Retirement Savings Income: Beyond Annuities

One of the challenges of investing during retirement is providing for annual income while balancing that need with other considerations, such as liquidity, how long you need your funds to last, your risk tolerance, and anticipated rates of return for various types of investments. Annuities may be seen as a full or partial solution, since they can offer stable income or guaranteed lifetime payments (subject to the claims-paying ability of the issuer). However, they’re not right for everyone.

A well-thought-out asset allocation in retirement is essential. While income investments alone are unlikely to meet all your needs, it’s important to understand some of the most common non-annuity investments that can provide income as part of your overall investment strategy.

Bonds: retirement’s traditional backbone

A bond portfolio can help you address investment goals in multiple ways. Buying individual bonds (which are essentially IOUs) at their face values and holding them to maturity can provide a predictable income stream and the assurance that unless a bond issuer defaults, you’ll receive the principal when the bond matures. (Bear in mind that if a bond is callable, it may be redeemed early, and you would have to replace that income.) You also can buy bonds through mutual funds or exchange-traded funds (ETFs). Depending on your circumstances, funds may provide greater diversification at a lower cost than individual bonds. However, a bond fund has no specific maturity date and therefore behaves differently from an individual bond, though like an individual bond, its price typically moves in the opposite direction from interest rates.

Consider the issuer

Bonds are available from many types of issuers, including corporations, the U.S. Treasury, local and state governments, governmental agencies, and foreign governments. Each type is taxed differently. For example, the income from Treasury securities (unlike corporate bonds) is exempt from state and local taxes but not from federal taxes.

Bonds issued by state and local governments, commonly called municipal bonds or munis, are just the opposite. Often a staple for retirees in a high tax bracket, munis generally are exempt from federal income tax (though specific issues may be taxable), but may be subject to state or local taxes. Largely because of that tax advantage, a tax-free bond typically yields less than a corporate bond with the same maturity. You’ll need to compare a muni’s tax-equivalent yield to know whether it makes sense on an after-tax basis.

Think about bond maturities

Bond prices can drop when interest rates and/or inflation rise, because their fixed income will buy less over time. Inflation affects prices of long-term bonds–those with maturities of 10 or more years–the most. One way to keep a bond portfolio flexible is to use so-called laddering: buying bonds with various maturities. As each matures, its proceeds can be reinvested. If bond yields are up, you benefit from higher rates; if yields are down, you have the option of choosing a different maturity or investment.

Certificates of deposit/savings accounts

Certificates of deposit (CDs), which offer a fixed interest rate for a specific time period, usually pay higher interest than a regular savings account, and you typically can have interest paid at regularly scheduled intervals. A CD can be rolled over to a new CD or another investment when it matures, though you may not get the same interest rate, and you’ll pay a penalty if you cash it in early. A high-yield savings account also pays interest, and, like a CD, is FDIC-insured up to $250,000.

Stocks offering dividends

Dividend-paying stocks, as well as mutual funds and ETFs that invest in them, also can provide income. Because dividends on common stock are subject to the company’s performance and a decision by its board of directors each quarter, they may not be as predictable as income from a bond.

However, dividends on preferred stock are different; the rate is fixed and they’re paid before any dividend is available for common stockholders. That fixed payment means that prices of preferred stocks tend to behave somewhat like bonds. Preferred shares usually pay a higher dividend rate than common shares, and though most preferred stockholders do not have voting rights, their claims on the company’s assets will be satisfied before those of common stockholders if the company has financial difficulties. However, a company is often permitted to call in preferred shares at a predetermined future date, and preferred stockholders do not participate in a company’s growth as fully as common shareholders would.

Pass-through securities/REITs

Some investments are designed to act as a conduit for income from underlying assets. For example, mortgage-related securities represent an ownership interest in mortgage loans made by financial institutions. The most basic of these, known as pass-throughs, represent a direct ownership interest in a trust that consists of a pool of mortgages. Examples of pass-throughs include securities issued by the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association.

Certain types of investment trusts–for example, REITs that buy, develop, manage, or sell real estate–don’t owe taxes as long as they pay out at least 90% of their net income to investors. That payout has traditionally made them popular as an income vehicle and portfolio diversifier (though diversification alone does not guarantee a profit or ensure against a loss). There are many types of REITs, so be sure you understand how the one you choose functions before investing.

Automated inflation fighting

Some investments are designed to fight inflation for you. Treasury Inflation-Protected Securities (TIPS) pay a slightly lower fixed interest rate than regular Treasuries. However, your principal is automatically adjusted twice a year to match changes in the Consumer Price Index (CPI). Those adjusted amounts are used to calculate your interest payments.

That inflation adjustment means that if you hold a TIPS until it matures, your repaid principal will likely be higher than when you bought it (the government guarantees it will not be less). However, you can still lose money if you sell a TIPS before maturity. Inflation rates change, and other interest rates can affect the value of a TIPS. If inflation is lower than expected, the total return on a TIPS could actually be less than that of a comparable non-indexed Treasury. Also, federal taxes on the interest and increases in your principal are owed yearly even though additions to principal aren’t paid until a TIPS matures. Inflation-linked CDs function much like TIPS, but you’ll generally owe federal, state, and local taxes each year.

Some mutual funds are managed with an eye toward inflation. A mutual fund that invests in inflation-protected securities pays out not only the interest but also any annual inflation adjustments, which are taxable each year as short-term capital gains. Some funds target inflation by mixing TIPS with floating rate loans, commodity-linked notes, real estate-related investments, stocks, and bonds.

Distribution funds

Some mutual funds are designed to provide an income stream from year to year. Available as part of a series, each fund designates a percentage of your assets to be distributed each year as scheduled payments, usually monthly or quarterly. Some funds are designed to last over a specific time period and plan to distribute all your assets by the end of that time; others focus on capital preservation, make payments only from earnings, and have no end date. You may withdraw money at any time from a distribution fund; however, that may reduce future returns. Also, payments may vary, and there is no guarantee a fund will achieve the desired return.

