Common Annuity Rider

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% 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 variable and equity-indexed annuities. 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.

Note: Annuity guarantees are subject to the claims-paying ability of the annuity issuer.

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 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 netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, Merck, Raytheon, ExxonMobil, Glaxosmithkline, Pfizer, Verizon, Northrop Grumman, fidelity.com, access.att.com, AT&T, Qwest, Chevron, ING Retirement, Hughes, Bank of America, 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.

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Counting on Your Husband’s Retirement Income? Three Things Women Should Know

Women face special challenges when planning for retirement. According to the Department of Labor,1 women are more likely than men to work in part-time jobs that don’t qualify for a retirement plan. And women are more likely to interrupt their careers (or stay out of the workforce altogether) to raise children or take care of other family members. As a result, women generally work fewer years and save less, leaving many to rely on their husbands’ savings and benefits to carry them both through retirement.

But this reliance creates risk–risk of divorce, risk that retirement funds won’t be adequate to last two lifetimes (a risk that falls disproportionately on women, who outlive men on average by five years), 2 and risk of bad retirement payout decisions. Here are three things you should know if you’re relying on your husband’s savings to carry you through retirement.


Qualified joint and survivor annuities

If your husband is covered by a traditional pension plan at work, one of the most important retirement decisions the two of you may make is whether to receive his pension benefit as a “qualified joint and survivor annuity” (QJSA). While the term sounds complicated, the concept is simple: should you elect a benefit that pays a higher amount while you’re both alive and ends when your husband dies (a single life annuity), or a benefit that pays a smaller amount during your joint lives but continues (in whole or in part) to you if your husband dies first (a QJSA)?
In order to fully understand your choices, it may help to first go over how a traditional pension plan works. Typically, you’re entitled to a “normal benefit,” payable for your lifetime and equal to a percent of your final pay, if you work for a certain number of years and retire at a certain date. A plan might say that you’ll get 50% of your final pay for life if you work 30 years and retire at age 65. If you work fewer years, your benefit will be less. If you retire earlier than age 65, your benefit will also be less, because it’s paid for a longer period of time.

For example, assume Joe is covered by a pension plan at work, and his plan contains the exact formula described above. Joe retires at age 65. He’s worked 30 years, and his final pay was $100,000. He’s entitled to a normal benefit of $50,000 per year, payable over his lifetime and ending at his death (a single life annuity).

But in order to protect spouses, federal law generally provides that if Joe is married, the plan can’t pay this benefit to Joe as a single life annuity unless his spouse, Mary, agrees. Instead, the benefit must be paid over Joe and Mary’s joint lives, with at least 50% of that benefit continuing to Mary for her remaining lifetime if she survives Joe. (That’s why it’s called a “joint and survivor annuity;” and it’s “qualified” because it meets the requirements of federal law–“QJSA” for short.)

Now, here’s where it gets a little complicated. Because the QJSA benefit is potentially paid for a longer period of time–over two lifetimes instead of one–Joe’s “normal benefit” will typically be reduced. Actuaries determine the exact amount of the reduction based on your life expectancies, but let’s assume that Joe’s benefit, if paid as a QJSA with 50% continuing to Mary after Joe’s death, is reduced to $45,000. This amount will be paid until Joe dies. And if Mary survives Joe, then $22,500 per year is paid to her until she dies. But if Mary dies first, the pension ends at Joe’s death, and nothing further is paid.
The plan will usually offer the option to have more than 50% continue to you after your spouse dies. For example, you may be able to elect a 75% or 100% QJSA. However, the larger the survivor annuity you select, the smaller the benefit you’ll receive during your joint lives. So, for example, if 100% continues after Joe’s death, then the payment to Joe might now be reduced to $40,000 (but $40,000 will continue to be paid after Joe’s death to Mary if she survives him).
You can rest assured that the QJSA option will be at least as valuable as any other optional form of benefit available to you–this is required by federal law. In some cases, it will be even more valuable than the other options, as employers often “subsidize” the QJSA. “Subsidizing” occurs when the plan doesn’t reduce the benefit payable during your joint lives (or reduces it less than actuarially allowed). For example, a plan might provide that Joe’s $50,000 normal benefit won’t be reduced at all if he and Mary elect the 50% QJSA option, and that she’ll receive the full $25,000 following Joe’s death. It’s important for you to know whether your spouse’s plan subsidizes the QJSA so that you can make an informed decision about which option to select. Other factors to consider are the health of you and your spouse, who’s likely to live longer, and how much other income you expect to have available if you survive your spouse.
You’ll receive an explanation of the QJSA from the plan prior to your spouse’s retirement, which should include a discussion of the relative values of each available payment option. Carefully read all materials the plan sends you. A QJSA may help assure that you don’t outlive your retirement income–don’t waive your rights unless you fully understand the consequences. And don’t be afraid to seek qualified professional advice, as this could be one of the most important retirement decisions you’ll make.


