Please don’t think that we are anti-pension. We love pensions and the **guarantees they offer; however, lately we have been talking with people who were counting on pension benefits to be there when they [continued below video…]

 Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued]…retired – yet are now fearful that due to “unfunded pension liabilities”, they may not receive the benefits they worked so long to achieve and now feel forced to take an unfair lump sum buyout.

Pensions are **guaranteed nationally by the Pension Benefit Guaranty Corporation (PGBC) and they help advise employees impacted by lost or failing plans. It should be noted that most pensioners receive their full benefits even when they are administered by the PGBC. So, why the concern? The PGBC is currently running over a 60 billion dollar deficit due to the number of recent bankruptcies. Congress is expected to try and close the gap by increasing the premiums due to the PGBC, which are charged on a per participant basis; however, many suspect that increases in those premiums will just continue to increase the number of companies dropping pension plans and programs altogether.

So, what happens when a solvent company wants to drop their pension program? The company typically has two options; they can offload the liabilities of the pensions to an insurance carrier to fulfill the obligation or they can offer a lump sum payment that covers pensioner’s benefit.

Just because you are offered a buyout does not mean you should jump at the option solely because of the risk of the entire system. Most pension benefits are “richer” than what is typically available from an insurance company issuing a new annuity in the commercial market. Thus, when you are offered a buyout, you have to examine the whole package and ask yourself a number of questions, such as;

• What are the benefits offered versus what is available commercially?
• What is the financial status of my company’s pension fund and why are they offering a buyout?
• Do I need additional benefits for my family or spouse not covered under my existing plan?
• What happens if the PBGC takes over my benefit?
• When do I need the money?
• Would I rather have more flexibility and manage my own money with securities, or annuities, or both?
• Do I want a benefit/lump sum that could be passed onto my heirs? (Especially if you have a short life expectancy due to health)

If you determine that accepting a buyout is the best move, you still have the option of purchasing a level or increasing  now or in the future from an insurance company. We believe that highly rated insurance companies offer a higher degree of safety and stability than most financial instruments offer due to the high level of assets and reserves they are required to maintain. Also, with annuities, you have a number of options available that allow for income **guarantees combined with the flexibility of still maintaining full control over the majority of your dollars at all times.

In summary, if you are offered a buyout, take the time to carefully consider your options so that you can make the best decision possible. It would be wise to consult an advisor with experience and expertise who can help you carefully balance all the possible pluses and minuses prior to taking a lump sum buyout.

Here is an exerpt from Kiplinger’s that is a great read for anyone interested in more info on this topic.

Put Your Pension to Work

By Sandra Block, From Kiplinger’s Personal Finance, January 2016

How you decide to take this endangered asset may be crucial to a secure retirement.

Fretting about how to manage your pension is like complaining about the cost of winterizing your beach house. Lots of people would love to have your problem.

Only about 18% of private-industry workers have a defined-benefit pension. Less than one-fourth of Fortune 500 companies offered a defined-benefit plan to new employees at the end of 2013, down from 60% in 1998, according to Towers Watson, the human resources consulting firm. The number is much larger for public-sector workers; about 80% of them have a traditional pension.

If you’re eligible for a traditional pension, you’ll be faced with important decisions that could affect your financial security, and they’re usually irrevocable. That means when you retire, you’ll need to do more than turn in your security badge and wait for the monthly checks to roll in.

Backing away from defined benefits

The move away from traditional pensions reflects several trends. Employees are living longer, which increases the cost of providing a lifetime monthly payment. Low interest rates have reduced pension funds’ investment returns, requiring com­panies to put more money into their plans to avoid a shortfall. Government regulations designed to protect pension participants have increased the cost of offering and maintaining defined-benefit plans. Finally, companies used to view pensions as a way to attract and retain good employees. But these days, a benefit that rewards longevity is a lot less valuable because workers change jobs every 4.6 years, on average, according to the Bureau of Labor Statistics.

Even if you’re among the minority of private-sector workers covered by a pension, you’re not immune from efforts to reduce pension costs. AT&T, Boeing and IBM have joined other companies with big pension obligations in switching to a cash-balance plan. These hybrid plans combine features of a 401(k) and a traditional pension. Benefits from a traditional pension are typically based on a participant’s salary during the final years of employment, but with a cash-balance plan, benefits are accrued evenly over time. When a company converts, participants are usually entitled to the benefits they’ve earned to date under the traditional formula, with future benefits based on the cash-balance calculation. For longtime employees, the shift can result in a big cut in benefits.

Other companies have frozen pension benefits. The number of plans with frozen benefits rose from 10% in 2003 to 32% in 2011, according to Russell Research, a financial research firm based in East Rutherford, N.J. Many companies have cushioned a pension freeze by providing higher contributions to workers’ 401(k) plans. That could pay off for young workers who haven’t accrued much in the way of pension benefits, but a freeze can be costly for mid-career workers. Their future raises and years of service won’t be factored into their pension, and they’ll have less time to make up the difference by contributing to a 401(k), even if it comes with a generous employer match.

In the past, pension participants could count on the payouts they were promised once they started receiving benefits, but that’s changing, too. A new law allows multi-employer pension plans to cut benefits for current and retired workers. These plans typically provide coverage for union members who work for different companies, usually in the construction, manufacturing and trucking industries. Because of a decline in employment in those sectors, the plans have come under severe financial stress. In October, the Central States Pension Fund, a multi-employer plan that covers more than 400,000 participants, proposed cutting its benefits by an average of 22%. Some retirees will see their benefits cut by up to 60%.

A nice problem to have

Carin Hoch, 58, vice president of real estate for NuStar Energy in San Antonio, vividly recalls a meeting she and her husband, Ron, had about five years ago with their financial adviser to discuss financing a retirement home. After reviewing their salaries, retirement savings and other assets, the adviser turned to Ron and said, “She’s a keeper.” The reason: Hoch will retire with a traditional pension.

Hoch hasn’t decided whether she’ll take her pension as lifetime payouts or a lump sum when she retires. The Hochs have other sources of retirement income, including 401(k) plans, but having a pension in the mix has given them options they wouldn’t otherwise have. It has made it possible for Ron to retire at age 59 so that he can help care for Carin’s father, who is 93. It will allow Carin to retire in four to six years. It even helped them get a lower interest rate on the mortgage for their retirement home because it showed “financial stability.”

The couple plan to use the income from Carin’s pension and Social Security to pay for their living expenses. They’ll spend money from their 401(k) plans on travel and other discretionary items. Considering what can happen in the stock market, Carin says, having a pension “really gives us a comfort zone.”

