When you roll an “old” annuity into a new one within a 1035 exchange, you maintain the cost basis you had in the original annuity. A 1035 exchange can be done to consolidate more than one annuity into a new annuity contract.


Whether you should upgrade your existing annuity or keep the one that you have is something that can only be determined by reviewing your current contract. If you have old annuities and want to find out if today’s new features better meet your retirement needs, please contact us for a no obligation review.

What We Can Learn From the Financial Troubles of Professional Athletes

Lately I’ve been reading about professional sports figures with money troubles. For example, much was written about Joe Frazer’s money woes when he passed away last month. Earlier this year we learned about Michael Vick’s $19 million personal bankruptcy filing. Nothing new here. Long is the list of pro athletes who’ve either squandered their […] – See more at: https://web.archive.org/web/20160910172615/http://sagefinancialpartners.com/blog/page/12/#sthash.eeDY36ZC.dpuf

The #1 Regret of Millionaires

OK, quick quiz … In a recent survey, millionaires from Europe, Asia, Africa, the Middle East and the United States were asked to name their biggest financial regret. Can you guess the correct answer? A) Not paying close enough attention to asset performance B) Took too much risk C) Too much debt D) Missed out on a blockbuster […]

Avoiding a Virtual Audit

One of the major stories in the news recently was about “Big Data” — the U.S. government tracking us through our Internet usage and Verizon cell phones.


Ostensibly, the NSA isn’t getting customer names or the content of our phone conversations. But that hasn’t assuaged the concerns of some citizens, who fear Big Brother cobbling together bits and pieces from our electronic lives in order to draw conclusions about our likes, dislikes, friendships, spending patterns and lifestyle.


In fact, according to Brian Dooley of the International Tax Counselors Blog, the IRS has a new supercomputer designed to do exactly that.


Mr. Dooley is reporting that the IRS has more than 3,000 pages of data on each of us, and that “the IRS Super Robot… is creating a DNA blueprint of your behavior.”


According to the article available here, the IRS supercomputer:

  • is combing through EBay, LinkedIn, Facebook, Yelp and all social media, your Internet searches, and your email in some cases
  • has access to every social media posting going back 5 years
  • is so powerful, it can read 200 million e-Filed tax returns in 10 hours

What’s the purpose of all this snooping? In theory, using data trolling tools, facial recognition, artificial intelligence and advanced algorithms, the IRS might be able to find evidence of under-reported income… a boondoggle deducted as a ”business trip”… or raise questions about how one can afford a new Lexus based on one’s reported salary.


Once the robot locates you, it sends your return to an audit manager. And voila, you’ve been “robo-audited.”


IRS audits: evidently one more thing that’s gone virtual.

Room at the Inn?

approved InnWhen it comes to guaranteeing lifetime income, few tools are as handy as annuities. Given that the original long-term savings vehicle — the company-sponsored pension — is almost as extinct as the coelacanth, it’s become abundantly clear that your employer is no longer going to look out for your long-term financial interests. In today’s business culture, that burden’s been shifted to you. This makes implementing a long-term, income generating retirement vehicle to augment your Social Security benefits more crucial than ever, and this is often where annuities can make the difference between a comfortable retirement or a struggle.


The ultimate retirement safety net, annuities are designed to provide you with income every month for as long as you’re alive. You keep living, annuities keep paying.


Essentially a form of insurance, the concept behind annuities is fairly simple: Depending on your choice of annuity, you pay an annuity carrier a premium either in one lump sum or in installments before you retire. In return, after a predetermined period of time, the carrier guarantees to repay you in predetermined monthly installments until your death — no matter what. With most annuity policies, as long as you pay the premiums, the insurer will fund your retirement for the rest of your life. In most cases, when you die, whatever is left goes to your beneficiary.


While lifetime income is one of the annuity’s most appealing features, they offer additional benefits worthy of your consideration, not the least of which is favorable tax treatment. All of the money you use to fund an annuity grows tax-free until the point at which you begin withdrawing funds. As with most products, however, there are penalties associated with premature withdrawal, and those penalties extend to taxes in the form of treatment as ordinary income. That said, it’s always a good idea to discuss the tax benefits or limitations of annuity products with a professional advisor or agent to ensure you understand the policy thoroughly.


Another benefit of annuities is that when compared to other “safe money” choices such as bank CD’s, they tend to earn more interest. Some fixed index annuities have roll-up rates as high as 7% when you buy the optional rider.