Qualified domestic relations orders

While we all hope our marriages will last forever, statistics tell us that about 50% of marriages in the United States will end in divorce.3 And since more men are covered by retirement plans and have larger retirement plan balances,4 the issue of how these benefits will be handled in the event of a divorce is especially critical for women who may have little or no retirement savings of their own. Under federal law, employer retirement plan benefits generally can’t be assigned to someone else. However, one important exception to this rule is for “qualified domestic relations orders,” commonly known as QDROs. If you and your spouse divorce, you can seek a state court order awarding you all or part of your spouse’s retirement plan benefit. Your spouse’s plan is required to follow the terms of any order that meets the federal QDRO requirements.
For example, you could be awarded all or part of your spouse’s 401(k) plan benefit as of a certain date, or all or part of your spouse’s pension plan benefit. There are several ways to divide benefits, so it’s very important to hire an attorney who has experience negotiating and drafting QDROs–especially for defined benefit plans where the QDRO may need to address such items as survivor benefits, benefits earned after the divorce, plan subsidies, COLAs, and other complex issues. (For example, a QDRO may provide that you will be treated as the surviving spouse for QJSA purposes, even if your spouse subsequently remarries.) The key takeaway here is that these rules exist for your benefit. Be sure your divorce attorney is aware of them.


You can have your own IRA

While it’s obviously important for women to try to contribute towards their own retirement, if you’re a nonworking spouse, your options are limited. But there is one tool you should know about. The “spousal IRA” rules may let you fund an individual retirement account even if you aren’t working and have no earnings. A spousal IRA is your own account, in your own name–one that could become an important source of retirement income with regular contributions over time.
How does it work? Normally, to contribute to an IRA, you must have compensation at least equal to your contribution. But if you’re married, file a joint federal income tax return, and earn less than your spouse (or nothing at all), the amount you can contribute to your own IRA isn’t based on your individual income, it’s based instead on the combined compensation of you and your spouse.

For example, Mary (age 50) and Joe (age 45) are married and file a joint federal income tax return for 2012. Joe earned $100,000 in 2012 and Mary, at home taking care of ill parents, earned nothing for the year. Joe contributes $5,000 to his IRA for 2012. Even though Mary has no compensation, she can contribute up to $6,000 to an IRA for 2012 (that includes a $1,000 “catch-up” contribution), because Joe and Mary’s combined compensation is at least equal to their total contributions ($11,000).

The spousal IRA rules only determine how much you can contribute to your IRA; it doesn’t matter where the money you use to fund your IRA actually comes from–you’re not required to track the source of your contributions. And you don’t need your spouse’s consent to establish or fund your spousal IRA. (The spousal IRA rules don’t change any of the other rules that generally apply to IRAs. You can contribute to a traditional IRA, a Roth IRA, or both. But you can’t make regular contributions to a traditional IRA after you turn 70½. And your ability to make annual contributions to a Roth IRA may be limited depending on the amount of your combined income.)