Not only that, but retirees like the Hochs can invest money in their retirement accounts and other savings more aggressively, which offers the potential for higher returns. A monthly annuity payment “is like a bond portfolio,” says Charles Sachs, a certified financial planner in Miami. “You can buy riskier assets because you have this cushion of dollars coming in.”

Lump sum versus lifetime payout. If, like Hoch, you’re covered by a pension, this decision may be the most important one you’ll face when you retire. As employers look for ways to rid themselves of costly pension liabilities, they’re increasingly offering to pay departing employees a lump sum in lieu of a lifetime annuity payout. Figuring out which option is right for you will depend on a number of factors, ranging from the size of the lump sum to how long you expect to live.

See more information and details at Kiplingers.com

The post A Lump Sum Buyout or Keep Your Pension – Which is Best? appeared first on Annuity Guys®.

Beginning in 2015, you can only make one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own. The limit will apply by aggregating all of an individual’s IRAs including SEP and SIMPLE IRAs, as well as traditional and Roth IRAs effectively, treating them as one IRA for purposes of the limit.

Does this mean you are limited to a single transfer from a 401k or IRA to a new investment or annuity firm in 2015? No. There is no limit on custodian to custodian transfers – sometimes referred to as rollover transfers.  The rollover situations that are impacted are those where an IRA custodian creates a check and disburses those funds to the account holder. Once the account holder takes possession of their funds, the account holder has… [continued below video]

Video: The Annuity Guys, Dick and Eric, discuss the new IRS rollover rules and how it could impact your money movement in 2015.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

…sixty days in which they can “roll” the funds over into another IRA to avoid paying taxes or penalties on the disbursed dollars. (The IRA account holder previously had the ability to rollover an IRA once per year per IRA; however, at present, it is only once for all the IRA account holders aggregated IRAs.)

Why does this matter? There are a number of advisors who prefer to do rollovers so they can more efficiently expedite the movement of funds from a custodian that is being replaced into their control. Doing this now still works… but if you do this twice – knowingly or unknowingly – you could trigger a taxable event on ALL the dollars involved in all of your aggregated IRAs..

Want more information, here is an article from the IRS…

IRA One-Rollover-Per-Year Rule

Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement  2014-15 andAnnouncement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

• Trustee-to-trustee transfers between IRAs are not limited
• Rollovers from traditional to Roth IRAs (“conversions”) are not limited

Transition rule ignores some 2014 distributions

IRA distributions rolled over to another (or the same) IRA in 2014 will not prevent a 2015 distribution from being rolled over provided the 2015 distribution is from a different IRA involved in the 2014 rollover.

Example: If you have three traditional IRAs, IRA-1, IRA-2 and IRA-3, and in 2014 you took a distribution from IRA-1 and rolled it into IRA-2, you could not roll over a distribution from IRA-1 or IRA-2 within a year of the 2014 distribution but you could roll over a distribution from IRA-3. This transition rule applies only to 2014 distributions and only if different IRAs are involved. So if you took a distribution from IRA-1 on January 1, 2015, and rolled it over into IRA-2 the same day, you could not roll over any other 2015 IRA distribution (unless it’s a conversion).

Background of the one-per-year rule

Under the basic rollover rule, you don’t have to include in your gross income any amount distributed to you from an IRA if you deposit the amount into another eligible plan (including an IRA) within 60 days (Internal Revenue Code Section 408(d)(3)). Internal Revenue Code Section 408(d)(3)(B) limits taxpayers to one IRA-to-IRA rollover in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication 590, Individual Retirement Arrangements (IRAs) interpreted this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual. However, the Tax Court held in 2014 that you can’t make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21).

Tax consequences of the one-rollover-per-year limit

Beginning in 2015, if you receive a distribution from an IRA of previously untaxed amounts:

• you must include the amounts in gross income if you made an IRA-to-IRA rollover in the preceding 12 months (unless the transition rule above applies), and
• you may be subject to the 10% early withdrawal tax on the amounts you include in gross income.

Additionally, if you pay the distributed amounts into another (or the same) IRA, the amounts may be:

• treated as an excess contribution, and
• taxed at 6% per year as long as they remain in the IRA.

Direct transfers of IRA money are not limited

This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.

The post How are Annuities Affected by the New 2015 Rollover Rules? appeared first on Annuity Guys®.

In Illinois, we are aware of how much strife a public pension battle can impact both the fiscal health of the state and that of those employees who were promised lifetime retirement benefits. The proposed legislation would provide for private insurance carriers to manage the public sector retirement income pension systems. Historically, many individuals enjoyed the benefits of defined benefit plans. Yet, now with benefits being cut and lump sum buyouts being offered, many employees are weighting the option of defined benefits versus a pension styled annuity plan.

The Annuity Guys® discuss why insurance companies – with proven track records in managing investment and longevity risk successfully – may be better choices for overseeing your retirement income than both private and public sector pension managers.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

If you (and your spouse, if you have one) could have a pension styled income for life and still pass on any unspent retirement dollars to heirs, would you do it? This is the reason many individuals are converting lump sum buyouts, 401ks and IRAs into annuity portfolios that provide lifetime income, safe and consistent growth with preservation of their lump sum principal from their retirement savings.

Here’s the news from MSN that generated the inspiration for this weeks blog.

Senator Hatch says insurance firms can ease U.S. pension crisis

By Lisa Lambert

WASHINGTON (Reuters) – A top Republican senator unveiled legislation on Tuesday that would radically change public pensions by having life insurance companies pay benefits through annuity contracts, helping to alleviate the underfunding that has engulfed many plans.

The bill introduced by Utah Senator Orrin Hatch, the highest-ranking Republican on the Finance Committee, would have the government pay a premium each year to a state-licensed insurer in an amount equal to a set percentage of salary. Employees would then receive fixed income annuity contracts from the insurance company.

“A new public pension design is needed, one that provides cost certainty for state and local taxpayers, retirement income security for state and local employees and one that does not include an explicit or implicit government **guarantee,” Hatch said in a speech to the Senate.

Annuities function similarly to pension plans by paying set amounts in regular installments. The accumulation of annuity contracts would even out interest-rate fluctuations, according to Hatch, who would have insurers competitively bid for them.

Underfunding is “not possible,” he added.

The bill would not cover past pension liabilities, but allow state and local governments “to stop digging the hole with their existing defined benefit plans,” said Julia Lawless, a spokeswoman for Hatch. [… Read more at MSN]

The post Relying on Annuities for Retirement Pensions appeared first on Annuity Guys®.

