Why More Americans Are Saving Their Retirement With Annuities – Part III

What Are The Different Types Of Annuities?

Annuities can be immediate or deferred. This is simply whether the income payments begin right away or later. Annuities can also be fixed or variable.

Fixed annuities guarantee your money will earn at least a minimum interest rate. Fixed annuities may earn interest at a rate higher than the minimum but the rate isn’t guaranteed until it is credited to your account. With a fixed annuity you are not investing directly in the market and insurance companies must promise that your money is protected from market losses for it to qualify as a fixed annuity.

Money in a variable annuity earns a return based on how the investments you choose perform. Your investments are called “subaccounts” which are investments in mutual funds or other investment products. Your investment choices likely will have different types of risk and will affect the return you earn on your annuity. You may also have a choice to put some money into a fixed account with a guaranteed minimum interest rate. If the value of the subaccounts goes down, you may have less money in your annuity than you paid into it.

Why More Americans Are Saving Their Retirement With Annuities – Part II

The country’s movement away from defined benefit plans (such as pensions) to defined contribution plans (such as a 401(k)) placed more responsibility on individuals to manage their own nest egg. Studies show Americans have done poorly at this task.

In fact, the federal government is promoting annuities as a retirement savings tool to address this problem. The administration changed the rules to allow employers to offer annuities within defined contribution plans, and to delay required minimum distributions (RMDs) to as late as 85 years old for deferred annuity holders.

Social Security benefits represent the largest source of income (40 percent) for retirees in every age group, according to the LIMRA study, The Retirement Income Reference Book 2015. In its annual report, the Social Security Administration predicted its old age and disability trust funds, combined, would be exhausted in 2033.

A Political fix might happen at some point, with most ideas pointing to a raise in the eligibility age for benefits. That could make it even harder for future retirees to remain independent and in charge of their retirement lifestyle.

The Center for Annuity Awareness is an independent resource to assist with retirement decisions and provides readers with unbiased information and tools. In addition, the Center gives consumers access to professional advisors who can help retirees in making important financial decisions about their future. It is more than just the money, it’s helping retirees to secure a lifestyle, peace of mind and maintain financial independence.

What Is An Annuity?

An annuity is insurance against living too long. Annuities insure your savings will last as long as you do – no matter how long that is. With an annuity you’re buying longevity income to insure your savings last your entire life.

People buy an annuity for peace of mind. Most of us have a parent, an uncle, or even multiple relatives, who have lived into their 90s. It takes a lot of money to live two and three decades in retirement. The No.1 fear among retirees is outliving their money. Annuities guarantee that won’t happen.

More information about Annuities will come next week. Stay tuned.

Why More Americans Are Saving Their Retirement With Annuities – Part I

No one has to tell you that it is a new, anxious world for retirees. Pensions are nearly non-existent. People have not been able to save as much money as they will need. The economy is far from stable. Social Security seems under constant strain.

What Will Tomorrow Bring?

No one can accurately answer that question. That is why more Americans are turning to annuities to control their destinies. Annuities are a guaranteed source of income that you own and no one can take away.

That stability in times of crisis and need is what attracted many former critics to embrace annuities as part of a firm foundation for a secure retirement.

Harold Evensky, professor of financial planning at Texas Tech University, is one such former critic. He was dubbed the “Dean of Financial Planning” by Don Phillips, CEO of Morningstar, and is viewed as one of the top fee-only financial planners in the country.

Evensky now says annuities can be the key to help solve retirement’s greatest riddle: How do 76 million baby boomers pay for retirement?

An analysis by the Government Accountability Office finds that among households with members aged 55 or older, nearly 29 percent have no retirement savings or a traditional pension plan.

Millions of others are woefully short of retirement funds. Annuities are a valuable resource to help stretch dollars, Evensky said.

“I think that (annuities) are going to be an extremely important part of the investment and planning portfolio over the next decade or so,” he said.

An annuity is an insurance contract and like any contract it can be confusing. Terms and fees vary from annuity to annuity. People looking to save for retirement have to determine if the terms of an annuity or any contract are what they need and if the expenses are reasonable.

The most important thing is to have all of the information to see if annuities fit in your plan. Because the simple reality is that the retirement formula has changed. The era of combining pensions with Social Security is over for many people.

More information about Annuities will come next week. Stay tuned.


Essential Retirement Planning Tips

Retirement doesn’t just happen. It takes years of planning. We have come up with some helpful tips to guide you in your plan for retirement.