Many choices

New ways to help you translate savings into income are constantly being created. These are only a few of the many possibilities, and there’s more to understand about each.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, hewitt.com, Merck, Bank of America, access.att.com, AT&T, ING Retirement, Pfizer, netbenefits.fidelity.com, Glaxosmithkline, Northrop Grumman, RaytheonHughes Verizon, Qwest, ExxonMobil, resources.hewitt.com, Chevron, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Advertisements

Cease Your Money Paralysis

A decision not made may have financial consequences. There is an old belief that women are more cautious about money than men, and whether you believe that or not, both women and men may fall prey to a kind of money paralysis as they age – in which financial indecision is regarded as a form of “safety.”

Retirement seems to heighten this tendency. If you are single, retired, and female, you may be extremely fearful of drawing down your retirement savings too soon; or investing in a way that would mean any kind of risk.

This is understandable: if you are over 80, you likely have memories of the Great Depression, and baby boomers have memories of the severe economic downturn of the late 2000s.

“Paralysis by analysis,” or simple hesitation, may cost you in the long run. Your retirement may last much longer than you presume it will – perhaps 30 or 40 years – and maintaining your standard of living will undeniably take some growth investing. As much as you may want to stay out of stocks and funds, they offer you a chance to out-earn inflation – a chance you forfeit at your financial peril.

Even minor inflation can subtly reduce your purchasing power over time. Of all the risks to quality of life in retirement, this is often the least noticed. Doing nothing about it – or investing in a way that avoids all or nearly all risk – may put you at greater and greater financial disadvantage as your retirement proceeds.

Keeping a foot in the stock market – in whatever major or minor way you choose – allows your invested assets the potential to keep pace with or outpace inflation.

Retirement is the time to withdraw retirement assets. Some women (and men) are extremely reluctant to tap into their retirement nest eggs, even when the money has been set aside for years for a specific dream. Even though they have saved or dedicated, say, $20,000 for world travel, when retirement comes they may be skittish about actually using the money for that purpose. Buying a car to replace one that has been driven for 15 years, or remodeling part of the house to make it more livable after 70 or 80 may be viewed as extravagances.

We cannot control how long we will live, how much money we will need in the future, or how well the economy will perform next year or ten years on. There comes a point where you must live for today. Pinching pennies in retirement with the idea that the great bulk of your savings is for “someday” can weigh on your psyche. What does your retirement dream amount to if you don’t start living it once you retire?

If you fear outliving your money, remember that growth investing offers you the potential to generate a larger retirement fund for yourself. If you seek more retirement income, ask a financial professional about ways to arrange it – there are multiple ways to plan for it, and some that involve little risk to principal.

Don’t forget America’s built-in retirement insurance: Social Security. For every year you wait to claim Social Security benefits after your full retirement age (either 66 and 67 for most people) and age 70, your monthly payments grow by 8%. In contrast, if you start taking Social Security before your full retirement age, it will mean less SSI per month than if you had waited.1

The 4% rule may provide you with a guideline. For many years, some retirement planners have recommended that a retiree withdraw between 4-4.5% annually from savings. (This percentage is gradually adjusted north for inflation over the years.)2

The 4% rule is a worthwhile rule for many retirees, but it is hardly the only yardstick for retirement income withdrawals. At its Squared Away blog, the influential Center for Retirement Research at Boston College notes a study from one of its economists on this topic. It suggests an alternative – termed the RMD strategy – that mimics the Required Minimum Distributions the federal government requires from a traditional IRA after the original IRA owner enters his or her seventies. In this withdrawal strategy, you start withdrawing only 3.1% of your retirement assets at age 65, which climbs to 4.4% at 75 and then 6.8% by 85. (That is just withdrawal off of principal; interest and dividends can be added to that to give you more income.)2

Are you wondering just how much money to live on in retirement? Are you also wondering how your retirement savings and income may grow? Talk with a financial professional about your options – you may have many more than you initially assume. A practical outlook on investing and decisions to work longer or claim Social Security later can also potentially help you amass or receive more money for the years ahead.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

1 – forbes.com/sites/nextavenue/2013/08/22/5-cures-for-womens-retirement-spending-paralysis/ [8/22/13]

2 – squaredawayblog.bc.edu/squared-away/retiree-paralysis-can-i-spend-my-money/ [7/11/13]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Qwest, Hughes, Glaxosmithkline, Alcatel-Lucent, ExxonMobil, Verizon, Merck, Bank of America, Chevron, Raytheon, Pfizer, ING Retirement, AT&T, Northrop Grumman, or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

 

 

 

 

Do Our Biases Affect Our Financial Choices?

 

Even the most seasoned investors are prone to their influence.

Investors are routinely warned about allowing their emotions to influence their decisions.  They are less routinely cautioned about letting their preconceptions and biases color their financial choices.

In a battle between the facts & our preconceptions, our preconceptions may win. If we acknowledge this tendency, we may be able to avoid some unexamined choices when it comes to personal finance. So it may actually “pay” us to recognize our biases as we invest. Here are some common examples of bias creeping into our financial lives.

Valuing outcomes of investment decisions more than the quality of those decisions. An investor thinks, “I got a great return off of that decision” instead of thinking, “that was a good decision because ______.”

How many investment decisions do we make that have a predictable outcome? Hardly any. In retrospect, it is all too easy to prize the gain from a decision over the wisdom of the decision, and to therefore believe that the decisions with the best outcomes were in fact the best decisions (not necessarily true).

Valuing facts we “know” & “see” more than “abstract” facts. Information that seems abstract may seem less valid or valuable than information that relates to personal experience. This is true when we consider different types of investments, the state of the markets, and the health of the economy.

On Main Street, we find a classic example in Gallup’s U.S. Economic Confidence Index. In the August edition of this monthly poll of more than 3,500 U.S. adults, 55% of respondents said the American economy is “getting worse” instead of better. In fact, more Americans have told Gallup that the economy is getting worse rather than better since March.1

This flies in the face of the declining jobless rate, the strong hiring of 2015, the comeback of the housing market, and key surveys showing years of consistent monthly growth in the manufacturing and service sectors – but in all probability, these poll respondents are not looking at economic indicators when they make such a judgment. Their neighbor was laid off, or there was a story on the nightly news about a new homeless camp growing in size. These are facts they can “see” – and therefore, in their minds the economy is getting worse.1

Valuing the latest information most. In the investment world, the latest news is almost always more valuable than old news… but when the latest news is consistently good (or consistently bad), memories of previous market climate(s) may become too distant. If we are not careful, our minds may subconsciously dismiss the eventual emergence of the next bear (or bull) market.

