Annuities and Insurance: Filling the Cracks in Your Financial Plan

If you're contributing to an employer-sponsored retirement plan on a regular basis, be sure to congratulate yourself!  You are already taking an important step toward addressing what may be the biggest financial challenge you will ever face. And if you are setting aside money for the college education of a child or grandchild, you deserve credit for that, too.

But take heed: There may be more you can or should be doing. In fact, a well-rounded financial plan might also need to include insurance strategies and the use of annuities to safeguard your vision of the future. However, you should consult a financial professional before deciding whether a particular insurance strategy is an appropriate choice in light of your particular needs and financial position.

Retirement Readiness: More Than a Plan?
While most financial experts encourage workers to contribute the maximum amount allowed to their retirement plans, they also warn that such contributions may not be enough to guarantee a secure future.

For example, the Social Security Administration estimates that, on average, retirees receive less than one quarter of retirement income from private pensions (including retirement savings plans); Social Security payments account for only an additional 39% of income. Ultimately, you may be responsible for addressing any shortfalls.¹

Annuities may offer one way to bridge that gap.  An annuity is an investment contract offered through an insurance company and purchased with one or more payments.  Annuities offer a lifetime stream of income and depending on the terms of the contract purchased, generally offer a guaranteed return of principal if you die before withdrawals begin. And because an annuity is a tax-deferred investment account, earnings are not taxable until money is withdrawn, which means the value of your assets have the potential to grow more rapidly than in a taxable account.²

There are many kind of annuities, but these two types of annuities have become more popular: fixed deferred annuities and variable deferred annuity.  Variable and fixed annuities are long-term, tax-deferred investment vehicles designed for retirement purposes; but the variable annuity contains both an investment and insurance component. 

A fixed annuity pays a fixed rate of return for a stated period of time.  A variable annuity offers a variable rate of potential returns, based upon the wide range of investment options through their underlying subaccounts.  However variable annuities don’t guarantee a fixed return.  However, guarantees are based on claims paying ability of the issuer. 

Since annuities generally do not have contribution limits, they may make sense for workers who have already maximized contributions to their other tax-advantaged accounts, such as retirement plans and IRAs.  It is important to note that purchasing an annuity inside a qualified plan does not provide additional tax deferral beyond what is received when investing in a qualified plan outside an annuity. 

The Insurance Safety Net
You may also want to consider purchasing insurance policies in order to protect against unexpected financial hardships that might otherwise require you to spend money earmarked for other goals.

For example, disability income insurance could enable your family to maintain its current standard of living in the event that you are unable to work for a period of time. And life insurance could provide your dependents with longer-term security after your death. 

Keep in mind that term life insurance only provides coverage for a predetermined amount of time, while whole life insurance can remain in effect indefinitely, provided premiums are paid. Also, whole life insurance typically includes a cash value feature that can allow you to accumulate additional wealth over time.  The cost and availability of life insurance depends on such factors as age, current health, and the type and amount of insurance purchased. 

To learn more about the strategies that could plug holes in your financial plan, consider speaking with a financial professional before you decide whether a particular investment is an appropriate choice in light of your unique financial needs and risk tolerance.

¹Source: Social Security Administration, 2006.

Investors should consider the investment objectives, risks, charges and expenses of the variable annuity contract and sub-accounts carefully before investing.  The prospectus contains this and other information about the variable annuity contract and sub-accounts.  You can obtain contract and underlying sub-account prospectuses from your financial representative.  Read the prospectuses carefully before investing.

Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax and surrender charges may apply.  Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.  The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor’s unit, when redeemed, may be worth more or less than their original value. 

© 2010 Standard & Poor's Financial Communications. All rights reserved.

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Tracking #623105

Would you like to apply strategies to optimize your Social Security Benefits?

