, , , , , ,

Why Annuities are Gaining in Popularity

JigsawWe’re hearing more and more about indexed annuities in an insurance based environment and their increasing popularity when it comes to retirement planning, Yet naysayers are quick to decry them with arguments such as “what does minimum guarantee really mean?”, “too complex”, “limited earnings because of the CAP” and—my particular favorite—”beware of agent bonuses”.

But when it comes down to it, it’s difficult to argue with hard numbers and proven results.

So what exactly is an Indexing Strategy in an insurance based environment? This kind of strategy has two key components: a CAP or limit as to how much you can earn when the market is good and a protective floor of ZERO when the market is not good. How is this different to the S&P Index?  The S&P Index spreads the investments evenly between 500 different stock companies. There’s no cap, so it lets you keep all the gains when the market is good, but when the market is bad, you suffer the loss.

Now look at the chart below: this graph is based on ACTUAL CREDITED RATES for the period shown on a particular product* over the period 1998-2014.  It shows how $100,000 would have performed during this period had it been invested in the S&P (with dividends) and the actual credited rates of the Indexed Strategy.

With the Insurance Indexing Strategy, you can see that in the years when the market loses money, you’re protected from losses due to fixed zero floor.  The same doesn’t apply if you’re invested in the market.

 When it comes down to it, it’s difficult to argue with the numbers:

IS Graph 300 dpi

*This graph is based on actual credited rates for the period shown on the Index-5 product from American Equity which has since been replaced
 **Past performance is no guarantee of future performance and should not be relied upon as such
, ,

Healthcare Costs in Retirement

Infographic 7 - Medical Realities - low res

 Medical Realities & Your Financial Assets

As we all live longer lives, we are all at a higher risk for a serious illness than we think. These statistics tell a scary story and healthcare costs in retirement are becoming a major concern. Make sure your financial assets are protected against tomorrow’s medical realities…


Do YOU Have a Boiler Plate Retirement Plan?

Picture13Whether we like to admit it or not, most of us do indeed have a boiler plate retirement plan.  We start work and immediately sign up for the 401(k) plan with the employer match. We assiduously contribute to the plan and our employers assiduously match our contribution. We don’t know the first thing about investing so we’re advised to put our contribution into the “higher risk” plan if we’re young, “average risk” plan if we’re in the middle of our careers, and “low risk” plan if we’re nearing retirement. That’s where the investment/retirement planning ends for many of us. Maybe we move the funds around now and then, maybe we don’t. By the time we hit 50 and check to see the “millions” that have supposedly accumulated in our plans, we’re disappointed to see that we’re nowhere near ready for retirement.

What’s more, what we have accumulated will be further reduced by the time we retire: we’ll need to pay taxes, the cost of living will be considerably higher and we have no idea what our medical costs may be. So what do we do?

Before panic sets in, there really is something that you can do. As the famous Stephen Covey famously said the first step is “begin with the end in mind”, then you seek out the adviser who can help you reach that end.

Beginning with the end in mind means you need to ask yourself some tough questions:

  1.  At what age do you want to retire?
  2. How much annual income (after taxes) do you need to retire comfortably? Remember you’ll need to adjust this for inflation!!
  3. What is the value of your current retirement plan and, based on historic growth, what will it be by the time you retire?
  4. How much of that plan will go to paying the taxes due on that income?
  5. Once all of this is taken into account, will you have enough to retire and if not, what’s your plan to get there?

Man on Ladder 2While these questions may seem initially overwhelming, with the right adviser, they needn’t be, but here’s a hint: the right adviser is most likely NOT your 401(k) adviser.  When looking for the right adviser, make sure you find someone who can not only estimate the future value of your current plan based on historic growth, but also account for inflation and taxes to give you a realistic picture of “the bottom line”. The right adviser should also give you options to minimize your tax bill as well as increase retirement income to offset inflation. You really do have more options available to you than you think. Click HERE to download GFG’s Wealth Management & Retirement Handbook to check out just a few of them….

Deferring IRA Income


Man on Ladder 2A QLAC (\ˈkyü-lak\) or Qualified Longevity Annuity Contract, is a new product and concept just approved by the Treasury Department which allows people who do not need the income from their qualified retirement plan and who do not want to pay the tax on forced income, to defer $125,000 into a QLAC contract. Money in a QLAC escapes the required minimum distribution rules associated with qualified plans and thus, income can be deferred until a later date.

Why Would I Defer Income to a Later Date?

There could be several reasons you do not wish to take the standard required minimum distribution, including:

  1. You already have the income you need and therefore do not need additional income from your retirement account.
  2. Taking additional retirement income from your retirement account could potentially push you into a higher tax bracket.