What will that mean for the retiree who counted on that lifetime income? What options will they face? Is it doom and gloom or perhaps a new opportunity to take better control of their own retirement?
Watch as Dick and Eric examine this changing trend in retirement funding, what opportunities it creates for individuals and how annuities may play a role in creating a pension styled lifetime income.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Over the last 12 months we have reviewed lump sum buyout opportunities with many individuals and discussed whether or not an annuity might work for their situation. When we ran the numbers – some individuals were better off with their company options when it came to **guaranteed levels of income… but until you run the numbers based on each individuals situation you can never be sure.
See the report from insurancenewnet.com that led to this weeks entry below.

Survey: More Employers To Offer Lump-Sum Payouts In 2013

LINCOLNSHIRE, Ill., Feb. 13, 2013 /PRNewswire/ –Last year marked a watershed moment in retirement benefits as numerous companies decreased their pension risk exposure by offering participants a one-time lump-sum pension payout. A new survey by Aon Hewitt, the global human resources solutions business of Aon plc (NYSE: AON), reveals more employers plan to follow suit in 2013.

Aon Hewitt surveyed 230 U.S. employers with defined benefit plans, representing nearly five million employees, to determine their current and future retirement benefits strategies. According to the findings, more than one-third (39 percent) of defined benefit (DB) plan sponsors are somewhat or very likely to offer terminated vested participants and/or retirees a lump-sum payout during a specified period, also known as a window approach, in 2013. By contrast, just 7 percent of DB plan sponsors added a lump-sum window for terminated vested participants and/or retirees in 2012.

“There is no question, employers are looking for new ways to aggressively manage their pension volatility,” explained Rob Austin, senior retirement consultant at Aon Hewitt. “In 2012, many DB plan sponsors were exploring options and planning their strategies—we think 2013 will be the year when many more actually implement large-scale actions such as offering lump-sum windows. Pension Benefit Guarantee Corporation (PBGC) premiums will begin to increase in 2013 and 2014, which will increase the carrying cost of pension liabilities and give plan sponsors an economic incentive to transfer those liabilities off their balance sheet.” [Read More…]

The post Millions of Pensions Dumped – Can Annuities Fill the Gap? appeared first on Annuity Guys®.

Dick and Eric examine the IRA to annuity transfer process and discuss some of the challenges and misconceptions that they have encountered when speaking with clients.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

401K, 457 & 403B to IRA ANNUITY ROLLOVERS
RULES CHANGE for IN-SERVICE 401(k) ROLLOVERS
401k, 457 & 403B to Roth rollovers are now possible before age 59½.

A new possibility. Sometimes employees want to pull money out of a 401(k) before they retire. It isn’t always because of an emergency. Some workers want to make an in-service non-hardship withdrawal just to roll their 401(k) assets into an IRA. Why? They see lower account fees and greater investment choices ahead such as combining the safety and growth of a Fixed Annuity with the tax free benefits of the Roth IRA.
As a result of the Tax Increase Prevention Reconciliation Act (TIPRA), tax laws now permit in-service non-hardship withdrawals from 401(k), 403(b) and 457 plans to traditional IRAs and Roth IRAs before age 59½. Of course, the employee must be eligible to take a distribution from the plan, and the funds have to be eligible for a direct IRA rollover.

This option may be very interesting to highly compensated employees who want the tax benefits of a Roth IRA. The income limits that prevented them from having a Roth IRA have been repealed, and they may have sizable 401(k) account balances.

Does the plan allow the withdrawal? Good question. If a company’s 401(k) plan has been customized, it may allow an in-service withdrawal for an IRA rollover. If the plan is pretty boilerplate, it may not.

The five-year/two-year rule also has to be satisfied. IRS Revenue Ruling 68-24 says that for an in-service withdrawal from a qualified retirement plan to take place, an employee has to have been a plan participant for five years or the funds have to have been in the plan for two years.

401(k) plan administrators may need to amend their documents. Does the Summary Plan Description (SPD) on your company’s 401(k) plan allow non-hardship withdrawals? If it doesn’t, it may need to be customized to do so. This year, plan administrators nationwide are fielding employee questions about rollovers to Roth IRAs.

401(k) plan participants need to make sure the plan permits this. An employee should request a copy of the SPD. If you ask and no one seems to know where it is, then call the toll-free number on your monthly 401(k) statement and ask a live person if in-service, non-hardship withdrawal distributions are an option. In some 401(k)s, an in-service non-hardship withdrawal will prevent you from further participation; be sure to check on that.

If this is permissible and you want to make the move, you better make an IRA rollover with the assets withdrawn. If you don’t, that distribution out of your qualified retirement plan will be slapped with a 20% federal withholding tax and federal and state income taxes. Oh yes, you will also incur the 10% early withdrawal penalty if you are younger than age 59½. Additionally, if you have taken a loan from your 401(k), any in-service withdrawal might cause it to be characterized as a taxable distribution in the eyes of the IRS.

[Read the Full Article]

Annuity Guys® Video Transcript:

Dick: Eric, I say here we go again.

Eric: Sounds like a song title.

Dick: This is something that we continue to work with clients on, and that is the question of IRAs and just the concerns they have about moving an IRA into an annuity. There are a lot of practical things, whether or not it’s a 401k or an IRA that someone wants to go into an annuity. There’s a lot of questions that come up. One is, does it even make sense to move an IRA or a 401k into an annuity?

Eric: Right. Obviously, yes, because the annuity is designed for lifetime income, and that’s usually when people are saving from their 401K or IRA. The goal is to get money to retirement, and that’s what an annuity does. There are a lot of common misconceptions, I should say, with when those transfers happen when you’re moving from one qualified product, like and IRA or 401k, and moving that into an annuity.

Dick: Many times, folks, I’ve had different ones ask me, believing they were going to have to pay tax if they put their IRA or their 401k into an annuity.

Eric: The misconception is because they think they’re taking a withdrawal. This is where terminology gets so complicated with financial lingo. You’re withdrawing from your IRA or your 401K.

Dick: It’s actually like a lateral move.

Eric: Right, it’s like a transfer, is the more appropriate term, because you’re actually transferring from . . .

Dick: Moving it from custodian-to-custodian or rolling it over.

Eric: Which is not the guy at the gymnasium at the high school.

Dick: Or the janitor, or the 60-day rollover which is popular. You can do it either way and both ways have some advantages and disadvantages. Let’s talk about those, but first of all, let’s just touch on what is a custodian?