Social Security decisions loom for many baby boomers. As Americans become healthier, and live longer, seniors have more options to consider when it comes to retirement.  If you are a Male age 65, then there is a 50% probability that you will live to age 85, and a 25% probability that you will live to age 92. For Females, the probability is 50% for age 88 and 25% for age 94. If you are a couple, then the probability that at least one will live to age 92 is 50%, and there is a 25% probability of at least one spouse living to age 97¹. Ten thousand baby boomers retire every day.

Changing demographics and family make-up has also made the Social Security decision more complicated. For example, what if you are divorced? Can you collect the benefits of your ex-Spouse? What about Multiple Marriages? Which benefit are you entitled to collect, and at what age? What if your spouse is deceased? What will happen if you re-marry; will you forfeit spousal benefits?

A Financial Advisor can assist you with planning for your retirement income needs and help to develop strategies to estimate how many years your money will last. Your trusted Advisor will also help you determine how much money you will need.

Consider these four costly mistakes that Retirees make about Social Security²

Mistake #1 – Underestimating the real value of Social Security – For years, Financial Planners have warned that Social Security will never provide enough income for us to live on. For many, this is true however Social Security is still a very important component of Retirement benefits.

Mistake #2 – Rushing to Collect, then regretting the reduced benefits for the rest of your life – There is a reduction to your benefits if you do not wait until you reach Full Retirement Age (FRA). You can also experience an increase, if you collect after FRA. Below is a table that illustrates the differences in payouts:                                     

Age	Benefit
62	25% Reduction in Benefits
63	20% Reduction in Benefits
64	13.3% Reduction in Benefits
65	6.7% Reduction in Benefits
66	FULL Benefits
67	8% Increase  in Benefits
68	16% Increase  in Benefits
69	24% Increase  in Benefits
70	32% Increase  in Benefits

Mistake #3 - Not understanding the various ways married couples can integrate their benefits – There are various types of benefits for which married spouses might be eligible, and how those benefits might interact with each other. There are Spousal benefits, a worker benefit or Survivor Benefits. If you were divorced, you have options depending on whether or not only one spouse worked, or both spouses worked. There are ways to optimize benefits by developing a claiming strategy. There are 81 different strategies you can use to maximize benefits. You can use a “File and suspend” strategy; a “File a Restricted Application” strategy; or a Combination of the two.  You can even file then pay back the money within a year to get to your maximum benefit. Everyone’s situation will be different. A Financial Advisor will help you determine the best strategy.

Mistake #4 – Getting Blindsided by the “Tax Torpedo” – Let’s face it, many seniors have retirement accounts in defined contribution plans (IRA’s, 401K’s, 403B’s, 405 Plans) that will have to be eventually taxed. The government requires withdrawals from these plans once retirees reach age 70 ½ so that your distribution can be taxed. When you combine the minimum Required Minimum Distribution (RMD) with the Social Security benefit, it may trigger higher taxation of Social Security benefits. There are also strategies to reduce the amount that you are taxed if you continue to work after starting social security. Fortunately, some mistakes can be avoided.

Contact Lifetime Financial Group for a Seminar schedule to learn more today.

Consider this:

(1)    40% of retirees spent more on uninsured healthcare cost than expected averaging $240,000.

(2)    70% of retirees over age 70 will need long term care

(3)    Retirement accounts account for 42% of wealth

How much time will you have to save up for retirement? How many years can you expect to live after retirement? Conventional wisdom says that you will need as much as 70% to 80% of your pre-retirement income, adjusted each year for inflation, to continue your current life style.

Other Factors that will determine how well you will manage your retirement savings include:

(1)    The total Amount of Contributions that you will make over time

(2)    Your method of saving. (All at once or little by little?)

(3)    What type of Investment you will use in Retirement i.e. Savings Accounts, Stocks, Bonds, etc.

(4)    The Inflation Rate over the Life of your Retirement Planning

(5)    How Long will you have before you spend down your Retirement Savings

(6)    Whether or Not you Re-Invest the Growth of your Investment?

