Safe Retirement Income

Your Retirement Depends on It

Tim Barton, Chartered Financial Consultant

Pepin Wisconsin
715-220-4866

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Teaching Grandkids about Money… Money Does Not Grow on Trees

At this point in our lives we’ve raised our own kids and hopefully, the values we struggled to impart before they left home have become part of their family lives.  Now they’re raising our grandchildren and like us when we were new parents our kids will try to bring all of their life lessons into the mix.  The hard part, at times,  at least for me, is to keep my mouth shut not give unasked for advice.  Does anyone else have that problem?

This narrows my options to just setting the best example I can no matter the subject matter.  When it comes to money and finances.  Money does not grow on trees.

  • Young children can understand the concept of money.  When I take them out and we’re going to buy a little something like an ice cream I give them the money to pay for it.   This teaches them money is exchanged for things we want.
  • Save all my “change” for grandkids. I split up this money into 3 coin purses for each kid marked 20% for savings,  10% sharing, and all the rest for whatever they want. (with parent’s permission of course)   The savings are used for their bigger desires/wants. The sharing can be used to buy things like ice cream, candy bars and other treats for the family on outings or they will deposit it into Salvation Army kettles or other charitable containers found at the checkouts.  Elementary school age is a good time to start.
  • Demonstrate to the grandkids how to reach a savings goal.  Show them how saving X amount of their money each month and in how many months this money will equal an amount needed to buy a computer game, book or whatever.
  • When the grandkids are coming for a barbeque, a couple like to help cook.  We plan a menu, make a list of needed ingredients, figure out the budget (money to purchase listed items) and go to the store.  As we pick things out we discuss pricing,  brand names and how to evaluate the best deal.
  • Needs versus wants concept is very important throughout life for all of us.  As they age and gain understanding there are things associated with my hobbies that reflect needs versus wants which make good subject matter for discussion with my grandkids. Particularly an activity they have an interest in, like fishing for example.

These are just a few examples of actions and conversation points  I use to demonstrate how to use money with my grandkids.  Actually, I did the same things with their parents as they grew up and remember how I appreciated any support from other adults.  As a grandpa, I just wait for the “teachable” moment or when the conversation flows that way.  To be effective today’s kids are no different than yesterday’s kids- the brains shut off during “the talk”.

Need more ideas?  Download my PDF booklet

“Money Doesn’t Grow on Trees…  Teaching Kids about Money”

Download Teaching Kids about Money booklet here

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She Solved Her Retirement Needs. And So Can You

Need retirement income you can’t outlive? Have coffee with Meg. Take a video break and learn how Meg uses a single premium immediate annuity (SPIA) to alleviate concerns about outliving her retirement assets and being unable to meet monthly expenses.

Retire with Confidence

People are living longer than ever before, meaning that unpredictable market performance, higher health care costs, and rising inflation could impact your retirement nest egg. Social Security is in question, and you may or may not have a pension.
The reality is, many individuals may not be able to maintain their standard of living — or worse  — may run out of money during retirement.

Live Comfortably with Retirement Income- Consider the risks that can affect your retirement and life:

  • Lifespan – Living longer and outliving your retirement money.
  • Inflation – Cost of living increases that erode your retirement buying power.
  • Fluctuation – Market volatility that impacts your retirement assets.
  • Experience – Life events that require retirement plan flexibility.

At what rate can you safely withdraw from your portfolio to address these risks?

  • According to the Journal of Financial Planning, the safe withdrawal is 2.52%.

Contact www.TimBarton.net

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Should a Retiree Sell or Stay in Their Home

Should a Retiree Sell or Stay in Their Home

This depends on many factors both financial and personal lifestyle.  If the choice is to sell and move there are financial considerations.  As it is with so many decisions today the tax implications must be considered. Whether you decide to stay or move on here is a quick checklist. 

Homeowner’s Tax Checklist

Certain costs associated with acquiring and maintaining your principal residence, a second home or a residence you rent out are tax deductible, while others are added to your cost basis and used to reduce any taxable gain on the sale of the property.

Closing Costs

Most closing costs incurred in buying a home are added to cost basis (mortgage interest and real estate taxes paid at closing, however, are immediately deductible). Closing costs incurred in selling a home reduce the selling price. 

Real Estate Property Taxes

Deductible in the year paid, assuming you itemize deductions on your federal income tax return. 