Being overconfident. The more experienced we are at investing, the more confidence we have about our investment choices. When the market is going up and a clear majority of our investment choices work out well, this reinforces our confidence, sometimes to a point where we may start to feel we can do little wrong thanks to the state of the market, our investing acumen or both. This can be dangerous. 

The herd mentality. You know how this goes: if everyone is doing something, they must be doing it for sound and logical reasons. If most investors are getting out of equities, or getting back into equities, it follows that you should follow them. The herd mentality is what leads many investors to buy high (and sell low). It can also promote panic selling. Above all, it encourages market timing – and when investors try to time the market, they frequently realize subpar returns.

Did you know that American retail investors held equity shares for an average of 6.3 years during the 1950s? That duration kept shortening until the 2000s, when it was reduced to roughly six months – which is still the average today. We have exponentially greater media coverage of Wall Street today than we had in the 1950s, and that may be the big factor in that difference – but still, you have to wonder how much better the typical investor’s return would be if he or she had the patience of the investors of the past.2 

Extreme aversion to risk. Some investors want zero risk, or close. What price do they pay in pursuit of that goal? The opportunity cost may be sizable. In building an extremely risk-averse portfolio, they thwart their potential for significant gains when the equity markets advance.

Everyone loves to be certain about things. Sometimes, however, we need to ask ourselves what that certainty is based on, and what it reflects about ourselves. Examining our preconceptions may help us as we invest.

Citations.

1 – gallup.com/poll/184640/economic-confidence-index-stable.aspx [8/18/15]

2 – nytimes.com/2014/01/13/your-money/stocks-and-bonds/why-we-buy-in-a-marked-up-market.html [1/13/14]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Raytheon, Hughes, Verizon, Bank of America, ExxonMobil, Glaxosmithkline, Northrop Grumman, Merck, Pfizer, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Self-Directed IRAs

A self-directed IRA isn’t a different type of IRA. Rather, the term refers to any individual retirement account (traditional or Roth) that allows you to direct the investment of your IRA assets into nontraditional investments. For example, in addition to the usual IRA mainstays (stocks, bonds, mutual funds, and CDs), a self-directed IRA might invest in real estate, limited partnership interests, or anything else the law (and your IRA trustee/custodian) allows. In fact, the only investment you can’t have in an IRA is life insurance. Collectibles (e.g., artwork, stamps, wine, and antiques) aren’t prohibited, but if your IRA purchases these items, you could suffer adverse tax consequences.

Getting started

First, you’ll need to find a trustee or custodian that specializes in self-directed IRAs. Make sure you understand the expenses involved–some trustees charge transaction fees and/or asset-based fees, depending on the particular investment. You also need to be aware of the prohibited transaction rules. These rules are designed to make sure that only your IRA, and not you (or your immediate family), benefits from your IRA transactions. For example, you are prohibited from buying investments from, or selling investments to, your IRA. If you violate these rules, your account will cease to be treated as an IRA, with potentially devastating tax consequences.

Finally, you need to understand the UBIT (unrelated business income tax) rules. Even though IRA investments usually grow tax deferred (or even potentially tax free in the case of a Roth IRA), if your IRA conducts certain business activities or has debt-financed income, then your IRA could be taxed currently on all or part of the income generated.

Investing in real estate

Your self-directed IRA can invest in virtually any form of real estate. That includes direct ownership in property as well as indirect ownership through limited partnership interests, REITs, and mortgage obligations. Your IRA can buy a beach house, a multifamily home, commercial property, raw land, time shares, condos, an island–almost anything. Your IRA can be the sole owner of the real estate, or a partial owner with others.

Your IRA can even borrow money to purchase real estate. However, it may be difficult to find a bank that will lend money to your IRA (since you can’t personally guarantee the note). Borrowing may also cause some of the income (or sales proceeds) from the property to be taxed currently to your IRA under the UBIT rules. When you invest in real estate, you’ll also need to pay particular attention to the prohibited transaction rules. You can’t, for example, sell property you already own to your IRA. And neither you nor certain family members can use real estate while it’s owned by your IRA. As discussed below, that sort of self-dealing can result in your entire IRA becoming taxable to you.

Keep in mind that when you hold real estate in a traditional IRA, you’ll have to pay tax at ordinary income rates when your account is ultimately paid out to you–whether you receive cash or the property itself. Qualified distributions from a self-directed Roth IRA, on the other hand, are free from federal income tax, which makes the Roth IRA an attractive vehicle for real estate ownership. Say you’ve found your dream retirement home. It may be possible to have your Roth IRA purchase the property, rent it out to an unrelated party to generate income, and then, when you’re ready to retire, have the IRA distribute the property (and any income) to you tax free. (A distribution is qualified if you satisfy a five-year holding period and you’re either age 59½ or disabled when you receive the distribution.)

Finally, note that you’ll need to pay any expenses related to your real estate investment out of your IRA, so make sure it will have enough cash each year to cover any real estate taxes, legal fees, repairs, insurance, and other costs.

What are prohibited transactions?