1. Save. Many who retire have not saved up enough to last. Retirement is usually 20-30 years, which is the longest span of life. Also, retirement funds or pension is not paid out immediately. It usually takes several months or more to receive your first check. It is wise to have enough money in your savings for at least six months of your budget before you retire.

You should also know the maximum amount you can contribute to your 401(k) or 403(b) accounts and IRA’s. Consider limiting your expenses, having a reasonable budget and tax planning to help get the savings you need to live on throughout your retirement.

2. Budget. Creating a budget is one of the key factors in a successful retirement. However, there are many things that get overlooked when planning a budget. Don’t forget about inflation, emergencies, medical expenses, and more. Only a small percentage of people integrate a plan for helping their parents and/or children. Many times those that retire have parents that are still living and may rely on them for income.

When it comes to helping out your children you should have a certain amount set aside to help in case of an emergency. If it isn’t an emergency then you should not be afraid to say no and tell them that you are living on a fixed income.

3. Maximize Social Security. You may choose to start collecting Social Security right away; however, you should look at the benefits to waiting a little bit longer. Some may end up earning up to $100,000 or more in their lifetime by waiting. It is best to talk to your financial advisor to find out what age is best for you to start receiving this benefit.

4. Ask for help. Many baby boomers have a “do it myself” type of attitude. They are use to going online and researching. There is a lot of misinformation out there. It is okay to and you should ask for assistance from a financial advisor.

5. Have an open mind. Planning a budget can seem scary and feel like you are losing your freedom when in fact it is doing the opposite. Having a budget will give you the financial freedom throughout your retirement. There are a lot of opportunities to plan and save for your retirement. Give us a call to find out more.

Beware of Joint Tenancy Deeds

Many people have this idea that they can eliminate probate simply by owning their assets with joint tenancy. Well, that works sometimes, but you have to be careful to make sure that the asset is held in ‘joint tenancy with right of survivorship‘. Those are the magic words that have to be on the document, on the deed, on the bank account. Without the words ‘with right of survivorship‘ the property does not automatically go to the other joint tenant without probate.

Too many times people have come to me and said, “I have this deed. Real estate is being held by me and by my deceased wife as joint tenancy, but the title company won’t let me keep it in my name or sell it without going through probate. They say it needs to have some additional language.” I have to agree with them. The magic clause ‘with right of survivorship’ is missing. That means it will require probate.

Joint tenancy simply postpones probate. Even if that magic phrase is on the deed — it’s held as joint tenants with right of survivorship — this simply means it postpones the probate until the second death. Sure, it will avoid the probate on the first death. With right of survivorship means the property automatically belongs to the survivor. But at the death of the second person, this property is still subject to probate. So it does not avoid it altogether.

Never hold property in joint tenancy with anyone other than your spouse. I recommend that you never hold any kind of property in joint tenancy with anyone other than your spouse. Now I hate to use that word “never.” It seems that there is always an exception. But I haven’t found the exception to this one, yet, because joint tenancy also means joint liability. Now with your spouse, that’s not so bad. You usually have joint liability anyway, but with anyone other than a spouse, do you want to be held accountable for their liabilities?

Reducing Taxes on Your Social Security

Your Social Security Income will be taxed as you exceed a specific amount called the “Threshold Income”. What is Threshold Income? All types of earnings, dividends or interest are included as threshold income except for one. A deferred annuity is the only producing asset that allows interest to grow without being included as Threshold Income.

If your threshold income exceeds the following limits, up to 85% of the amount received from Social Security could be subject to tax:

The 2017 federal estate tax rates haven’t changed, but the lifetime maximum exemption amount has. The federal estate tax, also known as the death tax, is assessed on money and property you pass on to your loved ones after you die. The tax rates on estates are among the highest in the U.S. Tax code, with a maximum rate of 40%, but it may not be as “taxing” on you as it seems thanks to a big exemption amount.

Do you know how much Uncle Sam will inherit at your death?

The management strategies for your financial assets will change as you move through your life cycle. You may have reached a point in your life where preservation of assets has become the number one priority. Will Rogers once said, “…as a senior, I’m more concerned about the return of my principle, rather than the return on my principle.”

To learn more about deferred annuities please call to schedule an free consultation.

Your Will and the Public

A will is a unique legal document that has absolutely no effect until you’re dead. And so to carry out the terms of your will it has to be presented to the court and the court supervises the distribution of your estate under the terms of your will.