(7)    How much will your savings or investments grow, less expenses

(8)    How and when Money will be taxed and by how much

Join the Lifetime Financial Group for a Seminar to learn more about your Social Security Benefits. Click here to sign up.

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Email: lifetimefinancial@ssnrep.com

In Estate Planning for Same-Sex Couples, What you don’t know will hurt you!

Estate Planning for Same sex couples are unique, challenging, and can make you feel like you are entering a mine field. Partly because, same sex couples are denied 1,100 federal benefits that are recognized for heterosexual couples. Family relationships sometimes play a part depending on whether or not the relationship is accepted.

Working with an experienced team of professionals can alleviate many pitfalls, heartache, and angry feelings in the event of death of a partner. An estate planning attorney, tax accountant, and financial planner are the ideal team needed to get started.

A will is an essential estate planning tool. Without a will, you will die intestate meaning that your property will be distributed according to the interstate succession laws in your state. If you are a same sex couple, dying intestate will almost always yield an undesirable effect because interstate intestate laws rely on legal relationships of marriage and parentage which means that your partner and partner’s children will have no rights to your property. You can be prepared for a challenge to your will with the use of legal formalities that take protective actions.  No contest clauses, can be used to deter a legal challenge. Periodic updates to your Will can help to establish your wishes and intent. In some states you can petition the probate court while alive to declare your will valid. A legal professional can assist you with preparing an effective will.

A Codicil is the part of your will that will provide instruction for your final wishes. It will provide directions for your final arrangements. You can leave details on burial or cremation; embalming; caskets and urns; headstones or burial markers; your final ceremony; and paying for funeral arrangements. Often instructions for minor items like furniture, clothing, and jewelry are documented here. This could become a problem as many states limit the right to make these arrangements to the decedent’s immediate family. Your attorney will be familiar with the estate planning laws of your state to further assist you with final planning.

Providing for children takes special care where there is no guarantee that a judge will grant guardianship to the surviving partner; especially in the case where only one parent is recognized as the legal parent. If that parent dies, or becomes incapacitated, the other parent is at risk of losing all rights and contact with the child(ren). One alternative is to name the surviving partner the guardian of the child’s estate. This will permit the surviving partner to maintain contact in the event that he loses guardianship.

Probate is the court process of settling your estate. Probate is often a long and expensive process which rarely benefits the estate. State law determines who will receive your property. Unless your partner is your legal spouse or is recognized under state law, state statues do not include your partner.

Avoiding probate may be more complicated for same sex couples because they cannot take advantage of marriage laws that allow property to pass to spouses without probate. There are however estate planning tools that can be used to minimize the effect.

One strategy may be to pass property via contract law. Contract law is based on an agreement between two parties of sound mind, and of legal age. Beneficiary designations, Transfer on Death (TOD), Living Trust, Durable Power of Attorney, and Joint Ownership are all examples of legal transfer of property and or rights via contract.

1.       Beneficiary Designations can be made of insurance policies, investment such as annuities, qualified accounts (these can be tricky if you were married previously – check with an attorney), and brokerage accounts. An attorney can help you understand State Law, and your financial planner can assist you with understanding the various investment vehicles.

2.       Joint Ownership is a contract that is often used in real property. It will create an immediate transfer of property upon death to the surviving owner. Some State laws permit Joint Tenants with Rights of Survivorship (JTWROS). Check with your state regarding this option.

3.       Annuities, Qualified Accounts (IRA, ROTH, 401K, 403B, 457), deeds, and insurance policies permit transfers via beneficiary designation.

a.       The rules for inheriting an IRA or 401K plan are different for spouses and non-spouse beneficiaries. Because the IRS does not recognize same-sex partnerships, non-spouse inheritance rules will be followed.

b.      When an IRA is transferred to your partner, he/she will have to begin withdrawing required minimum distributions from the plan beginning the year after death. Until the beginning of 2010, non spouse beneficiaries had to declare it all as income when inherited and pay the applicable tax.

c.       Beginning January 1, 2010, non-spouse beneficiaries can roll the plan into an inherited IRA. They will still be required to take the minimum distributions, but are no longer subject to the upfront tax.