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, Pfizer, Verizon, Hughes, netbenefits.fidelity.com, resources.hewitt.com, Raytheon, Merck, Bank of America, hewitt.com, access.att.com, AT&T, Qwest, ING Retirement, Northrop Grumman, ExxonMobil, Chevron, 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.

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.

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]

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, 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, Chevron,  AT&T, Qwest,  Hughes, Northrop Grumman, Raytheon, ExxonMobil,  Verizon, Bank of America, 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.

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

Is it Better to Retire now or Later?

Should You Retire Now, Or Later?

Financially, there are reasons why you may want to work a bit longer.  

 The case for working past 65. Increasingly, baby boomers are urged to work until full retirement age or beyond. (Social Security defines “full” retirement age as 66 for those born from 1943-1954; it incrementally rises to 67 for those born in 1960 or later). If your health and workplace allow this, it may be a good idea for a few notable reasons.1

Your Social Security payments will be larger. Researchers from UCLA and Duke University jointly conducted a study and found that about 80% of Americans sign up for Social Security before full retirement age. In fact, 50% of Americans claim their federal retirement benefits either at age 62 or within two months of losing or quitting a job they hold at age 62 or older. The rush to get Social Security comes with a distinct penalty, though.2

As an example, take a hypothetical pre-retiree named Sharon. Born in 1952, Sharon wants to retire next year at age 62. If she leaves work and claims Social Security benefits in 2014, she will end up getting 25% less in monthly benefits than if she had waited until her full retirement age of 66.3

  

You have a chance to save more. Most people need to save more for retirement. Why not give yourself more years to amass extra funds for the next stage of life? They may even prove to be your peak earning years. If you have considerable retirement savings, think about the boost your nest egg could get from just two or three more years of growth and compounding.

Additionally, the longer you work, the shorter your retirement becomes. If you work two or three years longer, that is two or three years less of retirement that you have to fund.

  

You can pay down debts. Do you have a dream of retiring debt-free? Why not give yourself a better chance to realize it? Too many people are approaching retirement with significant debt – not just mortgage debt, but also business and education loans, auto loans and high credit card balances. This is becoming a major headache for baby boomers.

In a recent Securian Financial Group survey, 67% of those polled anticipated retiring with an outstanding mortgage. Credit card debt may seem easy to manage, but consider that most cards charge interest rates of 15% or more. In retirement, will your investments give you that kind of return? Retiring with your house paid off also puts you in position for a reverse mortgage should you need another income stream.2,4

 

You can keep your health insurance. If your employer sponsors a health plan, leaving work at age 62 is a definite risk when you aren’t eligible for Medicare until age 65. Unless you want to shop for your own health insurance or live without coverage for up to three years, it makes sense to stay on the job.4

You have a chance to delay RMDs from your workplace retirement plan. Owners of traditional IRAs, SIMPLE IRAs and SEP-IRAs must take Required Minimum Distributions from those accounts after turning 70½. It doesn’t matter whether you are working or retired; you must do it. That isn’t the case with qualified retirement plans such as 401(k)s, 403(b)s and 457(b)s. With some exceptions, you can wait until the year in which you retire to take your first RMD from those accounts. So each year you work past 70 potentially represents another year in which you don’t have to take an RMD from a qualified retirement plan and see your income taxes jump as a result. No RMD also means a bigger account balance that may benefit from another year of compounding and investment returns.4,5

 

You may even be happier. Working provides a sense of purpose and accomplishment. If you don’t have a new passion or objective in mind when you end your career, you may start to feel a bit adrift.

A 2012 report from the American Psychological Association’s Center for Organizational Excellence found that workers older than 55 enjoy their jobs more than any other age group. Asked why they stayed at their particular job, 80% of the employees polled who were older than 55 said job enjoyment was the main reason, with 76% noting “work-life fit” as the leading justification. In contrast, only 58% of employees aged 18-34 cited job enjoyment as a motivation to stay with their current employer, and just 61% felt their jobs fit well with the other aspects of their lives.6

So if you like what you do, you may want to keep at it a little longer. The financial and emotional benefits could be considerable.