Eric: It’s the guy, or in this case the institution, who is charge of the paperwork. They’re in charge of making sure what gets filed with the IRS is appropriate. They’ve got your qualified dollars, and they’re reporting for you. They’re telling the IRS this is what you took out, [inaudible: 02:20].

Dick: They have accepted this responsibility that’s put on them by the Federal Government if they want to be a custodian.

Eric: Right. In order to manage qualified dollars, it has to be a custodian who’s in charge of the report.

Dick: The next thing that we probably want to talk about is a 60-day rollover versus a transfer.

Eric: A 60-day rollover is basically the timing. When you have one IRA, if you’ve made a distribution, you have 60 days, basically, to put it into another product, so it’s a timing aspect.

Dick: Right. The transfer; we’re talking about just going from one custodian to the other custodian. There’s some pluses and minuses to both of these, and let me try to be fair to both of these. You can fix me.

Eric: Each of us has a preference. My preference has always been the custodian-to-custodian transfer.

Dick: Right, and mine has been the 60-day rollover.

Eric: I like the custodian-to-custodian because the paperwork, basically, is handled by the custodian. Their job is to make sure all the numbers match up, so when they’re reporting from one custodian to the next, that gets taken care of.

Dick: Unfortunately . . .

Eric: They’re two big institutions; typically they’re big institutions. It typically takes longer, you have more people involved, so you have to have a good flow of communication to make sure there aren’t any glips, clips, or mistakes along the way. It’s worked well for me; I haven’t had a problem.

Dick: What I found, because I have done both and do both, is that with the transfer process, it does take quite a bit longer. Typically, I hate to say this, but you’ve got usually two clerks working from one company to the other. You got a lot of paperwork, and a lot of times, there are just different things that happen along the way that delay or postpone.

The 60-day rollover, if it’s applicable, it’s not always applicable to do this, but the nice thing about the 60-day rollover is that when the client calls the company where the money is at, has the check made out to their name. When I say ‘to their name’, to their client’s name, then the check will go directly when they receive it, usually sent some type of overnight delivery, so they’ve got a tracking number. Then that check will be sent directly to the company; pay to the order of the company. Typically, that process takes about a week, week and a half, and the client knows every step of the way where the money is, what’s going on, but there is a little additional reporting at the end of the year. You have to notify the IRS on your tax return that you did a rollover.

Eric: What has happened is you’ve technically made a withdrawal from Company 1, and then did the rollover process manually. You have to, or your accountant, needs to report on your tax return exactly that that process took place. Occasionally, the IRS will come knocking at your door if it wasn’t filled out properly. That’s one step that I . . .

Dick: You want to have some documentation. You want to have the date on the check, when you received the check, and you want to have the date on when the money arrived at the new custodian.

Eric: Both are basically ways that you can do it.

Dick: Sometimes, it just comes down to personal preference, and what the client is comfortable with. What are some other concerns that we run into quite a bit?

Eric: I shouldn’t say the concerns, but there’s how people are able to move dollars, and when they’re able to move dollars. A lot of times, people aren’t aware that, especially the new plans have the opportunity to do an in-service, distribution withdrawal. You have the opportunity to actually move money out of a 401k plan.

Dick: If you’re still working, yes.

Eric: What’s typically common for a lot of 401K plans, they don’t give you a whole lot of more conservative options.

Dick: Right. They don’t have that variety; they don’t have the pension-style income that the annuity provides.

Eric: Some people want that comfort level of being able to take a certain amount of dollars out, put them in a product that they know when they turn it on for retirement, it’s going to give them a number, and they’re more comfortable with that than having those dollars in the market area at risk. That’s one aspect, the in-service withdrawal.

Dick: Another thing that I would like to bring up about 401K, which is different than the IRA, when you call the custodian on the 401K, if you would like to do a rollover on that, you actually can do a rollover, but unfortunately, they want to withhold 20%. The IRS makes custodians withhold 20% of 401Ks. It really is better, I found, in all cases to do a transfer on a 401K, even if it does involve delays or takes longer.

Eric: What we’re seeing more and more commonly now is because people are changing jobs more frequently, when you’re leaving one company’s 401K, they usually don’t want you to park your dollars there, so they want you to move out because they’re paying the administrative fee.

A lot of times, you’ll see people moving from a 401K to a self-directed IRA. You’ll have those transfers going on and that is usually, in my experience, more easily done with a custodian-to-custodian transfer of paperwork. As you said, then you don’t have to worry about the withholding or any of those issues.

Dick: Exactly. Another thing that we run into is RMDs.

Eric: Yes. For those of you who do not know what RMDs are, it’s not some kind of weapon of mass destruction, it’s what it sounds like, but they’re required minimum distributions.

Dick: Withdrawals that are required at a certain age.

Eric: Yes. This is one of the things that . . . with 401Ks, you do have withdrawal requirements at age 70½, unless you’re still working or . . . and this is a new one for us we’ve been talking about, you’re over a 5% owner of the company. Then you still have to have that RMD. That’s the little tweak there.

Dick: Tricky little laws here. Folks, we’re not, Eric and I want to make it very clear, we’re not accountants.

Eric: No. We don’t play them on television, despite the size of the screen here.

Dick: We don’t give tax advice. What we’re giving here is a general overview and understanding of how annuities generally, conceptually function with IRAs and 401Ks.

Eric: Correct.

Dick: One think that I’ve run into, Eric, a couple things on RMDs I should say, is that if someone is at that age; they’re at 70½ or past that age, had their first birthday after 70½. If they haven’t had the RMD taken out at the present company, then they have to make that that money gets taken out of the IRA at the new company. They have to make a decision; does the company where it’s at presently take it out or does the money move over, and then come out at the new company? It’s fair to do it either way.

Eric: Right. It’s just a matter of reporting. Of course, with IRAs, you don’t have to . . . if you have multiple IRAs in different locations, you don’t have to take it out of each and every one. You can choose to take it out of just one location versus all the others.

Dick: You figure what’s owed in your RMD on each annuity or each IRA account, and then you can add it all up and take it all out of one account.

Eric: I think this is where people say, “How much am I going to owe?” We should say RMDs are calculated based off of the end-of-year of the prior year, and then it’s based off of your age and a percentage; the formula the IRS puts us out there.