Mortgage Interest

Interest is deductible on loans up to $1 million for buying, building or substantially improving your principal residence and one other home. Interest on home equity loans of up to $100,000 is also deductible.

Points

Points paid on loans to buy, build or substantially improve your principal residence are deductible in the year paid.

Improvement and Repairs

Repairs are nondeductible, unless allocatable to business or rental use of the property. The cost of permanent improvements that add to your home’s value or prolong its life are added to cost basis.

Casualty Losses

Unreimbursed damage to your home may be deductible if you itemize deductions (after a $100 reduction, deductible to the extent the loss exceeds 10% of adjusted gross income).

Home Office Expenses

If you are self-employed and use part of your home exclusively and on a regular basis as your principal place of business or as a place of business to meet customers or patients, certain expenses allocatable to the office may be deductible. A home office can qualify as the principal place of business if it is used exclusively and regularly by the taxpayer to conduct administrative or management activities of a trade or business and if there is no other fixed location of the business where the taxpayer conducts substantial administrative or management activities of the business.

Be aware when a home that has been depreciated for business purposes is sold a part or all of those deductions are added back into the gain side for tax purposes.  Consult a qualified tax professional regarding the rules.

Rental Expenses

Certain expenses allocatable to a rental of part of your home may be deductible.  Some retirees rent part of their homes for extra income.  This is a business use and many of the tax rules applicable to a home office will also apply in this case.  

Mortgage Insurance Deduction

Taxpayers with adjusted gross incomes of $100,000 or less who itemize can deduct the full cost of mortgage insurance on loans that were originated after December 31, 2006. The deductible amount quickly phases out above $100,000, so that no deduction is available to taxpayers with an adjusted gross income above $109,000. Under current law, the deduction is available only through 2011.

 

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

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Confirmed; Annuity Owners More Confident To Retire

 

The following IRI survey comes as no surprise to retirement income planners who witnessed their annuity client’s relief and security while they heard stories of large losses from their friends and associates in the aftermath of 2008’s financial meltdown.   Not only did these clients not lose any money or income; they experienced strong growth as the market indexes slowly recovered.

Insured Retirement Institute survey, by IALC

According to a recent survey by the Insured Retirement Institute (IRI)  of Americans aged 50-66, a majority (53%) of annuity owners are extremely or very confident that they will have adequate income in retirement, compared to less than a third (31%) of non-annuity owners who say the same.

And not only are these consumers more confident, they are also satisfied with their annuity purchases. A recent LIMRA study found that 83% of fixed indexed annuity buyers reported being satisfied with their annuities and five in six would recommend annuities to others.

So what’s driving people to buy fixed annuities, in particular? Certainly the 2008 crash taught consumers that their foundations are not as sturdy as they once thought. So in order to regain a sense of stability they are looking for sources that provide some minimum guaranteed income. In fact, when asked about the intended uses for indexed annuities in another recent LIMRA survey, respondents’ top three responses involved retirement planning, including supplementing Social Security or pension income, accumulating assets for retirement, and receiving guaranteed lifetime income.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

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What Is the Marital Deduction?

The marital deduction (I.R.C. Sections 2056 and 2523) eliminates both the federal estate and gift tax on transfers of property between spouses, in effect treating them as one economic unit.  The amount of property that can be transferred between them is unlimited, meaning that a spouse can transfer all of his or her property to the other spouse, during lifetime or at death, and completely escape any federal estate or gift tax on this first transfer.  However, property transferred in excess of the unified credit equivalent will ultimately be subject to estate tax in the estate of the surviving spouse.

The 2010 Tax Relief Act, however, provided for “portability” of the maximum estate tax unified credit between spouses if death occurred in 2011 or 2012.  The American Taxpayer Relief Act of 2012 subsequently made the portability provision permanent.  This means that a surviving spouse can elect to take advantage of any unused portion of the estate tax unified credit of a deceased spouse (the equivalent of $5,000,000 as adjusted for inflation; $5,450,000 in 2016).  As a result, with this election and careful estate planning, married couples can effectively shield up to at least $10 million (as adjusted for inflation) from the federal estate and gift tax without use of marital deduction planning techniques.  Property transferred to the surviving spouse in excess of the combined unified credit equivalent will be subject to estate tax in the estate of the surviving spouse.

If the surviving spouse is predeceased by more than one spouse, the additional exclusion amount available for use by the surviving spouse is equal to the lesser of $5 million ($5,450,000 in 2016 as adjusted for inflation) or the unused exclusion of the last deceased spouse.