Generally, a prohibited transaction is any improper use of an IRA account or annuity by you, your beneficiary, or any disqualified person. Disqualified persons include IRA fiduciaries (see below) and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). The following are examples of prohibited transactions with an IRA:

  • Borrowing money from it • Selling property to it
  • Receiving unreasonable compensation for managing it
  • Using it as security for a loan
  • Buying property for personal use (present or future) with IRA funds

For this purpose, a fiduciary includes anyone who does any of the following:

  • Exercises any discretionary authority or discretionary control in managing your IRA or exercises any authority or control in managing or disposing of its assets
  • Provides investment advice to your IRA for a fee, or has any authority or responsibility to do so
  • Has any discretionary authority or discretionary responsibility in administering your IRA

Consequences of engaging in a prohibited transaction

Generally, if you (or your beneficiary after your death) engage in a prohibited transaction at any time during the year, the account stops being an IRA as of the first day of that year. The account is also treated as distributing all its assets to you at their fair market values on the first day of the year. For a traditional IRA, if the total of those values exceeds your basis in the IRA, you’ll have a taxable gain that’s includible in your income. If you’re not yet age 59½, the 10% premature distribution penalty tax may also apply. The IRS hasn’t yet provided specific guidance describing how these rules apply to Roth IRAs. However, it’s probable that if you’ve satisfied the requirements for a qualified distribution, the distribution will still be tax free. A nonqualified distribution from a Roth IRA will result in a taxable gain to the extent the distribution exceeds your Roth IRA contributions (and again, the premature distribution penalty tax may apply if you haven’t yet reached age 59½).

What is UBIT?

UBIT stands for “unrelated business income tax.” While not common, it can apply to your traditional (and Roth) IRA. (The UBIT rules also apply to most employer retirement plans and tax-exempt organizations.) In simple terms, if your IRA regularly conducts a trade or business (for example, you buy and operate a bakery using IRA funds), then the income from that trade or business (less any expenses directly connected with carrying on the trade or business) is subject to UBIT. The IRA is taxed on the income (unrelated business taxable income, or UBTI) at trust tax rates.

The term “trade or business” is defined as any activity carried on for the production of income from selling goods or performing services. This has been broadly interpreted to apply even if an IRA doesn’t directly conduct a business, but instead invests in a pass-through entity, like a partnership, that conducts a trade or business. If an IRA invests in a partnership that conducts a trade or business, then the IRA must calculate its UBTI based on its share of the partnership’s gross income and deductions. This information is provided by the partnership to the IRA on Schedule K-1.

There are numerous exclusions from the definition of UBTI, including dividends, interest, annuities, royalties, and rents from real property. However, even otherwise exempt income can become subject to UBIT if the property is acquired with borrowed funds. For example, if your IRA purchases real property and finances the purchase with a mortgage, any rental income attributable to the financed portion of the property will be UBTI, even though that rental income would otherwise be exempt. An IRA needs at least $1,000 of gross income from unrelated businesses for the UBIT to apply. The IRA itself is responsible for paying the tax. This may result in double taxation as the income will be subject to tax again, under the regular IRA distribution rules, when ultimately distributed from the IRA (although qualified distributions from Roth IRAs will be tax free).

As you can see, a self-directed IRA can provide you with almost unlimited investment flexibility, but also presents some traps for the unwary. Your financial professional can help you weigh the benefits and risks of a self-directed IRA, and help you determine if it’s the right choice for you.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, Merck, Pfizer, AT&T, Verizon, Northrop Grumman, Raytheon, Bank of America, Qwest, Chevron, Hughes, ExxonMobil, Glaxosmithkline, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com..

Protecting Your Loved Ones with Life Insurance

How much life insurance do you need?

Your life insurance needs will depend on a number of factors, including the size of your family, the nature of your financial obligations, your career stage, and your goals. For example, when you’re young, you may not have a great need for life insurance. However, as you take on more responsibilities and your family grows, your need for life insurance increases.

Here are some questions that can help you start thinking about the amount of life insurance you need:

  • What immediate financial expenses (e.g., debt repayment, funeral expenses) would your family face upon your death?
  • How much of your salary is devoted to current expenses and future needs?
  • How long would your dependents need support if you were to die tomorrow?
  • How much money would you want to leave for special situations upon your death, such as funding your children’s education, gifts to charities, or an inheritance for your children?
  • What other assets or insurance policies do you have?

Types of life insurance policies

The two basic types of life insurance are term life and permanent (cash value) life. Term policies provide life insurance protection for a specific period of time. If you die during the coverage period, your beneficiary receives the policy’s death benefit. If you live to the end of the term, the policy simply terminates, unless it automatically renews for a new period. Term policies are typically available for periods of 1 to 30 years and may, in some cases, be renewed until you reach age 95. With guaranteed level term insurance, a popular type, both the premium and the amount of coverage remain level for a specific period of time.

Permanent insurance policies offer protection for your entire life, regardless of your health, provided you pay the premium to keep the policy in force. As you pay your premiums, a portion of each payment is placed in the cash-value account. During the early years of the policy, the cash-value contribution is a large portion of each premium payment. As you get older, and the true cost of your insurance increases, the portion of your premium payment devoted to the cash value decreases. The cash value continues to grow–tax deferred–as long as the policy is in force. You can borrow against the cash value, but unpaid policy loans will reduce the death benefit that your beneficiary will receive. If you surrender the policy before you die (i.e., cancel your coverage), you’ll be entitled to receive the cash value, minus any loans and surrender charges.

Many different types of cash-value life insurance are available, including:

  • Whole life: You generally make level (equal) premium payments for life. The death benefit and cash value are predetermined and guaranteed (subject to the claims-paying ability of the issuing insurance company). Your only action after purchase of the policy is to pay the fixed premium.
  • Universal life: You may pay premiums at any time, in any amount (subject to certain limits), as long as the policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value will grow at a declared interest rate, which may vary over time.
  • Indexed universal life: This is a form of universal life insurance with excess interest credited to cash values. But unlike universal life insurance, the amount of interest credited is tied to the performance of an equity index, such as the S&P 500.
  • Variable life: As with whole life, you pay a level premium for life. However, the death benefit and cash value fluctuate depending on the performance of investments in what are known as subaccounts. A subaccount is a pool of investor funds professionally managed to pursue a stated investment objective. You select the subaccounts in which the cash value should be invested.
  • Variable universal life: A combination of universal and variable life. You may pay premiums at any time, in any amount (subject to limits), as long as policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value goes up or down based on the performance of investments in the subaccounts.

With so many types of life insurance available, you’re sure to find a policy that meets your needs and your budget.