4.       Bank accounts, deeds, and some investment accounts can use transfer upon death (TOD) clauses so that assets immediately transfer freeing up assets that can be used to pay immediate funeral expenses after death.

5.       Trusts are key estate planning tools that are very helpful. Trust may not get around estate tax issues, but it is a private arrangement that is more difficult than a will to overturn. There are many types of trust and each has different rules. Consult with your attorney and financial planner when setting these up.

6.       Living Trust are legal vehicles that permit you to transfer assets privately to your partner naming him/her the trustee.

Insurance takes on many forms: life, accident, disability, health, automobile, home owners, renters, long term care, etc. Are you aware that your homeowners insurance does not cover your partner if his/her name is not on the deed? (Solution: Renters insurance) Lifetime Financial Group will assist you with insurance decisions, planning and analysis.

Healthcare Concerns are another aspect of your estate that same sex couples should not overlook. Healthcare directive are a vital aspect of a same sex couples estate plan because it provides clear and legal instruction to healthcare professions of your wishes without any speculation about the legality of the couple’s relationship. Without these, your partner may not have any legal authority to make decisions or even visit you while in the hospital.

1.       Healthcare Power of Attorney names a person responsible for making healthcare decisions for you in case you lose capacity. It makes your partner the preferred decision maker. Without it, the hospital might instead turn to biological family relatives.

2.       HIPPA authorization gives your partner access to your medical information and records.

3.       Durable Power of Attorney names someone to take care of your finances in case you cannot do it yourself. Note: The durable power of attorney ends once the person who granted it ends. In other words, when your partner is deceased, the durable power ends.  So it is important to name an executor of your estate to spring into action once you are deceased.

4.       Executor of Estate will execute your final wishes and settle your estate.

Estate Taxes are another matter to consider. In 2013, only estates larger than $5.25 million will pay federal estate taxes. Your state might have its own estate tax law. Check with your accountant to see what impact it will have on your estate plan. Although most people do not have to worry about estate taxes.

Heterosexual married couples can rely on the federal marriage law that permits couples to pass property to your spouse tax free. Same sex couples cannot take advantage of this law because the federal government does not recognize same sex marriage even if it is legal in their state.

Same sex couples have no rights under intestacy laws and they do not get the unlimited estate tax marital deduction which could result in a death tax of up to 50%. The surviving same sex partner will receive nothing from his/her partner upon the death without careful planning. Family resistance must be a consideration so the estate plan must be constructed to withstand any potential challenges.

A qualified tax advisor, attorney and financial advisor will help you create an estate plan that is ideal for you! It is best to get sound legal advice before making any decisions.

Keep in mind that estate planning is about what you want while you are alive – not just after you are dead. It is more than deciding who gets your stuff after you die.  

Sources:

1.       6 Estate Planning Issues for Gay and Lesbian Couples, http://www.nolo.com/legal-encyclopedia/six-key-estate-planning-issues-gay-lesbian-couples

2.       Unique Estate Planning Issues for Same Sex Couples or Unmarried Couples, Harlan S. Louis and Mary Jo Hudson

3.       Estate Planning Issues for Gay and Lesbian Couples, Jaon M. Burda, JD

4.       Estate Planning for Same Sex Couples, Joan M. Burda, http://www.americanbar.org/publications/solo_newsletter_home/estateplanning.....

5.       The Estate Planning Tips for Same-Sex Couples, http://www.investopedia.com/financial-edge/0911/top-estate-planning-tips-for-same-sewx-couples

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Carmen Coleman, MBA, CRPC™ is the owner of Lifetime Financial Group. She is a financial planner and insurance consultant. http://www.lifetimefinancialnews.com

Why a Constitutional Amendment for Gay Marriage?