What Requirements Apply to the Marital Deduction?

To qualify for the marital deduction, the decedent must have been married and either a citizen or resident of the U.S. at the time of death.

In addition, the property interest:

  1. Must be included in the decedent’s gross estate,
  2. Must pass from the decedent to his or her surviving spouse
  3. Cannot represent a terminable interest (property ownership that ends upon a specified event or after a predetermined period of time).

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Medical Annuities Pay More

You are wondering what to do after your doctor explains you have a serious medical condition.  Not only is the thought of living out your remaining time, perhaps a bit impaired disturbing,  you and your spouse are wondering how to make your money last.  With the possibility of a future filled with increased medical bills and current yields at record lows,  you fear your savings are going to have to be drawn down to the point of depletion.

A possible solution is the medically underwritten annuity.  When applying for a medical annuity you provide your medical records to the insurance company who will then review them to determine your actuarial age.

After determining  the actuarial age it is compared to your chronological age and if  actuarial age is greater the annuity’s monthly income is increased accordingly.  This adjustment can be done jointly  even if your spouse’s health is good.

It has always been important and more so in this low interest rate environment to make sure a retiree’s savings lasts the rest of their and their spouse’s life.  The effort put into getting quotes on a medical annuity can bring a welcome peace of mind making it time well spent

On the positive side; medical science continues to advance at a fast pace so the initial prognosis could  in the end, turn out to be wrong, in which case you get to enjoy good health and a higher than normal lifetime income stream.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

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Taxable VS. Tax Deferred Investments

How much would you have to earn each year from a taxable investment in order to equal earnings on a tax-deferred investment? This chart illustrates the potential benefits of a tax-deferred investment vs. a taxable investment.

Annual Tax-Deferred Yield Federal Income Tax Bracket:
10% 15% 25% 28% 33% 35%
Annual Taxable Equivalent Yield
3% 3.33% 3.53% 4.00% 4.17% 4.48% 4.62%
3.5% 3.89% 4.12% 4.67% 4.86% 5.22% 5.38%
4% 4.44% 4.71% 5.33% 5.56% 5.97% 6.15%
4.5% 5.00% 5.29% 6.00% 6.25% 6.72% 6.92%
5% 5.56% 5.88% 6.67% 6.94% 7.46% 7.69%
5.5% 6.11% 6.47% 7.33% 7.64% 8.21% 8.46%
6% 6.67% 7.06% 8.00% 8.33% 8.96% 9.23%
6.5% 7.22% 7.65% 8.67% 9.03% 9.70% 10.00%
7% 7.78% 8.24% 9.33% 9.72% 10.45% 10.77%
7.5% 8.33% 8.82% 10.00% 10.42% 11.19% 11.54%
8% 8.89% 9.41% 10.67% 11.11% 11.94% 12.31%
8.5% 9.44% 10.00% 11.33% 11.81% 12.69% 13.08%
9% 10.00% 10.59% 12.00% 12.50% 13.43% 13.85%
9.5% 10.56% 11.18% 12.67% 13.19% 14.18% 14.62%
10% 11.11% 11.76% 13.33% 13.89% 14.93% 15.38%

This chart illustrates the potential benefits of a tax-deferred investment vs. a taxable investment. For example, if an investor in the 25% federal income tax bracket purchases a tax-deferred investment with a 5% annual yield, that investor’s taxable equivalent yield is 6.67%. This means the investor would need to earn at least 6.67% on a taxable investment in order to match the 5% tax-deferred annual yield.

This chart is for illustrative purposes only and is not indicative of any particular investment or performance. In addition, it does not reflect any federal income tax that may be due when an investor receives distributions from a tax-deferred investment.

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Another Role for Life Insurance

Another Role for Life Insurance…
The Wealth Replacement Trust

The Problem:

There can be significant tax advantages in giving appreciated assets to a charity. Examples include real estate and securities. If you were to sell an appreciated asset, the gain would be subject to capital gains tax. By donating the appreciated asset to a charity, however, you can receive an income tax deduction equal to the fair market value of the asset and pay no capital gains tax on the increased value.

For example, Donor A purchased $25,000 of publicly-traded stock several years ago. That stock is now worth $100,000. If she sells the stock, Donor A must pay capital gains tax on the $75,000 gain. Alternatively, Donor A can donate the stock to a qualified charity and, in turn, rece

ive a $100,000 charitable income tax deduction. When the charity then sells the stock, no capital gains tax is due on the appreciation.

