Safe Retirement Income

Your Retirement Depends on It

Tim Barton, Chartered Financial Consultant

Pepin Wisconsin
715-220-4866

by Leave a Comment

FOUR WAYS TO FUND A BUY-SELL PLAN

There are FOUR ways to fund a buy-sell plan at an owner’s death:

  1. Cash Method
    The purchaser(s) could accumulate sufficient cash to buy the business interest at the owner’s death. Unfortunately, it could take many years to save the necessary funds, while the full amount may be required in just a few months or years.
  2. Installment Method
    The purchase price could be paid in installments after the owner’s death. For the purchaser(s), this could mean a drain on business income for years. Besides, payments to the surviving family would be dependent on future business performance after the owner’s death.
  3. Loan Method
    Assuming that the new owner(s) could obtain a business loan, borrowing the purchase price requires that future business income be used to repay the loan PLUS interest.
  4. Insured Method
    Only life insurance can guarantee that the cash needed to complete the sale will be available exactly when needed at the owner’s death, assuming that the business has been accurately valued.

If you had died or become disabled yesterday, who would own and manage your business today?

by Leave a Comment

HEALTH SAVINGS ACCOUNTS

In attempting to purchase health care insurance, individuals face several problems:

In attempting to purchase health care insurance, individuals face several problems:

  1. Cost
    Due to the high cost of traditional health insurance coverage, it is difficult (if not impossible) for many people to purchase adequate health insurance protection at an affordable price. Without this protection, however, the financial impact of a severe injury or illness can be devastating.
  2. Choice
    While managed care has produced cost savings, people enrolled in managed care plans generally find their choice of doctors restricted. There is also increasing concern about the interference of bureaucracies in the doctor-patient relationship.
  3. Control
    Individuals who need little or no health care receive no financial reward under traditional or managed care plans, nor is there any financial incentive under these plans for individuals to exercise control over their health care expenditures.
    By combining tax-advantaged personal savings with a high-deductible health insurance plan, the Health Savings Account (HSA) puts you in control of your own health care dollars, while protecting you and your family against the cost of a severe illness or injury.

by Leave a Comment

What is a Charitable Gift

What is a Charitable Gift

A charitable gift is a donation of cash or other property to, or for the interest of, a charitable organization. The gift is freely given with the primary intention of benefiting the charity.

Whether given during lifetime or after death, charitable gifts are eligible for a tax deduction, but only if made to a qualified charitable organization. For example, you may have a relative who has fallen on hard times, someone you choose to help with gifts of cash. While benevolent intentions may motivate you in making these gifts, you cannot deduct them for either income tax or estate tax purposes.

In general, qualified charitable organizations include churches, temples, synagogues, mosques and other religious organizations, colleges and other nonprofit educational organizations, museums, nonprofit hospitals, and public parks and recreation areas. Gifts to these types of organizations qualify for a federal income tax deduction if made during your lifetime or, if made after your death, can be deducted from the value of your estate for federal estate tax purposes.

Why Consider a Charitable Gift?

People give to charities for a variety of reasons.

They give:

  • Because they have compassion for the less fortunate.
  • A belief that they owe something back to society.
  • To support a favored institution or cause.
  • The recognition attained by making substantial charitable donations.
  • To benefit from the financial incentives our tax system provides for charitable gifts.

by Leave a Comment

FIXING THE VALUE OF YOUR BUSINESS FOR ESTATE TAX PURPOSES

FIXING THE VALUE OF YOUR BUSINESS FOR ESTATE TAX PURPOSES

What Conditions Must Be Met to Fix the Value of Your Business for Estate Tax Purposes?

If certain conditions are met, a binding buy-sell agreement may fix the value of a business interest for estate tax purposes. The purchase price, whether a fixed amount or one determined by a formula, can be accepted as the estate tax valuation if these conditions are met:

1. The buy-sell agreement must create an enforceable obligation on the part of the estate of the deceased owner to sell and the buyer to purchase the business interest.

2. The buy-sell agreement must prohibit the owner from disposing of his or her business interest during lifetime without first offering it to the other parties to the agreement at a price not higher than the price (fixed or formula) specified in the agreement.

3. The buy-sell agreement must be the result of an “arm’s length” transaction, meaning that the price must be fair and adequate at the time of the agreement or any subsequent reevaluation.