Dick: It’s in Publication 590, the unified tax tables, and there’s 3 different tables, depending on the age of your spouse and that type of thing. One thing that I found, Eric, that a lot of times it’s a misconception on the RMDs, a lot folks believe that once they turn this magic age, about 71-years-old, that they have to take large amounts out of their IRA and pay the tax, or they have to take it all out, which is really a misconception that I wouldn’t think would be out there, but I hear it quite a bit. The fact of the matter is that your initial first RMD is about 3.65%. We always say 3.5%, but it actually is about 3.65%, when you figure it, and then it graduates up from there. I’ve always said, “If the IRS has a choice . . .” folks, what do you think they’re going to do? You think they’re going to make the formula very simple, like just tell you the percentage, or do you think they’re going to make it complicated and make you do math with a divisor? They give you a table, a divisor, and that withdrawal rate goes up with your age, so that each year you’re taking a little more out, a little more out. By time you’re up in your 90s you’re getting your IRA pretty well depleted.

Eric: This is where that custodian comes into play. When you’re working with a company that you have an IRA with, if you have questions about the amount you need to take out, contact the custodian because they’ll do the math for you, because they want to keep you in compliance, as well.

Dick: What I want to go back to, Eric, is does it really make sense to move your IRA into an annuity?

Eric: For me, I like the idea of taking IRAs and 401Ks that have basically . . . they’ve been saved for the purpose of retirement income.

Dick: In many situations they have.

Eric: That’s what I’m saying, if they’ve been saved, and that’s the intent for these dollars, what does annuity do? It gives you lifetime income for that portion of your money. Are we saying move all of your IRA dollars or all your 401K dollars into an annuity? No, not necessarily. It’s taking what you need for that foundational aspect.

Dick: That has to be determined.

Eric: Create your own personal pension. Everybody likes the idea of having **guaranteed life time income. I don’t think anybody’s ever said, “That sounds awful”.

Dick: Most people choose it when they have that option and they’re leaving employment.

Eric: I have a family of educators; they all fight for their pensions. They love their pensions. That’s one aspect that people miss now in this 401K world, they don’t have that pension. The responsibility’s on you. This is one way of taking some of that responsibility and making it shared by having insurance on your life; you’re **guaranteeing your income.

Dick: When someone chooses to put their IRA into an annuity, one thing that they should be aware of, and that is you’re not doing it because you’re looking for tax deferral. You already have tax deferral. You’re doing it for other reasons: You’re doing it because you want security; you want a , perhaps some type of a hedge against inflation. That’s the reasons why you would do it; the sound reasons why you would do it. I believe that the idea would be to put as little as possible into an annuity to create the foundational income that’s necessary. It’s good to be able to calculate that out, forecast your cash flow needs, and know that you’ve got this portion of this portfolio setup for your income.

Eric: Right, it’s covering that foundation so that you’re comfortable. You know you’ve got that covered. Sounds like an excellent choice.

Dick: I agree. Thanks for joining us, folks.

Eric: You have a wonderful day.

The post IRA / 401k to Annuity Rollover Concerns appeared first on Annuity Guys®.

One of the biggest negatives continually re-hashed about annuities is that just like IRAs they are taxed at ordinary income tax rates on earnings. So why not avoid tax all together with a Roth Annuity! Oh, did I mention that when the IRA is converted to a Roth the tax must be paid in full in the next tax year. However, if you think taxes are likely to go up it may make a lot of sense to get the tax paid now when it is lower.

Dick and Eric discuss the many ways to use annuities that are tax free or tax advantaged in this short video.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Want more Roth & Annuity information? Kelly Greene of the Wall Street Journal authored two articles that look at the impact of Roth conversions.

Annuity Payments Using a Roth IRA Are Tax-Free

As long as you meet the holding and age requirements for a Roth individual retirement account, your annuity payments should be tax-free.

Many retirees are considering immediate fixed annuities these days. Generally, you hand over a large chunk of money to an insurer, which issues you a monthly check for life. The appeal in a recession is that annuity payments could soften hits suffered by your other investments. (The main drawbacks: Once you hand over your money to the insurer, you generally can’t get it back. And your fixed payments might not keep up with inflation.)

As Roth accounts increase in size, using them to buy plain-vanilla annuities might make sense for a portion of conservative retirees’ nest eggs, said Jeffrey Landers, an investment adviser with Wachovia Securities in New York.

A Roth annuity could assuage two of the three top concerns his retired clients have, he said: outliving their income and future tax increases. He suggests addressing the other big retirement worry, inflation, by using 25% to 30% of a nest egg to buy an annuity covering basic expenses, and continuing to invest the rest in a diversified way.

Or, if you are willing to accept a slightly smaller annuity payout, you could buy an annuity with annual raises.

Of course, if you purchase an annuity, payments usually end with your death. Thus, if you use a Roth IRA to buy an annuity, your heirs might not get to enjoy one of its best features — a tax-free inheritance.

To hedge your bets, you could buy an annuity with your Roth that **guarantees payouts for a set time period, such as 10 years. [Read More…]

Why It May Pay To Convert to a Roth IRA

Investors and financial advisers are preparing to take advantage of a new tax law that makes it easier to gain access to Roth IRAs—even if it means breaking a sacrosanct rule about Roth conversions.

Starting, Jan. 1, the $100,000 income limit disappears for converting traditional individual retirement accounts and employer-sponsored retirement plans to Roth IRAs, one of the biggest changes on the IRA landscape in years. Roths, of course, have long been viewed as one of the best deals in retirement planning; after investors meet holding requirements, virtually all withdrawals are tax-free. [Read More…]

Annuity Guys® Video Transcript:

Eric: Today, we are talking about tax-free annuities.

Dick: Better get them while they last, Eric.

Eric: They are in limited supply. When their shelves are empty, they are all gone.

Dick: That is right.

Eric: You better act quickly.

Dick: How about that? Tax-free annuities; isn’t that the opposite of what we’re told? Stereotypically, annuities are taxed at ordinary income tax rates, just like IRAs.

Eric: You know what the CPAs are calling right now, “They are wrong. The tax-free annuity doesn’t exist.”

Dick: Our phone’s going to be blowing up.

Eric: They’ll tell you it doesn’t exist. I have not seen anyone advertise for a tax-free Annuity.

Dick: Here we have a limited supply.

Eric: That is right; we’ve got them in short supply. Dick, you got to tell us, how does one get one of these limited supply annuities?

Dick: Here we go. What we have is no different than what you have, and that is you have your traditional IRA, that IRA can be converted to a Roth, of course, you will have to pay your tax the following year.

Eric: They are not tax-free then.

Dick: You have to pay the tax in the IRA.

Eric: It’s the first, okay.