When a donor makes substantial gifts to charity, however, the donor’s family is deprived of those assets that they might otherwise have received.

A Potential Life Insurance Solution:

In order to replace the value of the assets transferred to a charity, the donor establishes a second trust – an irrevocable life insurance trust – and the trustee acquires life insurance on the donor’s life in an amount equal to the value of the charitable gift. Using the charitable deduction income tax savings and any annual cash flow from a charitable trust or charitable gift annuity, the donor makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums. At the donor’s death, the life insurance proceeds generally pass to the donor’s heirs free of income tax and estate tax, replacing the value of the assets that were given to the charity.

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Benefits of Retirement Plan In-Service Withdrawal Make Sense for You?

You might know that you can move money from your employer’s qualified retirement plan to an IRA when you leave the employer.  But do you know you may be able to take advantage of this opportunity while still employed by the company?  There can be big benefits to this move.

What is an In-Service Withdrawal?

Basically, some companies allow active employees to move funds from an employer-sponsored qualified plan, such as a 401(k) or 403(b), while still contributing to the plan. When handled as a direct rollover, an actively working employee (usually age 59½ or older) then can buy an Individual Retirement Annuity (IRA) without current taxation. Of course, if a withdrawal is not rolled over to a qualified plan or IRA, it is considered taxable income (and may be subject to a 10% federal penalty if less than age 59½). But done right, there can be advantages to making this move.

What are the Benefits of an In-Service Withdrawal?

Using an in-service withdrawal to fund a deferred annuity in an IRA can offer these potential benefits:

  1. You may be able to gain more control over the retirement funds.
  2. You may be able to protect your retirement funds from market volatility.
  3. You may be able to choose options you feel better suit your retirement needs.
  4. You may be able to ensure yourself a guaranteed income stream in retirement.

What are the Next Steps?

  1. Talk to a Pro: Talk to your financial professional and see if taking an in-service withdrawal to fund an individual retirement annuity may benefit you.
  2. Talk to a Plan Administrator: Talk to your employer’s plan administrator about eligibility and requirements. They can tell you if the plan allows in-service withdrawals, and about any rules, such as withdrawal limits, fund types, transfer timing, etc.

Importance of Direct Rollover

As you consider an in-service withdrawal, it’s important to be certain your financial professional and plan administrator handle it properly — as a direct rollover.

With a direct rollover, your funds transfer from the plan trustee directly to another qualified retirement plan or IRA. By doing so they are not subject to tax withholding.

If your funds transfer to you, the plan participant, plan administrators must withhold 20% for federal income tax purposes, even if you intend to roll all the funds over within the 60-day time limit. This is a critical detail; one you don’t want to dismiss.

Added Considerations: Get the Complete Picture

  1. Talk with a tax advisor about potential tax implications before moving money out of your retirement plan.
  2. Use the proper paperwork. Most qualified plans have specific forms for direct rollovers.
  3. Some qualified plans may cease matching contributions for a period after taking an in-service withdrawal.
  4. The tax code allows the following to be rolled over from a qualified plan as an in-service withdrawal: Employer matching and profit-sharing contributions Employee after-tax contributions (non-Roth)
  5. Employee pre-tax and Roth contributions after age 59½
  6. The tax code does not allow rolling over the following before age 59½:
  7. Employer safe harbor match or safe harbor non-elective contributions
  8. Employee pre-tax or Roth contributions

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An Income Annuity Solution

How Can an Income Annuity Protect Against the
Risk of Living Too Long?

The purpose of an annuity is to protect against the financial risk of living too long…the risk of outliving retirement income…by providing an income guaranteed* for life.

In fact, an annuity is the ONLY financial vehicle that can systematically liquidate a sum of money in such a way that income can be guaranteed for as long as you live!

Here’s How an Income Annuity Works:

The annuity owner pays a single premium to an insurance company.

  • Beginning immediately or shortly after the single premium is paid, the insurance company pays the owner/ annuitant an income guaranteed to continue for as long as the annuitant is alive. There are other payout options also available.
  • With a cash refund provision the insurance company pays any remaining funds to the designated beneficiary after the annuitant’s death.

Seeking a secure life long retirement income?  Click the video box to left of this post.