Since annuities aren’t designed for short-term investment, the longer the annuity is funded, the better those returns are likely to get. Shop your annuity products carefully (or ask your advisor to do so on your behalf) to find the most appropriate product with the best rates of return. Here are some choices:


Fixed Annuities: The most conservative form of annuity, a fixed annuity earns interest at rates determined by the carrier or in a manner outlined in the contract.


Variable Annuities: Variable annuities have a strong investment component, as the insuring company invests your money into what are called sub-accounts they select based on your risk aversion profile. These are the riskiest annuities available, as those sub-accounts can be invested into stocks, bonds or other investment products. If those underlying investments fail, it is possible to lose a portion (or even all) of your money. That’s why I  recommend most investors stay away from variable annuities.


Equity-Indexed Annuities: Equity-indexed annuities are fixed annuities for which the interest rate is tied to an investment index, such as the S&P 500. Considered to be somewhere in the middle of the risk spectrum, the base premium is guaranteed, but if the index performs well, you can earn higher returns.


Single-Premium Annuities: This type of annuity is funded wholly upfront with one single payment. These are often ideal for those looking to transfer funds into a better performing vehicle.


Multiple-Premium Annuities: Outstanding tools for those looking to accumulate savings, these annuities are funded by paying a predetermined amount of premiums to the insurer.


Deferred Annuities: Deferred annuities are structured in such a way that the payments from the insurer don’t commence for many years, commonly known as the accumulation phase – the time during which you actually fund the annuity – until the annuitization (or payout) phase, which typically occurs upon retirement.


Immediate Annuities: Unlike deferred annuities, an immediate annuity pays out very quickly, typically no later than a year after the purchase. Its name more or less says it all.


With so many annuity options in the market, engaging an advisor to help you navigate the maze of products might make sense. But if you do decide to go it alone, do as much research as you can, weigh your prospects carefully, and only buy an annuity from a company with a strong financial rating. Check out information sites such as: http://fixedindexannuitywithanincomerider.com/


And remember, while annuities can be the answer for the vast majority of Americans, they’re certainly not appropriate for everyone. Like all investments, some annuities are good, some are bad. Annuities work best for older investors looking for lifetime income, not younger investors growing their savings. Annuities have surrender charges for early withdrawal, and there can be tax penalties as well. And like many fixed-income investments, annuities are subject to interest rate risk. As with all investment options, do your homework and consult professionals.

When to Retire?

65 yrs oldThe concept of retirement is evolving, as many Americans are not retiring as early as previous generations.


For starters, the age for collecting full Social Security benefits is moving up. If you were born in 1937 or before, it’s still age 65. If you were born between 1938 and 1959, it’s now 66. For men and women born in 1960 or later, it’s climbed to 67.


You can still claim Social Security before your full retirement age, but your benefits will be discounted, possibly significantly. On the other hand, your monthly benefits will increase if you postpone your start date past full retirement age.


Just because you retire doesn’t mean that you have to start collecting Social Security the same year. In fact, each year you delay up until age 70 gives you an 8% increase in benefits. Do that for four years and you’ll be setting yourself up for almost a third more in monthly benefits – for life.


That’s a significant incentive for those who can wait it out and have confidence that the Social Security Trust Fund will make good on its promises.


As you can see, deciding when to retire and when to start collecting Social Security are two of the biggest decisions you will make. That’s because, once you start collecting benefits, you can’t change your mind. You’re locked in. For example, if you decide to retire at 62 and full retirement age is 65, then your benefits will be reduced by 25% versus what you would have received if you waited until age 65. You’re not allowed to take payments for a couple years, put Social Security on pause, then turn it on a few years later at a higher rate. You’re stuck at the original lifetime income benefit amount forever.


Given all the possible outcomes, what is the best retirement age? I saw an article recently that attempted to answer that very question. You can find it here:  http://money.msn.com/retirement/whats-the-ideal-retirement-age 

Lobbying for a Pension

New Jersey state house TrentonRecently I read a rather surprising Associated Press story. Did you know that some states award public pensions to private lobbyists?


According to the article (http://bigstory.ap.org/article/private-lobbyists-get-public-pensions-20-states) at least 20 states — including New York and New Jersey — give full state pensions to private organizations who don’t work for the state (and in fact may lobby against state interests at times).


The rationale behind this largess is that the lobbyists represent associations of counties, cities and school boards. This perk was granted decades ago based “on the premise that they serve governments and the public.” In many cases the lobbyists also receive health care benefits.