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 – ssa.gov/retire2/retirechart.htm [9/19/13]

2 – dailyfinance.com/2013/09/10/reasons-70-new-62-retirement-social-security-debt/ [9/10/13]

3 – ssa.gov/retirement/1943.html [9/19/13]

4 – marketwatch.com/story/5-reasons-you-shouldnt-retire-2013-09-17 [9/17/13]

5 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Required-Minimum-Distributions-%28RMDs%29 [9/4/13]

6 – apaexcellence.org/resources/goodcompany/newsletter/article/391 [9/5/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Glaxosmithkline, Northrop Grumman, Raytheon, ExxonMobil, Pfizer, Merck, Verizon,  ING Retirement, AT&T, Bank of America, Alcatel-Lucent,  Qwest, Chevron, Hughes, 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 maybe reached at http://www.theretirementgroup.com.

Tips for Retirement

A few simple steps to help you get started on the right foot.

Planning financially for retirement may feel overwhelming. For some, that feeling is what keeps them from really focusing on and implementing a plan. If you haven’t started planning for your retirement – do yourself a favor and make TODAY the day you begin.

1. The earlier the better. 

Time is definitely one of your greatest allies. A person who begins contributing a modest amount to a retirement plan in their early twenties could end up on par with someone who contributes much more aggressively but does not start until their mid-thirties. Even if you have to start small, start now. Whatever amount you can afford to set aside for later, do it – and let it grow. If you don’t have the luxury of starting young, don’t waste time worrying about it. Start now. You’ll never again be younger than you are today.

2. Be smart about what you’ll need

Yes, it’s true – the senior discount is alive and well, and the general cost of living may be less for those who have retired. But don’t forget, there are other costs to consider. Your healthcare costs, for example, may be greater in retirement simply because you’re not as healthy as you were in your youth. Additionally, you’ll want to take inflation into account. If you plan your retirement based on the cost of living and income of your 30’s, by the time you hit your retirement years, you may find you greatly underestimated your needs.

3. Be smart about how long you’ll need it

When Social Security was being developed, in the 1930’s, a male retiring in the United States was really only expected to live about 12 years past his date of retirement. 2 However, the average life expectancy of a United States citizen has risen fairly steadily throughout the last fifty years. 1 Depending on when you retire, you may need to plan for 20 or more years of income.

4. Take advantage of tax-deferred contributions.

It sounds like a no-brainer, but sometimes people determine how much they can afford to contribute to a retirement account based on their net income, rather than their gross income. You may decide you can only afford $50 less per paycheck, net. But remember that some contributions, like those to your 401(k) for example, may be made with pre-tax dollars. That means you can afford to contribute a bit more from your gross income and still only “miss” $50 from your net income. This is an important consideration.

5. Take advantage of matching contributions.

If your employer offers a 401(k) match – consider scrimping here and there in order to take maximum advantage of it. It’s a very positive domino effect. The more you contribute, the more you earn in matching contributions (up to the maximum allowable amount). Think of it this way – if your employer offers a 50% match, then for every $100 you don’t contribute, you’re missing out on $50 in “free money”. You’re also missing out on the growth potential of that money as well.

6. Do the math. 

This might be the most important retirement tip of all. Block off some time to sit down and do some calculations. Consider the different levels of contributions you could make and calculate how far those could take you by the time you reach retirement. Once you see what you COULD achieve, you may be more motivated to increase your contributions.

7. Trim the fat.

Keep careful track of your spending for one month (if you bank online, you may have access to tools that help you do this). After one full month, sit down and take a careful look at what you spent money on. Did it all make sense? Was some of it frivolous? Any regrets? Taking a close look at exactly where your money is going is often the best way to discover areas that need improvement, and ways you could adjust your spending habits. Add up all the money you feel you spent unnecessarily, then add that amount to the contribution math you did previously … how much further might that extra monthly contribution have taken you?