Dick: Folks, once that you’ve actually converted to the Roth, you can then put that money into an annuity. That annuity becomes fully tax-free. It can give you a tax-free income for the rest of your life; it can pass tax-free to your heirs. It can actually become a retirement account for your heirs. There’s some intricacies to that, which we can talk about. The idea of using a Roth strategy in an annuity is not that well-known, it’s not talked about that often, and it can be a great advantage.

Eric: We say limited supply; why do you say limited supply? We’ve Roth’s for how long? There’s been a recent change though, it used to be there was an income threshold out there.

Dick: In 2010 they wiped it out. If you make over $100,000, it doesn’t matter, you can convert. Limited supply, we’re having a little fun with this, folks, like an annuity sale. The limited supply really comes down to Uncle Sam giveth . . .

Eric: And Uncle Sam taketh away. When someone’s looking for tax dollars . . .

Dick: Our government needs money.

Eric: If you believe taxes are going up, raise your hand. If that is the case, is better to then . . .

Dick: It is likely that Roth could be an endangered species.

Eric: Roth will turn to Moth.

Dick: It could.

Eric: It is going to mothballs very soon.

Dick: Getting poetic.

Eric: Yes, I am trying to rhyme.

Dick: If we’re in this situation where taxes were likely to rise, the government is looking for revenue, the Roth advantage benefit could be closed, tightened up. What we really experienced in the past Eric, with various insurance products and tax advantages, as long as they were entered into legally and under IRS and government-type sanctions, then usually, there was a guy in there who grand fathered in. It’s the new folks coming in that were somewhat penalized.

Eric: usually, they won’t go back and try to take it away from you, usually. Right now we believe that if people get it in before the government decides that this money is too tempting, we’ve got to reach in there and get [inaudible: 03:46].

Dick: We can just let these people this tax-free advantage.

Eric: Or their kids or their grandkids.

Dick: That’s where we go into it is potentially limited supply. Folks, this is something you genuinely want to consider, you want to use an advisor that really understands the Roth-IRA, the tax advantages, and the ways to incorporate that into annuity. Eric, I’d like to point out another thing while I’m thinking about it here; there’s different ways to convert an annuity to a Roth-IRA. We could use an existing annuity that’s an IRA.

Eric: You are saying if I own an annuity that has an IRA wrapper with it already . . .

Dick: You can convert it.

Eric: I don’t have to convert the annuity? I don’t have to go get a new annuity?

Dick: You do not. You can actually convert that annuity in to a Roth. Even better, in some situations where you’re doing proper planning and you know in advance that you’re going to be converting this, you may want to go ahead and convert your Roth inside your present account then transfer the Roth into an annuity, if that was the purpose or the reasoning; pick up that 10% bonus, tax-free, 8% bonus, or whatever you get with the annuity. Again, as maybe you have an income rider. I’m getting too much here.

Eric: I just got a tax-free bonus.

Dick: It is just the whole package of being tax-free, and the fact that if you put an income rider on it, that you’re going to have potentially tax-free income. Even if your account value goes to 0 because you have lived a long, long life, your income will just continue tax-free.

Eric: Obviously, there are standard benefits of the Roth that you don’t have to worry about RMDs; the transfer of wealth tax-free. In many ways, it [inaudible: 05:44] life insurance. One thing that I was looking at earlier was the Social Security Tax aspect. The reason that comes into play, even with annuities with IRA wrapper, a lot of times you are going to take those RMDs that are going to kick that Social Security income level to a level that’s taxable.

Dick: It really can push it up in to that taxable.

Eric: If that is one of the things you can potentially avoid by converting it into a Roth, there’s even sometimes that it’s . . . usually, the rule of thumb used to be you want to be able to pay for that conversion, those taxes basically, out-of-pocket. You don’t want to reduce your balance.

Dick: Exactly.

Eric: Some of the formulas that we’ve looked at actually said, “You can save more on the backend by not having those RMDs force you in to a higher taxable consequence.” Now we’re talking all sorts of fun things.

Dick: I think a lot of it, Eric, gets down to; do we believe taxes are going to go up? If you believe taxes are going up, folks, raise your hands. It’s unanimous, no hold-outs. Most rational folks . . .

Eric: And some irrational.

Dick: . . . believe that taxes have nowhere to go, at least for the next 10 or 20 years, but up. It’s a perfect place to look at Roth and say, “Whether I’m going to use the money or I’m going to pass it to my heirs, I want to protect them from increasing taxes.”

Eric: If nothing else, it needs to be one of the things you consider for your retirement future, is how it will impact. Work with a good advisor, discuss the possibilities, and it should be one of those pieces that’s on the table. Taxes are going up; limited supply.

Dick: That’s right. Get them while they last. Thank you.

Eric: Have a great day.

The post Tax Free Annuities – Limited Supply! appeared first on Annuity Guys®.

What benefits or options are you seeking to get from your annuity that you could not get from an IRA placed in another financial vehicle?

Many CPAs have a blanket answer when questioned about IRA dollars being used in annuities –  it goes some thing like this “No. Your IRA already has tax deferral so their is no advantage to obtaining an annuity with your IRA dollars.” That answer for many retirees is incomplete at best! What about safe asset growth, income **guarantees, or income for life – not to mention a potential IRA “tax trap”?

For more insights into the IRA/Annuity question check out this short video.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

This is a question that has been debated many times… check out this MarketWatch article by Robert Powell from 2005 for more insights into this discussion.

Do annuities belong in an IRA?

BOSTON (MarketWatch) — It is, without fail, one of the all-time great debates in the financial-services industry. Do annuities — variable, fixed or index — belong in an IRA? The answer, unfortunately, depends on who you ask.

Firms that manufacture and distribute such products, not surprisingly, say yes. And consumer advocates, also not surprisingly, say no, citing among other things a suit filed last week alleging that a major insurer improperly sold variable annuities^# for use within an IRA.

Consumer advocates and industry experts point out it’s unwise to invest solely in a tax-deferred product, an annuity, inside an IRA which also offers tax-deferral. “Since money invested in an annuity grows on a tax-deferred basis, I’m not a big fan of using them in IRAs,” says Ken Little, author of “The Idiot’s Guide to Annuities.”

Others, including the National Association of Securities Dealers, agree. Don’t invest in a variable annuity^# inside an IRA solely for its tax-deferral is the upshot of one notice the NASD sent to brokerage firms it oversees. And insurers don’t dispute that advice. Heather Dzielak, vice president of Lincoln Financial Group’s annuity business, says this: “If (a person’s) primary goal is tax deferral, variable annuities^# within IRAs offer no additional tax advantage over the IRAs inherent tax deferral feature.”