Now, it’s a court process. That means it’s open to the public. Anybody has access to the court records. And so you can have people looking at your court records that you would never have invited to in the first place. It could be just a nosy neighbor or a newspaper reporter, which is what happened to Natalie Wood’s estate. The Wall Street Journal sent a reporter after her death to look at her probate records. Now they found that she had an estate worth about six million dollars, and that included 29 fur coats and various other things. Her estate became public because there was an article printed in the Wall Street Journal. So her estate was more public than most of ours will be, but that’s what happens in the probate of an estate. It is public record.

Now, you will be interested to know that in the newspaper the last several years there have been ads promoting looking at probate records as a way of finding real estate that might be up for sale at a lesser cost. So people can buy it at “fire sale” type rates. That’s all public record and now it’s being promoted as a way for other people to make money off your estate when you’re looking to sell your parents’ goods so you can just have a cash inheritance. Probate records are not private.

We’re going to take a glimpse at some of the estates of some of these famous people, just so you can get an idea. It’s kind of fun to see what happened.

Marilyn Monroe

When she died in 1962, she was actually deeply in debt, but over the next 18 years her estate gained some royalties and other payments, and so it accumulated about a million and a half more dollars. The estate was settled and, at the end, the net estate – the amount that was finally able to be distributed to her heirs — amounted to about $370,000. So out of that one and half million dollars that her estate accumulated, most of it was eaten up in taxes, court costs and lawyers’ fees.

Robert F. Kennedy

The Kennedy Family is full of tragedies. Of course, we know about the assassination of President John F. Kennedy, but do you remember his younger brother, Robert Kennedy, was also assassinated while he was running for president? Robert F. Kennedy was a lawyer and he had been the U.S. Attorney General. So, you’d think he would know about planning his estate. But when we look at the settlement of his estate it appears he had a gross estate of about 1.6 million dollars — a pretty good sum in those days. And that the costs in settling his estate amounted to just over a million dollars. So the total shrinkage in his estate was 63%. Now this is from someone who should have known about planning for his estate. He was a senator, a U.S. attorney, a learned gentleman with a wealthy background, and yet the shrinkage of his estate was huge.

Elvis Presley

It’s always fun to talk about the rock star, Elvis Presley. While he was alive, he accumulated an estate over 10 million dollars in value. Of course, he didn’t expect to die when he did. But he left an estate full of debts and costs of settlement, and didn’t really plan for passing his estate onto his heirs. Now they’ve made a lot of his estate, but I think if Elvis were to come back now, he would say “Don’t be cruel.” They took a lot of his money in settling his estate. The total costs of his estate were over 7 million dollars. Imagine if he had planned a little bit and left more to his family what Graceland would amount to now, and his other assets. They’re huge, as it is, but they were cut way down at his death. The shrinkage was about 73%.

It is wise to prepare an Estate Plan including a Trust in order to keep your estate private and allowing it to transfer without fees to your heirs. Let Legal Awareness for Seniors help set up the right estate plan for you.

Why Seek Advice for ALTCS?

As life expectancies and long term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay $4,000 per month or more for the cost of a nursing home, and those who can pay may find their life savings wiped out in a matter of months, rather than years.

Fortunately, the ALTCS Program is there to help. In fact, in our lifetime, ALTCS has become the long term care insurance of the middle class. But the eligibility to receive ALTCS benefits requires that you pass certain tests on the amount of income and assets that you have. The reason for ALTCS planning is simple. First, you need to provide enough assets for the security of your loved ones. Second, the rules are extremely complicated and confusing. The result is that without planning and advice, many people spend more than they should and their family security is jeopardized.

Exempt Assets and Countable Assets: What Must Be Spent?