8. Get help.

These retirement tips are intended to help you get started down a path toward, potentially, a more successful retirement. But they’re just that – a starting point. While it’s definitely important to educate yourself and understand your finances, seeking the assistance of a financial professional may be one of the best moves you could make.

1 -google.com/publicdata?ds=wb wdi&met=sp_dyn_le00_in&idim=country:USA&dl=en&hl=en&q=life+expectancy [10/29/10]

2 – http://www.newretirement.com/Planning101/Retiring_Too_Soon.aspx [10/25/10]

The Retirement Group is not affiliated with nor endorsed by fidelity.com,  ING Retirement, MerckExxonMobil, Chevron, Pfizer, Verizon, Bank of America, Glaxosmithkline, AT&T, resources.hewitt.com, Raytheon, access.att.com, Qwest, netbenefits.fidelity.com, Hughes, Northrop Grumman, hewitt.com, 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 the presenting party, nor their affiliates. This information should not be construed as investment, 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 assistance or further information is needed, the reader is advised to engage the services of a competent professional.

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.

HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?

 Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently,1 one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.2

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits.3 This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.

These are the views of Peter Montoya Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative 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. Please consult your Financial Advisor for further information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

 

Citations. 1 nytimes.com/2007/09/21/business/21generic.html?_r=1&oref=slogin

2 marketwatch.com/news/story/health-care-costs-retirement-rise/story.aspx?guid=%7bEF2B6CDA-E176-4747-B528-76AC814051C5%7d&print=true&dist=printTop

3 money.cnn.com/2007/05/14/pf/retirement/nasi__report/index.htm

 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, 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,  Hughes, Pfizer, Northrop Grumman, Raytheon, AT&T, Qwest, Chevron, ExxonMobil, Glaxosmithkline, Merck, Verizon, Bank of America, 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.

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

 

 

How to Build an Emergency Fund

How would you respond to sudden financial demands? We all define “emergencies” differently, but we are not immune to them. How can we plan to stay afloat financially when they occur?  Most households are not financially prepared for an emergency – not even close. A recent study from the National Foundation for Credit Counseling found that 64% of Americans had less than $1,000 in funds earmarked for a crisis.1  While the recession did its part to siphon emergency funds from families, attention must be paid to rebuilding those funds. It may be difficult; it may be inconvenient. That doesn’t make it any less of a priority.

Emergencies tend to be linked to long-term debt. Having a designated emergency fund can help you attack that debt. When most people think of financial emergencies, they think of medical problems and burdensome costs that their insurance won’t fully absorb – but there are other paths to long-term debt, such as a sudden layoff, a natural disaster, a family issue with financial underpinnings or even an abrupt need to move to another metro area, for whatever reason.

How large should the fund be? You decide. An old rule of thumb is six months of net income or six months of expenses. If you are snickering or laughing out loud at your chances of saving that much, you aren’t alone. If your prospects of building a five-figure emergency fund seem remote, try to create one equivalent to two or three months of net income. Any amount is better than none.

How do you do it without hurting your standard of living? Few of us have a lump sum we can just reassign for emergencies. So consider these subtle savings opportunities.

> You could pay cash whenever possible, opening the door to incremental savings that credit card companies would otherwise take from you. A few dozen bucks can become a few hundred bucks, then a few thousand bucks over time. Incidentally, in a nationwide survey conducted by Chase Blueprint and LearnVest, 31% of people polled cited credit card debt as a major barrier to achieving financial objectives. The credit card debt carried by this 31% averaged about $5,000. Clearly, living on credit cards will thwart your effort to build a rainy day fund.2

> You could vow not to spend frivolously, thereby retaining money you might be tempted to throw away on impulse.