But Little, the NASD and others do leave the door open for investors to put their money into such products for other reasons, especially if they understand the costs associated with the benefits they are buying.

For instance, some experts say investors who want, in addition to tax-deferral, certain **guarantees — **guaranteed interest rates, a death benefit, or what insurers call living benefits (**guaranteed minimum accumulation benefits, **guaranteed minimum withdrawal benefits, and **guaranteed minimum income benefits) — and don’t mind paying, in some cases, about 2 percentage points for those **guarantees might consider using an annuity in an IRA.

[Read More…]

Annuity Guys® Video Transcript:

Dick: Eric, frequently, we see articles from the investment industry, from CPAs, just financial magazines, and they talk about an IRA not belonging in an annuity.

Eric: That’s good. We’ve had clients, even the last couple of months here, they’re retiring. They’ve got 401Ks. They have these qualified buckets. It’s time to start spending these dollars. That’s their savings for retirement.

Dick: All these years, they’ve put this money away for their retirement to produce an income.

Eric: They’re starting to think about spending down their 401Ks or their IRAs.

Dick: What do their CPAs tell them?

Eric: “You’ve already got tax deferral in an IRA and 401K.”

Dick: Why would you want an annuity with tax deferral? That is the standard argument that’s used. What’s wrong with that argument?

Eric: You mean you can’t have double tax deferral?

Dick: Why would you need double tax deferral?

Eric: You can’t get that.

Dick: You don’t need an annuity. Is that why people buy an annuity? Is that why people use that for a portion of their portfolio? For tax deferral?

Eric: No. That’s what we always say. There’s no universal answer, but when it comes to tax deferral, do you need a double tax deferral? No. What are the other benefits that they really offer to you?

Dick: The reasons why, right.

Eric: You have IRA dollars; you’re saving for retirement. You’re now going to start to spend your retirement. What does an annuity do for you?

Dick: Safety, security, income **guarantees. In a down economy, in a volatile economy, it’s a sense of knowing where you’re going to be today or 5 or 10 years from now.

Eric: Just because I have an IRA it doesn’t mean I automatically get income for life?

Dick: No, you do not.

Eric: But I have tax deferral.

Dick: Unless everything works out perfect or you have an annuity. In no way do we advocate with our clients or to those who listen to our videos that you put all of your money into an annuity.

Eric: No. When we hear CPAs automatically discount an annuity for IRA dollars or qualified dollars, we have to pull our hair out and see we’ve been doing this a lot lately, because it can be poor advice in a universal sense. You can’t just universally say, “No, you should never put IRA dollars or qualified dollars into an annuity.”

Dick: It makes more sense when you’re younger to think that way, when you’re in that accumulation portion of your life, where you’re growing your dollars. It wouldn’t make a lot of sense to buy an annuity when you can have your money invested where it can potentially earn more and grow. No, that portion, but what happens is that same argument that’s used during those years doesn’t get carried over into the retirement years. It actually gets carried over instead of that transition where things change. Let me ask you a question here to get off the subject a little bit; where are taxes going?

Eric: Taxes?

Dick: Are taxes going down or up?

Eric: Let’s see here. If I had to be a betting man, I don’t think Vegas would give me good odds on this, but I would guess they’re going up.

Dick: I think you might be right. I think most of the folks that are watching this will agree with us. If taxes are going up, then what do I have if I have a pile of money I’ve never paid tax on?

Eric: You got a good deal, because you never pay tax on it.

Dick: What’s going to happen to it?

Eric: Is the government going to make me take these dollars and pay taxes?

Dick: Do you think maybe I have a trap here that I’m caught in, a tax trap? That’s what I see an IRA is, it’s very much a tax trap because we are likely to see increasing taxes as time goes by. Wouldn’t it make more sense to systematically be removing some money from that IRA, using it for the intended purposes of creating income and getting some money out of there so that it’s not all taxes in one large amount?

Eric: That sounds logical, but what would your CPA say? I’m making fun of CPAs right now.

Dick: What do CPAs do? In reality, when you think about it, they’re very, very good at saving us money on taxes in the year we’re going to file our return, or looking forward to the next year. Looking at the 20 or 30 years, a lot time . . . Folks, if you have one of those CPAs that looks 20 years down the line and projects things out for you, and look at ways to save you money, you have one of the rarest CPAs out there; they’re in the top 1% or 2%. Nothing against CPAs, they do a great job; they keep us legal, they save us money on taxes, but a lot of times, they’re looking at what can we save today. They’d rather defer some dollars from tax, not really thinking in terms of what’s happening with potential tax rates 10 or 20 years from now and getting that money out.

Eric: From a CPA’s standpoint, they’re thinking about tax now. Yes, if the answer is there a difference between a tax-deferred scenario between the IRA and the annuity? Of course not. If you’re saying, “What about the other benefits” Then, yes, that’s where the annuity, using qualified dollars makes perfectly good sense.

Dick: It does. When we say, “Never move IRA money into an annuity. Never buy an annuity with IRA money . . .”

Eric: Wrong.

Dick: Not.

Eric: Wrong. Take your personal situation and apply it. Basically, no, there are times when it does make sense.

Dick: There are. But everybody’s situation is different. They need to get a good advisor for that, a good local advisor. Thank you.

Eric: Have a good day.

 

The post Never Place an IRA in an Annuity? Wrong! appeared first on Annuity Guys®.

A prolonged low interest rate environment does impact returns and interest crediting on annuities. Payouts, **guarantees and riders have all been impacted in the annuity marketplace during the last five years. In fact, one recent example showed that immediate annuity payouts were down about five percent from just eight months ago.

So, if you are considering an annuity — is this the right time or should you wait?

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Firstly, proper financial planning would indicate that a balance of assets and asset classes should be utilized in constructing a quality retirement plan. Many financial planners now utilize annuities as part of the fixed income allocation adding additional layers of security by eliminating longevity and credit risk. When it comes to providing income, annuities offer unparalleled combinations of safety and security when navigating through 20 to 40 years of retirement.

Secondly, if you are trying to time the market you may just end up guessing wrong. How can we guess wrong when the Federal Reserve has indicated they plan to keep interest rates at near zero levels until 2014? Only hindsight will be certain, but what are the costs to your portfolio when you park money in an account earning zero or stuff it in your mattress. While you may not lose principle you most likely will lose buying power. Inflation, which has averaged somewhere around four percent for about the last 30 to 40 years is sure to erode your future spending power.

However, nothing could be worse than losing principal and depleting your retirement savings just because you choose to stay invested in riskier asset classes due to a perceived lack of choice.

What is the best plan for when I prepare for retirement – NOW?