If you have a diversified portfolio and you and your spouse have, for example, $1million combined in your 401ks and IRAs, you would be allowed to move out $250,000 combined from your portfolio. That means $250,000 escapes the required minimum distribution rules and is allowed to matriculate into the future.

Prior to this new offering, at age 71 this couple would have been required to take $9,434 from their combined $1million account based on the required minimum distribution formula; over 5 years, they would need to take $50,742 and pay $17,759 IN TAXES. In 10 years, they would have distributed $112,188 and paid $39,218 IN TAXES.   By switching this money to a QLAC, they are able to defer that payout, and the longer they defer the payout, the greater that payout becomes.

How Much Does This Annuity Pay When I Need Income?

Payout rates vary slightly from state to state, but let’s say the couple lives in Florida and decides to take payout at age 75. In the state of Florida, the payout rate at age 75 for a woman whose current age is 66 is $1,295 per month, a 12.4% payout rate. If she were to wait until age 80, her rate would be $1,846 per month, a 17.7% rate.

Other Uses of QLAC Income

The beauty of the QLAC is that its use is not restricted so the income from a QLAC can be used in different ways:

  • QLAC income can be used to pay premiums for existing life insurance and long term care insurance, thus alleviating premium burdens from cash flow as we get older.
  • By making a child an income beneficiary for part or all of the income, you can give your child their legacy gift annually while you are still alive.
  • Lastly, a charity can be the income beneficiary of QLAC income, thus becoming a deductible gift to your favorite charity and offsetting the taxes due on the income.Jigsaw

QLACs are the next big thing in retirement planning which will usher in a new wave of legislation and products inside of our 401(k)s and IRAs.  This is a start in alleviating early distribution rules from retirement plans. People are living longer and we need encouragement to create additional income sources to supplement this longevity. QLACs are a start.



True or False

True or False 2

What you don’t know about insurance CAN hurt you!

, , ,

What Does the CPA Firm of the Future Look Like?

Man-JugglingIn the manufacturing and consumer world, product innovation is a given – the Apple iPad was introduced in 2010 – today we’re on the 4th Generation version, not to mention the iPad Mini and the iPad Air. Manufacturing and consumer business models have changed significantly and Henry Ford’s famous quote “any color so long as it’s black” doesn’t fly any more. Customers want options – and lots of them.

In the professional world, however, we tend to forget that innovation in the services  we provide should also be considered critical if we wish to remain competitive and relevant, and just as every retail consumer wants options, so do our clients – and especially our best clients.

So what does that mean for a CPA professional?

If CPAs want to survive, thrive and remain relevant they must address the increasingly complex needs faced by their best clients and act as a catalyst, problem solver, and trusted adviser rather than a referral source to other professional problem solvers, like the pension go-to guy! The CPA firm of the future should no longer aspire to be just the first step in the problem solving process, but rather, become the complete process; essentially the “go-to guy” for any problem your best clients need solving. How can CPAs do this? By building a vibrant back office of problem solvers.

Why are you different?

Tax and audit work is increasingly becoming a commodity offering, with price being the distinguishing factor – and in a commodity situation, the lowest price usually wins. So the CPA firm of the 21st century needs to distinguish itself by offering greater value and this is done in two ways; first, by building deeper relationships with their their best clients. Second, by building a vibrant back office of renown problem solvers. The innovative CPA firm needs to offer not only a full array of essential best client services but equally important, the firm needs to adopt a different type of client acceptance policy. Having standards on who becomes your client is one of the most important differentiating points of the firm of the future.

Building deeper relationships is key.

Simply put, the new CPA firm moves from being a referral source to becoming a trusted advisor who can deal with every facet of best client services.  Relationships between the client and the firm become a long term trusted partnership. In other words, the CPA must move up the value ladder: no longer providing a commodity product, but becoming a trusted adviser and partner. The diagrams below illustrate the subtle differences in approach.





This approach was echoed by Lyle Benson, CPA and Board Member of the AICPA Financial Planning Committee in an interview with Dan Wolfe of Accounting Today. In the interview he states:

  1.  Tax returns are now a commodity. CPAs need to offer much more value to their best clients if you do not want to lose them.
  2. CPAs need to redefine their relationships with their best clients.

 Imagine for a moment

Imagine being the center of the planning team without having to find referral sources because your back office team members are some of the best planners in the country. On the 19th hole when your best clients are mingling, they are now talking about you as a valuable resource, not some referral source specialist.

The question becomes, do you want to remain a CPA firm of today with the risk of declining into commodity irrelevancy or do you wish to break with your traditional role become a vibrant CPA firm of tomorrow?



About the Author:  Barry Goldwater is Principal at Goldwater Financial Group. He works with CPAs to help them offer easy-to-implement, tax planning and wealth management solutions to their best clients. He can be reached at barry@frg-creative.com or at  617-527-9736.