 

> You could sell stuff – stuff somebody else, maybe down the street or across the country, might want. Incidental shipping and handling costs could seem irrelevant next to the cash you generate.

 

> You could arrange direct deposit or start a seasonal savings account. The psychology behind both moves is simple: you are less likely to spend money if it doesn’t pass through your wallet.

 

Here’s how not to do it. Try to avoid building a crisis fund through self-defeating methods. For example:

> Don’t start an emergency fund with a loan. Do it with your own accumulated savings, bonus money from your job performance, royalties – whatever the origin, use money you have made or and/or saved yourself, not money you have borrowed from lenders or relatives.

> Don’t do it using payday loans or cash advances. High-interest short-term loans and cash advances on credit cards are often pitched as rescues to struggling households. Thanks to their absurd interest rates, payday loans are not financial “life rafts” by any means. Cash advances on credit and debit cards come with disproportionately high fees. Sadly, people who go in for these loans and advances once commonly go in for them again.

Don’t refrain from paying certain bills. Let’s say that you have eight debts you have to pay per month. If you only pay three of them each month and carefully alternate which debts get paid down, can you create an emergency fund with the money you avoid paying? Well, yes – but you may imperil your credit rating in the process.

If you don’t have a designated emergency fund, you can build it up in the same way that you probably invest: a little at a time, with relatively little impact on your lifestyle. It can be done. It should be done.

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 – http://www.learnvest.com/knowledge-center/5-ways-to-start-an-emergency-fund/ [8/14/12]

2 – http://www.foxbusiness.com/personal-finance/2012/11/01/seven-reasons-why-need-to-create-emergency-fund-now/ [11/1/12]

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, ING Retirement, Bank of America, netbenefits.fidelity.com, MerckVerizon, access.att.com, AT&T, Qwest, Pfizer, Chevron, Northrop Grumman, ExxonMobil, Hughes, Raytheon, hewitt.com, resources.hewitt.com, 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 http://www.theretirementgroup.com.

All About IRAs

All about IRAs

An individual retirement arrangement (IRA) is a personal retirement savings plan that offers specific tax benefits. In fact, IRAs are one of the most powerful retirement savings tools available to you. Even if you’re contributing to a 401(k) or other plan at work, you should also consider investing in an IRA.

What types of IRAs are available?

There are two major types of IRAs: traditional IRAs and Roth IRAs. Both allow you to make annual contributions of up to $5,500 in 2013 ($5,000 in 2012). Generally, you must have at least as much taxable compensation as the amount of your IRA contribution. But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional “catch-up” contributions. These folks can put up to $6,500 in their IRAs in 2013 ($6,000 in 2012).

Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both give you a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that’s best for you.

Traditional IRAs

Practically anyone can open and contribute to a traditional IRA. The only requirements are that you must have taxable compensation and be under age 70½. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount you earned.

Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pretax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status. You may qualify for a full deduction, a partial deduction, or no deduction at all.

What happens when you start taking money from your traditional IRA? Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10% early withdrawal penalty if you’re under age 59½, unless you meet one of the exceptions.

Traditional IRAs–Tax Year 2013
Individuals Covered by an Employer Plan
Filing status Deduction is limited if MAGI between: No deduction if MAGI over:
Single/Head of household $59,000 – $69,000 $69,000
Married joint* $95,000 – $115,000 $115,000
Married separate $0 – $10,000 $10,000
* If you’re not covered by an employer plan, but your spouse is, your deduction is limited if your MAGI is $178,000 to $188,000, and eliminated if your MAGI exceeds $188,000.

If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 70½. That’s when you have to take your first required minimum distribution from the IRA. After that, you must take a distribution by the end of every calendar year until your funds are exhausted or you die. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you’re required to in any year. However, if you withdraw less, you’ll be hit with a 50% penalty on the difference between the required minimum and the amount you actually withdrew.

Roth IRAs

Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation is at least $5,500 in 2013 ($5,000 in 2012), you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status. Your allowable contribution may be less than the maximum possible, or nothing at all.

