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.

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 […]

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 

How a brilliant doctor lost thousands

Think you’re having a bad day? I just read in THE WEEK that the American author of Fiesta: How to Survive the Bulls of Pamplona was recently gored by… a bull… in Pamplona. Fortunately he survived but the doctors had to operate; he had his credibility removed. Speaking of doctors, a physician […]

60 Minutes Expose: U.S. stock market rigged?

Did you happen to catch 60 Minutes on CBS on Sunday? Their lead segment was entitled, “Is the U.S. stock market rigged?” and featured Michael Lewis’s new book about high frequency trading.


Very interesting.


If you’re an investor, you need to check it out. Or read Lewis’s book called Flash Boys. Or both.


Here’s an excerpt from the piece.


60 Minutes:  What’s the headline here?


Michael Lewis:  The United States’ stock market is rigged.


60 Minutes:  By whom?


Michael Lewis:  By a combination of the stock exchanges, the big Wall Street banks, and high-frequency traders.


60 Minutes:  Who are the victims?


Michael Lewis:  Everybody who has an investment in the stock market.


60 Minutes:  High-frequency traders, big Wall Street firms and stock exchanges have spent billions to gain an advantage of a mili-second for themselves and their customers – just to get a peak at stock market prices and orders a flash before everyone else, along with the opportunity to act on it.


Michael Lewis:  The insiders are able to move faster than you… they are able to see your order and play it against other orders in ways you don’t understand… they are able to front-run your order.


60 Minutes:  What do you mean, front-run?


Michael Lewis:  It means they are able to identify your desire to buy shares in Microsoft — and buy them in front of you — and sell them back to you at a higher price. It all happens in infinitesimly small periods of time… sometimes fractions of mili-seconds. But it’s enough for them to identify what you’re going to do and do it before you do it at your expense.


60 Minutes:  So it drives the price up.


Michael Lewis:  It drives the price up. And in turn you pay a higher price.


If you missed the show, you can watch it online at: (http://www.cbsnews.com/news/michael-lewis-stock-market-rigged-flash-boys-60-minutes/ ).

Don’t let these investment “myths” sink your retirement plan

I can’t verify it, but supposedly this is a true story of a radio exchange that took place off the coast of Newfoundland between the American aircraft carrier Abraham Lincoln and Canadian authorities:


Americans: Please divert your course 15 degrees to the north to avoid a collision.


Canadians: Recommend you divert YOUR course 15 degrees to the south to avoid collision.


Americans: This is the captain of a U.S. Navy ship. I say again, divert your course!


Canadians: No, I say again, you divert YOUR course.


Americans: This is the aircraft carrier USS Lincoln, the second-largest aircraft carrier in the Atlantic Fleet. We are accompanied by three destroyers, three cruisers and numerous support vessels.


I DEMAND that you change your course 15 degrees north, or countermeasures will be undertaken to ensure the safety of this ship.


Canadians: This is a lighthouse.  Your call.


In my experience, people have some pretty dogmatic opinions on investing. But what if everything you thought you knew about investing turned out to be wrong?


That was the case for me years ago.


All my life I had been told these investment “truths:”

  • you have to RISK money to MAKE money
  • real estate doesn’t go down
  • gold rises when markets fall
  • stocks go up and down but they grow 10% a year on average

These are financial facts of life as preached by the denizens of Wall Street. But like the first facts of life I heard from Richie Silver in the 4th grade, these “facts” are more like rumors or myths. Except these myths can be dangerous, as the years 1998, 2002, 2008, etc., have taught us.


Perhaps the biggest Wall Street myth that continues to be perpetuated today is the concept of “average” returns. If X mutual fund increases by 50% one year and then decreases by 50% the next year, the mutual fund company is allowed to say that it “averaged” a 0% return.


But did it? Let’s do the math.


Imagine you have $1 million invested in X mutual fund. In year 1 your account grows 50% and you now have $1.5 million. In year 2 the fund tanks 50%, and your account falls to $750,000. The mutual fund company declares a 0% average return, but your account is down $250,000 or 25%. (This is one reason why we say that when you’re at or near retirement, a loss hurts a lot more than a gain helps. And why the sequence of returns can be as important as performance.)


Okay, now let’s imagine that the fund goes up 30% in year 3. At this point Wall Street is proclaiming that the fund averages an 10% return. A 10% return compounded over 3 years would turn a $1 million initial investment into $1,331,000. But on your real world account statement, your balance stands at $975,000 — $25,000 below where you started — and a far cry from $1,331,000.


This is 4th grade math – but few people ever do the calculation. Instead they accept the Wall Street myth that the stock market averages 10% returns.


The truth is, the only way to grow a dollar by 10 percent per year is to geometrically compound that dollar on itself.


And the only way to do that successfully is to avoid large losses.


If you’re not avoiding large losses – in other words, if you’re riding the Wall Street roller coaster up and down and up and down – than you’re not getting 10% a year growth. Or anything close to it. (I encourage you to do the math.)


Today’s fast-paced global economy requires more than a traditional “buy and hold” model for success. There are a number of proven strategies available to put a safety net under your savings and help you avoid the large losses that decimate a portfolio… and improve your overall returns.


Ask us about them.


Are Comfortable Retirements Becoming Extinct?

Twenty years ago, a financial advisor named William Bengen identified a disturbing trend. Retirees, who used to be able to count on Social Security and pensions, were starting to depend upon their own savings to manage retirement.


This problem is even more acute today, as companies have largely abandoned pensions in favor of 401(k) programs. With retirees forced to be more self-reliant, they began asking a new question:“How much can we safely withdraw from our portfolio each year during retirement and not run out of money?”


Tough question! Mr. Bengen developed a solution in 1994 and published his research in the Journal of Financial Planning. Today his approach is called “the rule of 4%,” although Mr. Bengen would actually call it the “rule of 4.5%.”


After reconstructing the investment experience of retirees over decades past, Mr. Bengen concluded that if retirees withdrew no more than 4.5% of the portfolio in the first year and then adjusted annually for inflation, they could be confident they wouldn’t run out of money over a 30-year retirement. The number was depressingly low for many, but nonetheless, the majority of financial advisors began to recommend it.


Today, however, Mr. Bengen acknowledges “we’re in a period of time which may challenge it.” After two massive drops in the market since 2000, many retirees have been forced to either go back to work, cut back on expenses, or pursue options like reverse mortgages.


Frankly, it’s time for new research. Princeton Ph.D., Wade D. Pfau, Ph.D., has tackled the question again in his paper, “Can We Predict the Sustainable Withdrawal Rate for New Retirees?” published in the Journal of Financial Planning. In his study, Dr. Pfau predicts that for a portfolio invested 60% in stocks, the safe withdrawal rate is 1.8%.


If 4% was tough to swallow, how easy is it to imagine only withdrawing 1.8%? To put this in perspective, this means if you worked hard enough to save $1,000,000 for retirement, you can expect to live high on the hog with $18,000 per year. Frankly, this is getting ridiculous.


Apparently, Money Magazine thinks so, too. In an article entitled, “Forget the 4% Withdrawal Rule,” Money Magazine listed 3% as a safe withdrawal rate. They also said, at 3% you still have a 24% chance of outliving your savings. Do you want to go into retirement with a 24% chance of running out of money before you run out of life?


In truth, you don’t have to live a low-income, low-expectation retirement, if you’re willing to take advantage of the innovation that has occurred in financial products over the last several years.Today, retirees using safe, principal-protected vehicles can actually have guaranteed withdrawal rates of 5, 6 or even 7%.


If you want to insure your standard of living during retirement, give us a call and let’s have a conversation.