To qualify for ALTCS, applicants must pass some fairly strict tests on the amount of assets they can keep. To understand how ALTCS works, we first need to review what are known as exempt and non-exempt (or countable) assets. Exempt assets are those which Medicaid will not take into account (at least for the time being). In general, the following are primary exempt assets:

  • Home, no matter what its value. The home must be the principal place of residence. The nursing home resident may be required to show some “intent to return home” even if this never actually takes place.
  • Personal belongings and household goods
  • One car or truck
  • Burial spaces and certain related items for applicant and spouse
  • Up to $1,500 as a burial fund for applicant & spouse
  • Irrevocable prepaid funeral contract
  • Value of life insurance if face value is $1,500 or less. If it does exceed $1,500 in total face amount, then the cash value in these policies is countable.
  • Miller Trust (or Income Only Trust) – see our website for more information

All other assets are generally non-exempt, and are countable. Basically, all money and property, and any item that can be valued and turned into cash, is a countable asset unless it is one of those assets listed above as exempt. This includes:

  • Cash, savings, and checking accounts, credit union share and draft accounts
  • Certificates of deposit
  • Savings Bonds
  • Individual Retirement Accounts, (IRA), Keogh plans, (401K, 403B) (Exempt for the community spouse)
  • Nursing home accounts
  • Prepaid funeral contracts which can be canceled
  • Trust (depending on the terms of the trust)
  • Real estate (other than the residence)
  • More than one car
  • Boats or recreational vehicles
  • Stocks, bonds, or mutual funds
  • Land contracts or mortgages held on real estate sold

For assistance with qualifying for ALTCS please reach out to one of our specialists.

How To Pay For Nursing Home Care

One of the most difficult transitions people face is the change from independent living in their own home or apartment to living in a long term care facility or nursing home. There are many reasons why this transition is so difficult. One is the loss of a home…a home where the person lived for many years with a lifetime of memories. Another is the loss of independence. Still another is the loss of the level of privacy we enjoy at home, since nursing home living is often shared with a roommate.

Most people who make the decision to move to a nursing home do so during a time of great stress. Some have been hospitalized after a stroke, some have fallen and broken a hip, still others have progressive dementia, like Alzheimer’s disease, and can no longer be cared for in their own homes.

Whatever the reason, the spouse or relative who helps a person transition into a nursing home during a time of stress faces the immediate dilemma of how to find the right nursing home. The task is no small one, and a huge sigh of relief can be heard when the right home is found and the loved one is moved into the nursing home. For many, the most difficult task is just beginning; how to cope with nursing home bills that may total $2,500 to $6,000 per month or more?

One of the things that concerns people most about nursing home care is how to pay for that care. There are basically four ways that you can pay the cost of a nursing home:

  1. Long Term Care Insurance – If you are fortunate enough to have this type of coverage, it may go a long way toward paying the cost of the nursing home. Unfortunately, long term care insurance has only started to become popular in the last few years and most people facing a nursing home stay do not have this coverage.
  2. Pay with Your Own Funds – This is the method many people are required to use at first. Quite simply, it means paying for the cost of a nursing home out of your own pocket. Unfortunately, with nursing home bills averaging between $4,000 and $6,000 per month in our own area, few people can afford a long term stay in a nursing home.
  3. Medicare – This is the national health insurance program primarily for people 65 years of age and older, certain younger disabled people, or people with kidney failure. Medicare provides short term assistance with nursing home costs, but only if you meet the strict qualification rules.
  4. ALTCS (Arizona Long Term Care System) – This is a federal & state funded and state administered medical benefit program which can pay for the cost of the nursing home if certain asset and income tests are met.

If you are looking for assistance in qualifying for ALTCS please reach out to one of our specialists at Legal Awareness for Seniors.


Is An Annuity Right For Me?

What are the advantages and disadvantages of an annuity?

The very significant advantage of owning an annuity is peace of mind. The assurance that no matter how long you live, that check from the insurance company will arrive in the mailbox every month. This can alleviate a major source of stress for many seniors.

The main disadvantage is loss of liquidity. That’s why retirement planning experts recommend a diverse portfolio in which a portion is dedicated to an annuity, leaving the remaining funds available for emergencies and other types of investments.

Annuity critics say the products are too complex, and some annuities have fees and features that can drag down your interest earnings. That’s why it takes a commitment to shop around and ask the right questions. Talking with a professional can help answer your questions and assist in finding an annuity that is tailored to your needs.

How do I know an annuity is right for me?

Some questions to ask in determining if an annuity is right for you include: Am I in good health? Can I afford to remove some of my nest egg and put it into an annuity? What are my retirement goals? What is my risk tolerance?

Where does an annuity fit in my retirement plan?

Top financial planners recommend an annuity to address longevity risk and provide guaranteed income. The important part is to have a balanced retirement plan. Providing an income from an annuity enables you to take a little more risk with remaining money.

Many financial planners recommend rolling an IRA, or a percentage of it, into an annuity. In addition to providing income and longevity insurance, rolling into an annuity is a tax-free process.