Tax Year 2013
Filing status Contribution is limited if MAGI between: No contribution if MAGI over:
Single/Head of household $112,000 – $127,000 $127,000
Married joint $178,000 – $188,000 $188,000
Married separate $0 – $10,000 $10,000

Your contributions to a Roth IRA are not tax deductible. You can invest only after-tax dollars in a Roth IRA. The good news is that, if you meet certain conditions, your withdrawals from a Roth IRA will be completely free from federal income tax, including both contributions and investment earnings. To be eligible for these qualifying distributions, you must meet a five-year holding period requirement. In addition, one of the following must apply:

  • You have reached age 59½ by the time of the withdrawal
  • The withdrawal is made because of disability
  • The withdrawal is made to pay first-time homebuyer expenses ($10,000 lifetime limit from all IRAs)
  • The withdrawal is made by your beneficiary or estate after your death

Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalty is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.

Another advantage of the Roth IRA is that there are no required distributions after age 70½ or at any time during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution. Also, as long as you have taxable compensation and qualify, you can keep contributing to a Roth IRA after age 70½.

Choose the right IRA for you

Assuming you qualify to use both, which type of IRA is best for you? Sometimes the choice is easy. The Roth IRA will probably be a more effective tool if you don’t qualify for tax-deductible contributions to a traditional IRA. However, if you can deduct your traditional IRA contributions, the choice is more difficult. Most professionals believe that a Roth IRA will still give you more bang for your dollars in the long run, but it depends on your personal goals and circumstances. The Roth IRA may very well make more sense if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you’re still working (and probably in a higher tax bracket than you’ll be in after you retire). A financial professional or tax advisor can help you pick the right type of IRA for you.

Note:   You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot be more than $5,500 in 2013 ($6,500 if you’re age 50 or older).

The Retirement Group is not affiliated with nor endorsed by ExxonMobil, Glaxosmithkline, fidelity.com, netbenefits.fidelity.com, hewitt.com, access.att.com, Raytheon, Pfizer, Verizon, Bank of America, Alcatel-Lucent, resources.hewitt.com, Merck, ING Retirement, AT&T, Qwest, Chevron, Hughes, 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.

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 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.

Medical Professionals: A Prescription for Your Financial Health

The demands on medical practitioners today can seem overwhelming. It’s no secret that health-care delivery is changing, and those changes are reflected in the financial issues that health-care professionals face every day. You must continually educate yourself about new research in your chosen specialty, stay current on the latest technology that is transforming health care, and pay attention to business considerations, including ever-changing state and federal insurance regulations.

Like many, you may have transitioned from medical school and residency to being on your own with little formal preparation for the substantial financial issues you now face. Even the day-to-day concerns that affect most people–paying college tuition bills or student loans, planning for retirement, buying a home, insuring yourself and your business–may be complicated by the challenges and rewards of a medical practice. It’s no wonder that many medical practitioners look forward to the day when they can relax and enjoy the fruits of their labors.

Unfortunately, substantial demands on your time can make it difficult for you to accurately evaluate your financial plan, or monitor changes that can affect it. That’s especially true given ongoing health care reform efforts that will affect the future of the industry as a whole. Just as patients need periodic checkups, you may need to work with a financial professional to make sure your finances receive the proper care.

Maximizing your personal assets

Much like medicine, the field of finance has been the subject of much scientific research and data, and should be approached with the same level of discipline and thoughtfulness. Making the most of your earning years requires a plan for addressing the following issues.

Retirement

Your years of advanced training and perhaps the additional costs of launching and building a practice may have put you behind your peers outside the health-care field by a decade or more in starting to save and invest for retirement. You may have found yourself struggling with debt from years of college, internship, and residency; later, there’s the ongoing juggling act between making mortgage payments, caring for your parents, paying for weddings and tuition for your children, and maybe trying to squeeze in a vacation here and there. Because starting to save early is such a powerful ally when it comes to building a nest egg, you may face a real challenge in assuring your own retirement. A solid financial plan can help.