Choosing and changing your beneficiaries

When you purchase life insurance, you must name a primary beneficiary to receive the proceeds of your insurance policy. Your beneficiary may be a person, corporation, or other legal entity. You may name multiple beneficiaries and specify what percentage of the net death benefit each is to receive. If you name your minor child as a beneficiary, you should also designate an adult as the child’s guardian in your will.

What type of insurance is right for you?

Before deciding whether to buy term or permanent life insurance, consider the policy cost and potential savings that may be available. Also keep in mind that your insurance needs will likely change as your family, job, health, and financial picture change, so you’ll want to build some flexibility into the decision-making process. In any case, here are some common reasons for buying life insurance and which type of insurance may best fit the need.

Mortgage or long-term debt: For most people, the home is one of the most valuable assets and also the source of the largest debt. An untimely death may remove a primary source of income used to pay the mortgage. Term insurance can replace the lost income by providing life insurance for the length of the mortgage. If you die before the mortgage is paid off, the term life insurance pays your beneficiary an amount sufficient to pay the outstanding mortgage balance owed.

Family protection: Your income not only pays for day-to-day expenses, but also provides a source for future costs such as college education expenses and retirement income. Term life insurance of 20 years or longer can take care of immediate cash needs as well as provide income for your survivor’s future needs. Another alternative is cash value life insurance, such as universal life or variable life insurance. The cash value accumulation of these policies can be used to fund future income needs for college or retirement, even if you don’t die.

Small business needs: Small business owners need life insurance to protect their business interest. As a business owner, you need to consider what happens to your business should you die unexpectedly. Life insurance can provide cash needed to buy a deceased partner’s or shareholder’s interest from his or her estate. Life insurance can also be used to compensate for the unexpected death of a key employee.

Review your coverage

Once you purchase a life insurance policy, make sure to periodically review your coverage; over time your needs will change. An insurance agent or financial professional can help you with your review.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Bank of America, ING Retirement, AT&T, Qwest, Verizon, Raytheon, Chevron, Hughes, Northrop Grumman, Pfizer, ExxonMobil, Glaxosmithkline, Merck, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Yes, Young Growing Families Can Save & Invest

It may seem like a tall order, but it can be accomplished. 

Plan to put yourself steps ahead of your peers. If you have a young, growing family, no doubt your to-do list is pretty long on any given day. Beyond today, you are probably working on another kind of to-do list for the long term. Where does “saving and investing” rank on that list?

For some families, it never quite ranks high enough – and it never becomes the priority it should become. Assorted financial pressures, sudden shifts in household needs, bad luck – they can all move “saving and investing” down the list. Even so, young families have planned to build wealth in the face of such stresses. You can follow their example. It is less an option than a necessity.

First step: put it into numbers. Most people have invested a little by the time they reach 30 or 35, and some have invested avidly. A plan is not always in place, however. The mission is simply to “make money” or “build wealth” for “the future.”

This is good, but also vague. How much money will you need to save by 65 to promote enough retirement income and to live comfortably? Are you on pace to build a retirement nest egg that large? How much risk do you feel comfortable tolerating as you invest? What kind of impact are investment fees and taxes having on your efforts?

A financial professional can help you arrive at answers to these questions, and others. He or she can help you define long-range retirement savings goals and project the amount of savings and income you may need to sustain your lifestyle as retirees. At that point, “the future” will seem more tangible and your wealth-building effort even more purposeful.

Second step: start today & never stop. If you have already started, congratulations! In getting an early start, you have taken advantage of a young investor’s greatest financial asset: time.

If you haven’t started saving and investing, you can do so now. It doesn’t take a huge lump sum to begin. Even if you defer $100 worth of salary into a retirement plan a month, you are putting a foot forward. See if you can allocate much more.

If you begin when you are young and keep at it, you will witness the awesome power of compounding as you build your retirement savings and net worth through the years.

Just how awesome is it? An example: let’s say you save $100 per month in an investment account for 20 years and the account returns a (hypothetical) 5% for you over those two decades. In 20 years under such conditions, your $100-a-month nest egg will not amount to $24,000 – it will work out to $41,011, which is 71% more! If you put in $200 a month, you wind up with a projected $82,022 off of the $24,000 in contributions! We aren’t factoring in account fees or market fluctuations, of course – but you get the picture. Stretched out to 30 years, a consistent $100-per-month contribution and a consistent 5% return project to $82,302; raise the monthly contribution to $200 and you get $164,604. These numbers factor in annual compounding; use daily compounding as the variable, and they grow a bit larger. So even if you set aside and invest a few twenties each month, you may still end up with appreciable retirement savings – and these are numbers for one retirement saver, there are two of you.1

What’s that? You say you can’t retire on $164,000 or less? You’re absolutely right. You have to devote more than that to your effort. You may need a million or two – and if you plan ahead, you may very well generate it. Ownership of equity investments, real property, business or professional success – this can all help to position you and your family for a comfortable future, provided you keep good financial habits along the way and pay attention to taxes.  

How do you find the balance? This is worth addressing – how do you balance saving and investing with attending to your family’s immediate financial needs?

Bottom line, you have to find money to save and invest for your family’s near-term and long-term goals. If it isn’t on hand, you may find it by reducing certain household costs. Are you spending a lot of money on goods and services you want rather than need? Cut back on that kind of spending. Is credit card debt siphoning away dollars you should assign to saving and investing? Fix that financial leak and avoid paying with plastic whenever you can. Other young families are doing it, and yours can as well.   

Vow to keep “paying yourself first” – maintain the consistency of your saving and investing effort. What is more important, saving for your child’s college education or buying those season tickets? Who comes first in your life, your family or your gardener? You know the answer.

It has been done; it should be done. Stories abound of families that have built wealth out of comparative poverty. There are people who came to this country with little more than the clothes on their backs who have found prosperity; there are families (including single-parent households) who have been dealt a bad hand yet overcame long financial odds to gain affluence.

It all starts with belief – the belief that you can do it. Complement that belief with a plan and regular saving and investing, and you may find yourself much better off much sooner than you think.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx [12/26/14]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Glaxosmithkline, ING Retirement, Alcatel-Lucent, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, Verizon, Bank of America, ExxonMobil, Merck, Pfizer or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Health Savings Accounts: Are They Just What the Doctor Ordered?