1. Protect the Basics – If you are in or near retirement protect your income by selecting safe money options that provide reliable and steady income. Consider CD’s or annuities for this portion. Annuities are superior for providing income, while CD’s are federally insured.
2. Spread out your assets – Look at all assets classes, not just stocks and bonds to provide diversification. You can spread out your risk by choosing assets classes than are not as heavily correlated to each other. Consider MLPs, REITs, preferred stock, commodities, currencies, options, carry trades and annuities.
3. Take reasonable risks – Once you have protected your foundational level of income you can be more comfortable in engaging traditional more aggressive asset classes that can provide additional returns to combat inflation.
4. Get a second opinion – Ideas and philosophies about financial planning are plentiful. Seek out professional advice and don’t be afraid to get a second opinion. When it comes to retirement planning some advisor are definitely better than others.

Lastly remember you are in charge, too often we hear from clients who say “I did not want to do that but my advisor said I should”… if you don’t like their advice or service. Get a new advisor. It’s your money and more importantly it is your retirement.

Annuity Guys® Video Transcript:

Dick: Today we have with us the new and improved Eric. He’s done a little shaving and he’s got that youthful appearance. Hey, we’re going to talk about annuity timing today and what is the best time to buy an annuity?

Eric: Yeah, it’s really we’re looking at today’s low interest rate environment. One of the questions we constantly get asked is “Is it the right time, or am I better off waiting?”

Dick: That’s the big question and I think that is the good thing about an annuity is that they are structured for income, and they’re not really structured just for the aspect, of treating them like a CD. So they’re more of a potentially, foundational place in your portfolio that can get you the higher income that you’re desiring even in a low rate environment. So I think that that’s just part of structuring an overall portfolio. What would you say, Eric?

Eric: Yeah, it’s about asset allocation, so when it comes down to it, you start with a plan. You can’t hit a target, you can’t see. So what’s your retirement financial plan? And then you start building from that, all right? We always talk about the foundation, taking care of the foundation and if income is part of the foundation, that’s really where annuity makes sense.

Eric: An annuity makes sense for fitting that income foundation portion, securing it so you don’t have to worry about running out of money.

Eric: One of the biggest concerns a lot of people we talk to have is with the rates being as low, you know…

Dick: Yeah, right, when is the right timing? And we do know, Eric. I mean it is a fact, if we keep money in a low-rate environment and we do nothing, put it in our mattress or put it…

Eric: Put it in a savings account.

Dick: When you put it in the bank it’s about like putting it in the mattress. It’s going to earn about the same amount of money, so we know that we’re not going to keep up with inflation.

Eric: Right, we know that zero is what we’re getting…

Dick: We know that our spending power is dropping, dramatically.

Eric: So if inflation’s averaging 4.0%, over the last 30 to 40 years, what are you getting when you put it in a zero-earning environment? You’re losing money. You don’t like to think of it as losing money, but you are.

Dick: Well by contrast, let’s just talk about for a minute, because we hear a lot about it. The hybrid annuity and what makes the hybrid annuity unique in this low-rate environment when it comes to income?

Eric: Well, it’s the income riders. You’ve got that **guaranteed return, sometimes as high as 8.0%, 7.0-8.0%, that those dollars can be used to **guarantee income in the future and that’s a way of securing income.

Dick: Right, it’s another layer of security that we’re really asking the insurance company to take that risk, instead of us taking the risk by going into riskier investments, we’re saying, “Hey, if I can grow my income base in a similar way, if I just put it in the stock market and tried to earn 8.0%, I mean I realize it’s not going into my cash accumulation account.” But if I can draw income off of it on a similar level that I could, if my stock account grew then that’s a way of transferring some of that risk.

Eric: Right and it’s about putting the right pieces or filling the right buckets. You want to have that secure portion taken care of, so then you can add those other allocations that can help you combat inflation, help you earn a little bit higher, because you’re taking care of your foundation.

Eric: So it allows you to take more risk in other areas.

Dick: Exactly, folks. I think that you can kind of understand that. That if you’ve got your income foundation very secure, you feel a lot more comfortable taking risk, or being more aggressive with that portion of your assets that’s more discretionary.

Eric: That’s really what we’re going after, so if you have somebody that you’re working with and, you have to be comfortable with your advisor.

Dick: Yes, you do.

Eric: First of all, get professional advice. It never hurts to get a second opinion.

Dick: No, no.

Eric: No matter, if you’re at the first stage or you’ve been investing and are ready for retirement, for a long time, you’re getting to that stage, ask for a second opinion.

Dick: Well, one of our slogans that we use quite a bit is, “Your Retirement Deserves a Second Opinion,” and it’s true. It’s really true.

Eric: We work with a lot of folks who had a very good accumulation specialist to get them to retirement.

Dick: Good strategy. They’ve earned well.

Eric: But when you get to retirement, you need to work with a retirement planning specialist and that’s where we would encourage people, to get that comfort level with your retirement plan.

Dick: If you do not feel comfortable with what is being proposed or the plan just doesn’t seem to make sense, get that second opinion. Don’t just go along, because how many times have we heard someone come in to us new and say, “Well, my advisor told me to do this.” Well, this is a reciprocating two-way street when you work with an advisor. We want our clients to tell us…

Eric: There has to be a comfort. There’s a relationship that you have to have with your advisor. If you cannot tell your advisor no, you’re working with the wrong guy or gal. Don’t want to be gender specific. But it’s about that relationship and letting them know where you feel comfortable and how you’re going to work to achieve, they’re going to work to achieve your goals, and you have to feel comfortable with that client.

Dick: And yet, Eric, there is that balance that we do know things that, because of our training, because of the way that we forecast, project and look at the way that these things interrelate, that there has to be a mutual level of trust and comfort between us and the client. That’s why they have us. We’re the professional. We know what we’re doing. We have the expertise. But they should never feel forced. You should never feel in some way that you’re being coerced into something.

Eric: Right, and if you don’t agree with the advisor’s assessment get a second opinion. That’s what it’s about. It’s about your retirement.

Dick: Have we fairly answered the question of annuity timing? Is it a good time to buy an annuity?

Eric: Well, I would tell you that it’s always the right time, if it fits the situation. You don’t wait until it’s too late.

Dick: Right, I do agree. I could say a lot more, but why don’t we…?

Eric: That’s a great gag line. Don’t wait until it’s too late.

Dick: That’s right. That’s right. Thank you.

The post Are Annuities a Good Choice in a Low Interest Rate Environment? appeared first on Annuity Guys®.