Investments

Getting a late start on saving for retirement can create other problems. For example, you might be tempted to try to make up for lost time by making investment choices that carry an inappropriate level or type of risk for you. Speculating with money you will need in the next year or two could leave you short when you need that money. And once your earnings improve, you may be tempted to overspend on luxuries you were denied during the lean years. One of the benefits of a long-range financial plan is that it can help you protect your assets–and your future–from inappropriate choices.

Tuition

Many medical professionals not only must pay off student loans, but also have a strong desire to help their children with college costs, precisely because they began their own careers saddled with large debts.

Tax considerations

Once the lean years are behind you, your success means you probably need to pay more attention to tax-aware investing strategies that help you keep more of what you earn.

Using preventive care

The nature of your profession requires that you pay special attention to making sure you are protected both personally and professionally from the financial consequences of legal action, a medical emergency of your own, and business difficulties. Having a well-defined protection plan can give you confidence that you can practice your chosen profession without putting your family or future in jeopardy.

Liability insurance

Medical professionals are caught financially between rising premiums for malpractice insurance and fixed reimbursements from managed-care programs, and you may find yourself evaluating a variety of approaches to providing that protection. Some physicians also carry insurance that protects them against unintentional billing errors or omissions. Remember that in addition to potential malpractice claims, you also face the same potential liabilities as other business owners. You might consider an umbrella policy as well as coverage that protects you against business-related exposures such as fire, theft, employee dishonesty, or business interruption.

Disability insurance

Your income depends on your ability to function, especially if you’re a solo practitioner, and you may have fixed overhead costs that would need to be covered if your ability to work were impaired. One choice you’ll face is how early in your career to purchase disability insurance. Age plays a role in determining premiums, and you may qualify for lower premiums if you are relatively young. When evaluating disability income policies, medical professionals should pay special attention to how the policy defines disability. Look for a liberal definition such as “own occupation,” which can help ensure that you’re covered in case you can’t practice in your chosen specialty.

To protect your business if you become disabled, consider business overhead expense insurance that will cover routine expenses such as payroll, utilities, and equipment rental. An insurance professional can help evaluate your needs.

Practice management and business planning

Is a group practice more advantageous than operating solo, taking in a junior colleague, or working for a managed-care network? If you have an independent practice, should you own or rent your office space? What are the pros and cons of taking over an existing practice compared to starting one from scratch? If you’re part of a group practice, is the practice structured financially to accommodate the needs of all partners? Does running a “concierge” or retainer practice appeal to you? If you’re considering expansion, how should you finance it?

Questions like these are rarely simple and should be done in the context of an overall financial plan that takes into account both your personal and professional goals.

Many physicians have created processes and products for their own practices, and have then licensed their creations to a corporation. If you are among them, you may need help with legal and financial concerns related to patents, royalties, and the like. And if you have your own practice, you may find that cash flow management, maximizing return on working capital, hiring and managing employees, and financing equipment purchases and maintenance become increasingly complex issues as your practice develops.

Practice valuation

You may have to make tradeoffs between maximizing current income from your practice and maximizing its value as an asset for eventual sale. Also, timing the sale of a practice and minimizing taxes on its proceeds can be complex. If you’re planning a business succession, or considering changing practices or even careers, you might benefit from help with evaluating the financial consequences of those decisions.

Estate planning

Estate planning, which can both minimize taxes and further your personal and philanthropic goals, probably will become important to you at some point. Options you might consider include:

  • Life insurance
  • Buy-sell agreements for your practice
  • Charitable trusts

You’ve spent a long time acquiring and maintaining expertise in your field, and your patients rely on your specialized knowledge. Doesn’t it make sense to treat your finances with the same level of care?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, Glaxosmithkline, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Merck, Raytheon, ExxonMobil, Pfizer, Verizon, Bank of America, 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.