Are health insurance premiums taking too big of a bite out of your budget? Do you wish you had better control over how you spend your health-care dollars? If so, you may be interested in an alternative to traditional health insurance called a health savings account (HSA).

How does this health-care option work?

An HSA is a tax-advantaged account that’s paired with a high-deductible health plan (HDHP). Let’s look at how an HSA works with an HDHP to enable you to cover your current health-care costs and also save for your future needs.

Before opening an HSA, you must first enroll in an HDHP, either on your own or through your employer. An HDHP is “catastrophic” health coverage that pays benefits only after you’ve satisfied a high annual deductible. (Some preventative care, such as routine physicals, may be covered without being subject to the deductible). For 2016, the annual deductible for an HSA-qualified HDHP must be at least $1,300 for individual coverage and $2,600 for family coverage. However, your deductible may be higher, depending on the plan.

Once you’ve satisfied your deductible, the HDHP will provide comprehensive coverage for your medical expenses (though you may continue to owe co-payments or coinsurance costs until you reach your plan’s annual out-of-pocket limit). A qualifying HDHP must limit annual out-of-pocket expenses (including the deductible) to no more than $6,550 for individual coverage and $13,100 for family coverage for 2016. Once this limit is reached, the HDHP will cover 100% of your costs, as outlined in your policy. Because you’re shouldering a greater portion of your health-care costs, you’ll usually pay a much lower premium for an HDHP than for traditional health insurance, allowing you to contribute the premium dollars you’re saving to your HSA. Your employer may also contribute to your HSA, or pay part of your HDHP premium. Then, when you need medical care, you can withdraw HSA funds to cover your expenses, or opt to pay your costs out-of-pocket if you want to save your account funds.

An HSA can be a powerful savings tool. Because there’s no “use it or lose it” provision, funds roll over from year to year. And the account is yours, so you can keep it even if you change employers or lose your job. If your health expenses are relatively low, you may be able to build up a significant balance in your HSA over time. You can even let your money grow until retirement, when your health expenses are likely to be substantial. However, HSAs aren’t foolproof. If you have relatively high health expenses (especially within the first year or two of opening your account, before you’ve built up a balance), you could deplete your HSA or even face a shortfall.

How can an HSA help you save on taxes?

HSAs offer several valuable tax benefits:

  • You may be able to make pretax contributions via payroll deduction through your employer, reducing your current income tax.
  • If you make contributions on your own using after-tax dollars, they’re deductible from your federal income tax (and perhaps from your state income tax) whether you itemize or not. You can also deduct contributions made on your behalf by family members.
  • Contributions to your HSA, and any interest or earnings, grow tax deferred.
  • Contributions and any earnings you withdraw will be tax free if they’re used to pay qualified medical expenses.

Consult a tax professional if you have questions about the tax advantages offered by an HSA

Can anyone open an HSA?

Any individual with qualifying HDHP coverage can open an HSA. However, you won’t be eligible to open an HSA if you’re already covered by another health plan (although some specialized health plans are exempt from this provision). You’re also out of luck if you’re 65 and enrolled in Medicare or if you can be claimed as a dependent on someone else’s tax return.

How much can you contribute to an HSA?

For 2016, you can contribute up to $3,350 for individual coverage and $6,750 for family coverage. This annual limit applies to all contributions, whether they’re made by you, your employer, or your family members. You can make contributions up to April 15th of the following year (i.e., you can make 2015 contributions up to April 15, 2016). If you’re 55 or older, you may also be eligible to make “catch-up contributions” to your HSA, but you can’t contribute anything once you reach age 65 and enroll in Medicare.

Can you invest your HSA funds?

HSAs typically offer several savings and investment options. These may include interest-earning savings, checking, and money market accounts, or investments such as stocks, bonds, and mutual funds that offer the potential to earn higher returns but carry more risk (including the risk of loss of principal). Make sure that you carefully consider the investment objectives, risks, charges, and expenses associated with each option before investing. A financial professional can help you decide which savings or investment options are appropriate.

How can you use your HSA funds?

You can use your HSA funds for many types of health-care expenses, including prescription drugs, eyeglasses, deductibles, and co-payments. Although you can’t use funds to pay regular health insurance premiums, you can withdraw money to pay for specialized types of insurance such as long-term care or disability insurance. IRS Publication 502 contains a list of allowable expenses.

There’s no rule against using your HSA funds for expenses that aren’t health-care related, but watch out–you’ll pay a 20% penalty if you withdraw money and use it for nonqualified expenses, and you’ll owe income taxes as well. Once you reach age 65, however, this penalty no longer applies, though you’ll owe income taxes on any money you withdraw that isn’t used for qualified medical expenses.

Questions to consider

  • How much will you save on your health insurance premium by enrolling in an HDHP? If you’re currently paying a high premium for individual health insurance (perhaps because you’re self-employed), your savings will be greater than if you currently have group coverage and your employer is paying a substantial portion of the premium.
  • What will your annual out-of-pocket costs be under the HDHP you’re considering? Estimate these based on your current health expenses. The lower your costs, the easier it may be to accumulate HSA funds.
  • How much can you afford to contribute to your HSA every year? Contributing as much as you can on a regular basis is key to building up a cushion against future expenses.
  • Will your employer contribute to your HSA? Employer contributions can help offset the increased financial risk that you’re assuming by enrolling in an HDHP rather than traditional employer-sponsored health insurance.
  • Are you willing to take on more responsibility for your own health care? For example, to achieve the maximum cost savings, you may need to research costs and negotiate fees with health providers when paying out-of-pocket.
  • How does the coverage provided by the HDHP compare with your current health plan? Don’t sacrifice coverage to save money. Read all plan materials to make sure you understand benefits, exclusions, and all costs.
  • What tax savings might you expect? Tax savings will be greatest for individuals in higher income tax brackets. Ask your tax advisor or financial professional for help in determining how HSA contributions will impact your taxes.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, Alcatel-Lucent, AT&T, Bank of America, Qwest, Chevron, Hughes, ExxonMobil, Glaxosmithkline, Merck, Northrop Grumman, Pfizer, Raytheon, Verizon or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Common Annuity Riders

An annuity is a contract between you (the purchaser or owner) and the issuer (an insurance company). In its simplest form, you pay money to the annuity issuer, the issuer invests the money for you, and then the issuer pays out the principal and earnings back to you or to a named beneficiary.