Without a binding buy-sell agreement, there can be a great deal of additional detail and uncertainty as to the valuation of a business interest at the owner’s death, adding to the time and expense required to settle the estate, as well as making it difficult to predict and plan for any estate taxes that may become payable.

by Leave a Comment

The Sequence of Returns Can Make or Break a Retirement Portfolio

The Sequence of Returns Can Make or Break a Retirement Portfolio

You’ve invested over the years and now you’re ready to retire and withdraw income from your retirement nest egg. How long will your money last? There are a number of variables at play, but one you should know is the sequence of returns. If you start taking income withdrawals from your portfolio in a down market, and continue that course without making adjustments, your money may not last as long as you need it to.

Early Negative Returns vs. Early Positive Returns Hypothetical Example

Jim, age 65, has $500,000 in savings invested in an index fund that mirrors the performance of the S&P 500®. He begins to withdraw 5% each year for income.

Compare the difference in his portfolio balance in the graph below. In each scenario, the average annual rate of return is 4.95 percent. But starting withdrawals in years with negative returns yields a very different portfolio outcome than when withdrawals begin in years with positive returns.

At age 83, Jim has only $20,134 left in account value (scenario A), when withdrawals began in a negative market. In scenario B, Jim has $477,147 in account value after 18 years, a difference of $457,013. More portfolio account value is preserved when withdrawals begin in years with positive returns. See the detailed annual account value charts on the reverse.

by Leave a Comment

Many Americans Want Convenient Way to Handle RMDs That Helps Offset Taxes, Leaves Legacy

Many Americans Want Convenient Way to Handle RMDs That Helps Offset Taxes, Leaves Legacy

November 12, 2018
Study Examines Views of Consumers Navigating the Necessities of RMDs
MINNEAPOLIS – November 12, 2018 – Required minimum distributions (RMDs) – which can be complicated, mandatory and challenging from a tax perspective – have come back into the spotlight due to potential government rule changes.
According to the new RMD Options Study* from Allianz Life Insurance Company of North America; A majority (88%) of high net worth consumers ages 65-75 are familiar with RMD rules on tax-deferred retirement plans. A full 80% of these respondents believe they will not need all of their RMDs for day-to-day living expenses; This can potentially leave these Americans feeling unsure of how to use this money and confused on how it may impact their finances, particularly their taxes.

The study, which asked these consumers about their opinions and behaviors with RMD payments, found that almost a third (32%) find it difficult to understand the impact RMDs might have on their taxes. Additionally, 71% said they are interested in using RMD payments to fund a financial product that could help offset the impact of taxes. The study also confirmed the vast majority (95%) of respondents believe it is imperative to reduce their taxes in retirement.
“For some consumers, RMDs have long been thought of as a necessary evil,” said Paul Kelash, VP of Consumer Insights, Allianz Life. “The government mandates that people take them, even though many find they don’t need the money for everyday expenses. So consumers face the challenge of managing the impact on their taxes while being unsure of how to use the leftover funds.”
Confusion over the impact RMDs can have on taxes leaves many Americans seeking methods to more efficiently handle their RMD payments. More than half (57%) of respondents in the study said they want the disbursement and tax payment to occur “without getting involved.”
In addition to determining their tax strategy with RMDs, these consumers also must decide how to use the funds left over after taxes, which tends to vary by age. While half of the study respondents said they are interested in leaving a significant portion of their savings to beneficiaries, older consumers in the study (age 71-75) are even more likely (58%) to want to leave a legacy.
“Different age groups within the study have different priorities for their RMDs,” said Kelash. “The 65-70 age group is most interested in tax-deferred growth of their RMD disbursements and may feel unsure about how to best use RMDs. In contrast, the 71-75 age cohort, who have already started taking their payments, is realizing they don’t need the additional money and are looking to leave a legacy – either to leave to family or another beneficiary like a charity.”
Overall, these Americans want to use RMDs to work with their financial goals – whatever they may be – with two-thirds wanting another way to use RMD payments to improve their financial situation. Further, 79% wish they could use RMDs in a way that allows their portfolio to grow.
Of those who work with a financial professional, 77% feel they have gotten good advice from them about managing their RMDs.
“For those who are taking RMDs or preparing to do so, working with a financial professional is a key way to finding a solution to more efficiently handle the taxes on their RMDs and use them in a way that works with their larger financial strategy,” said Kelash.

This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement.
About Allianz Life Insurance Company of North America
Allianz Life Insurance Company of North America, one of FORTUNE’s 100 Best Companies to Work For® in 2018, has been keeping its promises since 1896. Today, it carries on that tradition, helping Americans achieve their retirement income and protection goals with a variety of annuities and life insurance products. In 2017, Allianz Life provided a total of $2.7 billion in benefit payments that supported policyholders’ financial objectives. As a leading provider of fixed index annuities, Allianz Life is part of Allianz SE, a global leader in the financial services industry with 142,000 employees in more than 70 countries worldwide. More than 85 million private and corporate customers rely on Allianz knowledge, global reach, and capital strength to help them make the most of financial opportunities.