Does this seem extravagant? Most states in our area are struggling to fund their pension obligations. Democrats and Republicans have acknowledged that more legislation designed to raise revenue is almost certain. In other words, higher taxes.


There are ironies galore in this story. One is that the very people who are advancing the idea of benefit cuts for other government workers are themselves enjoying a cushy pension. Another is that their salary increases are without state oversight. As their salary increases so too do their pension benefits.


How many people do you know today who have lifetime pensions? If you look at the statistics, it’s less than one out of 10 workers. Is there anyone lobbying for you to get lifetime retirement income?


Fortunately, there are ways to get a pension that pays you as long as you live, even if you’re not a lobbyist. If you don’t currently have a guaranteed income stream to supplement your retirement, you might want to consider looking into a “personal pension plan.”


Some people think that once they pass a certain age, it’s too late to get started on creating a pension. Here’s an example of a client who’s over 60, who wanted to supplement his retirement. He put $200,000 into a personal pension plan at age 61. He plans on starting his pension at age 75. At that time he will receive $32,598 every year for the rest of his life. Given his family history, he expects to live past 90. If he’s correct, sixteen years at $32,598/year would equal $521,568. If he lives longer, he continues to collect. If he dies sooner, his beneficiaries get what’s left. The pension payments are guaranteed by an insurance company.


There are pros and cons to every financial strategy, so contact us for more details and information.

Higher Income = Higher Chance of Audit?

IRS-SIGNHave you ever heard of the IRS Data Book?


While sorely lacking in pictures, the IRS Data Book is a fascinating read.


I’m serious.


Published annually, it’s a peak behind the curtain, and reveals all sorts of fun facts regarding number of returns filed, taxes collected, and agency enforcement. For example, the IRS received 146 million individual tax returns in fiscal 2012… and examined just over one percent of them.


In other words, 1.5 million unlucky individuals got audited.


That’s interesting in itself. But what’s even more interesting is that some groups get audited at a much higher rate than others. Want to know who the IRS is targeting? Take a look at this chart (source: Wall St. Journal).


Income                                              % of returns audited


general population                                      1%


$500,000 – $1 million                              3.57%


$1 million – $5 million                                8.9%


over $10 million                                         27.4%


So there it is, clear as day. If you’re wealthy, you have a target on your back. The higher your income, the higher your chances of being audited. And there seems to be a line drawn in the sand at $10 million, because auditing rates skyrocket when that threshold is reached.


What draws extra scrutiny from the IRS? According to a recent Wall Street Journal report, here are the activities that attract the attention of enforcement agents:

  • owning a closely held business
  • having partnerships
  • a portfolio of hedge funds or other complicated investments
  • unusual events such as the sale of a business
  • making a large charitable contribution
  • claiming large deductions

We have a team that works with successful business owners to both lower their taxes and lower their risk of audit. Reading the IRS Data Book numbers gives me a new appreciation for the team. Because after working with thousands of wealthy business owners across dozens of different industries, their audit rate is under 1% — even lower than the general population.


How have they managed such an enviable record? I believe there are 3 key factors:


1.) Having the right members on the team. Properly structuring protective tax strategies requires the efforts of both specially trained CPAs and tax attorneys working as a team – having a CPA alone is not enough. For example, the 1040 is the most scrutinized form. Moving income off your 1040 and into the proper entity structure can exponentially lower your audit risk. Creating entities is the purview of a tax attorney.


2.) Staying clear of red flags. Our team leader was the former tax manager at a Big Four accounting firm. His responsibility was to minimize and audit-proof the tax returns of the firm’s 177 wealthiest clients, including billionaires. There are few situations that he hasn’t seen and addressed. His implementation philosophy: avoid all “grey areas” and steer clear of the red flags that attract inquiries.


3.) Experience. Our lead tax attorney is an IRS “insider,” who for years served as his state’s liaison to the Internal Revenue Service in formulating tax policies. He was also Vice Chairman of the American Bar Association’s Tax Section of the General Practice Council, and Chair of the State Bar Association’s Federal Tax Committee. It can be reassuring to have this type of clout and experience on your side.


If you or a business owner you know wants to reduce the chances of an audit…and save on taxes, call or email us today for a free tax savings and audit reduction analysis by our leading tax attorneys.

The WORST kind of emotional baggage

It happens every week. TimeOut New York magazine takes two lovelorn New Yorkers and pairs them up to see if they’re right for each other. They send them on a date, then ask each person to record their assessments independently. And then they publish the comments in the magazine. More often than not, the […]