An immediate annuity is a contract between you and an insurance company in which you pay a single sum of money to the company in exchange for its promise to make payments to you for a fixed period of time or for the rest of your life.

Annuity riders are optional features that provide added benefits to a basic annuity contract. For example, some riders focus on offering greater access to the annuity’s principal, or providing long-term income.

Annuity riders usually come with an annual cost, generally ranging from.1% to 1.0% or more of the annuity’s value. Review the annuity sales materials and prospectus for a description of applicable fees and charges. The availability of a specific annuity rider usually depends on the annuity issuer and the type of annuity you are considering. 

Cost-of-living adjustment rider

The cost-of-living adjustment rider, available on some immediate annuities, increases immediate annuity payments by a stated annual percentage to offset the effects of inflation. However, due to the added cost of this rider to the issuer, the first few payments from an annuity with this rider are typically less than they would be without the rider. It usually takes several years before cost-of-living immediate annuity payments equal or exceed immediate annuity payments without this rider. 

Cash/installment refund rider

Available on some immediate annuities, the cash refund rider provides that if the total of all immediate annuity payments received by the time of your death is less than the investment (the premium) you paid into the immediate annuity, the difference is paid in a lump sum to your annuity beneficiary. The installment refund rider is similar to the cash refund rider, except that your beneficiary receives the balance of the immediate annuity premium in installment payments instead of a lump sum. 

Impaired risk (medically underwritten) rider

This rider may be added to an immediate annuity. Ordinarily, an insurance company bases the amount of immediate annuity payments on the amount of premium you pay, your age at the time payments begin, and how long you are expected to live if payments are to be made for the rest of your life. If you have a medical condition that reduces your life expectancy, the impaired risk rider bases your annuity payments on your shortened life expectancy. This results in payments being greater than they would be for a person in good health, or the payments can be the same but for a smaller premium.

Commuted payout rider

This immediate annuity rider allows you to withdraw a lump-sum amount from your immediate annuity in addition to the regular payments you are receiving. Usually, this option is available for a limited period of time, and may be limited to a maximum dollar amount or a maximum percentage of your premium.

Guaranteed minimum accumulation benefit rider (GMAB)

The GMAB rider, available with some variable annuities, restores your annuity’s accumulation value to the amount of your total premiums paid if, after a prescribed number of years (usually 5 to 10), the annuity’s accumulation value is less than the premiums you paid (excluding your withdrawals). Some issuers offer this rider with the ability to lock in any gains in the accumulation value. Thereafter, your guaranteed minimum accumulation value will equal your total premiums paid, plus locked-in gains, less withdrawals.

Guaranteed minimum withdrawal benefit rider (GMWB) 

The GMWB rider provides you with a minimum income by allowing you to take withdrawals from your annuity up to an amount at least equal to the premiums you paid. Annual withdrawals are usually limited to a percentage of the total premiums paid (5% to 12% per year). Both the GMAB rider and the GMWB rider provide you with the opportunity to secure the return of your investment (the premium) in the annuity, even if the annuity’s accumulation value decreases due to poor subaccount performance. 

Guaranteed minimum income benefit rider (GMIB)

The GMIB rider, included with some variable annuities, offers a minimum income regardless of your actual accumulation value. The annuity issuer adds a growth rate to your premiums (usually 5% to 7% per year) that becomes your guaranteed minimum account value. After a minimum number of years (often 5 to 10), the rider allows you to convert the variable annuity to an immediate annuity and receive payments based on the greater of the minimum account value or the annuity’s accumulation value. 

Guaranteed lifetime withdrawal benefit rider (GLWB)

The GLWB rider may be added to some annuity contracts. It allows you to receive an annual income for the rest of your life without having to convert to an immediate annuity. And you can usually access the remaining accumulation value in addition to the income payments received. Income payments and withdrawals are subtracted from the annuity’s cash value.  

Long-term care rider

The long-term care rider is available with many fixed deferred annuities. If you become confined to a nursing home, or are unable to take care of yourself, this rider allows you to access more of your annuity’s accumulation value, possibly up to 100%, without the imposition of surrender charges or distribution costs otherwise applicable. 

Disability/unemployment rider

These riders are offered with fixed and variable annuities. If you become disabled for an extended period of time (usually from 60 days to 1 year), or if you are unemployed for a similar length of time and are eligible for unemployment benefits, these riders allow you to access a portion or all of your annuity’s accumulation value without the imposition of surrender charges. 

Terminal illness rider

This rider, available with both fixed and variable annuities, waives surrender charges otherwise applicable for a portion or all of your annuity’s accumulation value if you suffer from a terminal illness with a medical life expectancy of one year or less. 

Immediate Variable Fixed
Cost-of-Living GMAB LTC
Cash/Installment GMWB Disability
Impaired Risk GMIB Terminal Illness
Commuted Payout GLWB GLWB
Disability Disability

 

Terminal Illness

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Bank of America, Northrop Grumman, Raytheon, Alcatel-Lucent, Qwest, Chevron, Hughes, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Signs of Elder Abuse

Physical, mental & financial warning signals.

Is someone taking advantage of someone you love? June 15 is World Elder Abuse Prevention Day, a day to call attention to a crisis that may become even more common as baby boomers enter the “third acts” of their lives.1

Every year, more than half a million American elders are abused or neglected. That estimate comes from the Centers for Disease Control, and the frequency of elder abuse may be greater as so many elders are afraid or simply unable to speak out about what is happening to them. In some cases, the abuse is limited to financial exploitation. In other cases, it may encompass neglect and physical or emotional cruelty.1

What should you watch out for? Different varieties of elder abuse have different signals, some less obvious than others.