*Allianz Life Insurance Company of North America conducted an online survey. The RMD Options Study was conducted in February/March 2018 and included a nationally representative sample of 805 respondents ages 65-75 with retirement savings of $500,000 if single or $750,000 if married and who are the primary decision maker or share equally in decision making.

by Leave a Comment

Where to Keep Important Documents

Where to Keep Important Documents

 It would help if you kept the following documents in a secure location in your home:

  • Copies of wills and trusts
  • Copies of living wills and powers of attorneys
  • Income tax returns

These documents kept in a bank safety deposit box:

  • Original wills, trusts, and powers of attorney
  • Marriage certificates, birth certificates, divorce decrees, death certificates
  • Deeds and car titles
  • Military discharge papers
  • Any stock or bond certificates
  • Citizenship papers
  • Insurance policies

Consider giving these items to your attorney, executor and/or spouse:

  • A living will/medical power of attorney (the original should to the agent named in the document)
  • Copies of wills, trust agreements, powers of attorney
  • Inventory of insurance and investments
  • List of professional advisors (attorney, accountant, insurance agent, etc.)
  • Access information to the safety deposit box
  • Funeral instructions

by Leave a Comment

Will IRA Payouts be Mandated?

Will IRA Payouts be Mandated?

Will there soon be a law mandating how a retiree must take money from their IRAs?  Perhaps. Since 2006 some congressional members and government agencies have discussed the idea of encouraging personal 401 (k) and IRA funds be converted into lifetime annuities.

In June 2015 Dr. Mark Warshawsky, visiting scholar at Mercatus Center of George Mason published a study designed to influence government policy on individual retirement accounts (IRA).  The title is Government Policy on Distribution Methods for Assets in Individual Accounts for Retirees.

Study’s conclusion;

“I judge the life annuity an effective instrument to produce lifetime retirement income–generally somewhat better than the commonly used withdrawal rules” 

Proposes government policy be used to:

  • Mandate minimum level in dollars or percentage of all qualified plans be automatically converted to life annuity payments for all qualified plans.
  • Make lifetime annuity payments the default option for defined contribution plans.  (401 k and IRAs)
  • Mandate that retirement plan sponsors offer a life annuity option.
  • Encourage retirees to take a lifetime annuity option through favorable tax treatment.  For example, a portion of the annuity income payment would be free from taxation.
  • Create a government-sponsored source of life annuities provided by private insurers. Similar to Healthcare.gov.

 

by Leave a Comment

75% Want Certainty

When it comes to retirement 75% want income certainty

Volatility Concerns.  Market swings can upset plans.

A market correction can wipe out trillions of dollars of the global markets value and in the process, it can impact the plans of current and future retirees. 

Income Solutions.  Get a retirement income strategy in an unpredictable world.   Three-fourths of retirees rate income certainty higher than portfolio performance.  One vehicle that can guarantee retirement income for a lifetime is an annuity.

Less Worry.  More stability.

Annuities are a predictable strategy in an unpredictable world.  Volatility risk need not be a worry related to retirement.  If you’re among the 75% who want a reliable, repeatable, sustainable retirement income you can count on, consider the certainty of a fixed annuity.

by Leave a Comment

8 Ways to Payday

Retirees like income. So they want to know the many ways an annuity may pay. Confidence comes with knowing how an annuity may pay to help meet your financial needs.

  1. Withdrawals. You can access your money any time.  Beginning immediately, up to 10% of the accumulated value annually without a surrender charge.
  2. Annuitization. Convert a lump sum into income guaranteed for your life, or your life and another person’s.
  3. Payout Options. Immediate annuities offer payout options for specific amounts or periods; plus, increasing payout options to help address inflation over time.
  4. SEPPs. Substantially Equal Periodic Payments taken at least annually for 5 years and to the age of 59 1/2 are not subject to the 10% IRS penalty tax on withdrawals before age 59 1/2.
  5. Combination Plans. Pair two annuities–one generates immediate income, one pursues accumulation.
  6. RMDs. Required Minimum Distribution programs pay the amount IRA owners and qualified plan participants must take yearly from accounts starting by age 70 1/2.
  7. Death Benefit. Distributions upon death provide payouts and may extend tax-deferral benefits for a beneficiary’s life.

Commutation. Provides a lump sum from an immediate annuity for unforeseen life events while continuing reduced regular payments.

For confidence, it pays to plan for retirement with an annuity.