Neglect. This is commonly defined as withholding or failing to supply necessities of daily living to an elder, from food, water and appropriate clothing to necessary hygiene and medicines. Signals are easily detectable and include physical signs such as bedsores, malnutrition and dehydration and flawed living conditions (i.e., faulty electrical wiring, fleas or cockroaches, inadequate heat or air conditioning).

Self-neglect also surfaces, stemming from the declining physical or mental capacity of an elder. If he or she foregoes proper hygiene, disdains needed medications or medical aids, or persists in living in an insect-ridden, filthy or fire-hazardous dwelling, intervene to try and change their environment for the better, for their health and safety.

Finally, neglect may also take financial form. If someone who has assumed a fiduciary duty to pay for assisted living, nursing home care or at-home health care fails to do so, that is a form of neglect which may be defined as elder abuse. The same goes for an in-home eldercare service provider that fails to provide an adequate degree or frequency of care.2

Abandonment. This occurs when a caregiver or responsible party flat-out deserts an elder – dropping him or her off at a nursing home, a hospital, or even a bus or train station with no plans to return. Hopefully, the elder has the presence of mind to call for help, but if not, a tragic situation will quickly worsen. When an elderly person seems to stay in one place for hours and appears confused or deserted, it is time to get to the bottom of what just happened for his or her safety.

Physical abuse. Bruises and lacerations are evident signals, but other indicators are less evident: sprains and dislocations, cracked eyeglass lenses, impressions on the arms or legs from restraints, too much or too little medication, or a strange reticence, silence or fearfulness or other behavioral changes in the individual.

Emotional or psychological abuse. How do you know if an elder has been verbally degraded, tormented, or threatened in your absence, or left in isolation? If the elder is not willing or able to let you know about such wrongdoing, watch for signals such as withdrawal from conversation or communication, agitation or distress, and repetitive or obsessive-compulsive actions linked to dementia such as rocking, biting or sucking.2

Financial abuse. When an unscrupulous relative, friend or other party uses an elder’s funds, property, or assets illegally or dishonestly, this is financial exploitation of the elderly. This runs all the way from withdrawing an elder’s savings with his or her ATM card to forgery to improperly assuming conservatorship or power of attorney.2

How do you spot it? Delve into the elder’s financial life and see if you detect things like strange ATM withdrawals or account activity, additional names on a bank signature card, changes to beneficiary forms, or the sudden absence of collectibles or valuables.

Examine signatures on financial transactions – on closer examination, do they appear to be authentic, or studied forgeries? Have assets been inexplicably transferred to long-uninvolved heirs or relatives, or worse yet apparent strangers? Have eldercare bills gone unpaid recently? Is the level of eldercare being provided oddly slipshod given the financial resources being devoted to it?

Respect your elders; protect your elders. Some people aim to exploit senior citizens. Others simply don’t recognize or respect the responsibilities that come with eldercare. Whether the abuse is intentional or not, the emotional, physical or financial harm done can be reprehensible. Talk to or check in on your parents, grandparents, siblings or other elders you know and care for to see that they are free from such abuse.

Citations.

1 – cdc.gov/features/elderabuse/ [6/9/14]

2 – ncea.aoa.gov/FAQ/Type_Abuse/index.aspx [2/10/15]

The Retirement Group is not affiliated with nor endorsed by Bank of America, Raytheon, ExxonMobil, fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Hughes, Northrop Grumman, Qwest, Chevron, ING Retirement, AT&T, Verizon, Glaxosmithkline, Merck, Pfizer, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

The Right Beneficiary

Who should inherit your IRA or 401(k)? See that they do.

 

Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k), life insurance policy, or annuity? You may be able to answer such a question quickly and easily. Or you may be saying, “You know … I’m not totally sure.” Whatever your answer, it is smart to periodically review your beneficiary designations.

Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Eighties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit – perhaps more than a bit?

While your beneficiary choices may seem obvious and rock-solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life – and they may warrant changes in your beneficiary decisions.

In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. (It has happened.) If you don’t have a designated beneficiary on your 401(k), the assets may go to the “default” beneficiary when you pass away, which might throw a wrench into your estate planning.

How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k) or life insurance policy may be your spouse, your child, maybe another loved one or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away.

Beneficiary designations commonly take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she is in line to receive the death benefit when you die, regardless of what your will states. Beneficiary designations allow life insurance proceeds to transfer automatically to heirs; these assets do not have go through probate.1,2

You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed, and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets? (See below.)

How your choices affect your estate. Virtually any inheritance carries a tax consequence. (Of course, through careful estate planning, you can try to defer or even eliminate that consequence.)

If you are simply naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen.3

When the beneficiary isn’t your spouse, things get a little more complicated for your estate, and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) And the problem will persist: when your non-spouse beneficiary inherits those retirement plan assets, those assets become part of his or her taxable estate, and his or her heirs might face higher estate taxes. Your non-spouse heir might also have to take required income distributions from that retirement plan someday, and pay the required taxes on that income.4

If you designate a charity or other 501(c)(3) non-profit organization as a beneficiary, the assets involved can pass to the charity without being taxed, and your estate can qualify for a charitable deduction.5

Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. Let’s check up and make sure your beneficiary choices make sense for the future. Just give me a call or send me an e-mail – I’m happy to help you.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – smartmoney.com/taxes/estate/how-to-choose-a-beneficiary-1304670957977/ [6/10/11]

2 – http://www.dummies.com/how-to/content/bypassing-probate-with-beneficiary-designations.html [1/30/13]

3 – http://www.nolo.com/legal-encyclopedia/estate-planning-when-you-re-married-noncitizen.html [1/30/13]

4 – individual.troweprice.com/staticFiles/Retail/Shared/PDFs/beneGuide.pdf [9/10]

5 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes [8/1/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, resources.hewitt.com, Glaxosmithkline, Northrop Grumman, Merck, Hughes, Bank of AmericaQwestExxonMobil, ING Retirement, Verizon, netbenefits.fidelity.com, hewitt.com, Pfizer, Raytheon, access.att.com, AT&T, Chevron, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.