This week, the Supreme Court will hear arguments for Gay Marriage. I admit that I have waffled back and forth continuously and at times have been ambivalent. As a heterosexual, it is outside of my radar; a non-issue. I am a firm believer that everyone deserves to be respected. The decision to marry is a personal one.

Philosophically, I wonder about our current state of affairs. Heterosexual couples often avoid marriage as if it was a plague. Most believe that it is socially acceptable to bear children without a commitment; the divorce rate amongst heterosexuals is approximately 60% which includes both Christians and people who declare no religious affiliation; single parent homes are the norm, lack of financial and social responsibility goes with the territory. On the other hand, Homosexual Americans are adamant that they should have the right to marry; gays (a/k/a same sex couples) want to commit to each other and family, and are willing to take their fight for this basic right to the Supreme Court.

This makes one wonder, what is wrong with us? Some would argue that if we allow people of the same sex to marry, it will somehow degrade our civilization. Really? If you have ever watched an episode of Jerry Springer or the Maury Show, than you would beg to differ!

There are many arguments, namely the Constitutional one. By not allowing Gay marriage, are we denying a basic civil right to citizens? Is this a denial of equal protection under the law? Denial of basic liberties? Pursuit of justice, and happiness? This issue has many “moving parts”.

The 14^th Amendment provides some clarity, “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws." Certainly the proponents of Gay Marriage will argue that they are being denied equal protection as US Citizens. This is a very valid point. 

As a financial planner, I am aware of financial and estate planning considerations for gay couples. The constitution extends many rights and protections to heterosexual couples within the "marriage law". These same protections do not extend to gay couples. A married couple is legally considered to be one person. So if one spouse dies, the remaining spouse has the right to inherit that spouse’s estate tax free. If they have children, the remaining spouse has the right to custody. Your spouse is considered next of kin. That means, upon death the surviving spouse has a legal right to the remains, can make end of life decisions, visit a loved one in the hospital, and not have to worry about their final wishes (The Will) being contested by relatives. Further, a spouse can share health insurance, and is assumed to have an insurable interest in a life insurance policy which is a criterion for purchase. 

These fundamental rights are often taken for granted by heterosexuals. Gay couples live in fear of having their children and property taken away upon death; not being allowed in the hospital room to attend to a dying partner; and not having a say in the burial because you are not considered the next of kin. If a gay partner bequest a qualified retirement plan to his/her surviving partner, it often must be liquidated within five years if not immediately then taxed. Gay couples often have to buy insurance policies to cover the anticipated gift tax. If a gay couple served in the military, and or received a pension from an employer, it might not surprise you to learn that his/her surviving partner will not receive it once he/she dies. Married couples do not experience this sort on inequity. So, what if basic financial rights were extended without the need to marry, would it end the debate? Or will it  mushroom into a new debate? What rights then would heterosexual couples have if they choose to “live together” and never marry? 

As a practicing Christian, I wonder what Jesus would have to say. The Bible teaches that we should procreate however, it is clear that gay couples actually do manage to have children naturally. Women become pregnant, and Men father children. There are heterosexual couples who can not conceive and bear children. So what is the issue? Many would argue that God intended for marriage to be between a man and a woman and therefore that sole fact settles the issue. Others firmly believe that God only extends his grace and mercy to “perfect” Christians. Religion is a guide, but may not completely settle the argument for opponents who based their arguments solely on religion.

Conservatives argue that the marriage issue is the result of liberalism. How so? The gay family is the epitome of conservatism. They seek commitment in their relationship, intact family, and shared financial responsibility. So what is the problem? Isn’t this the conservative platform anyway? It is very easy to hate groups especially when you can not relate or do not have any affiliation. It is very difficult to hate individuals. Case in point, a republican congressman from Ohio, who once was a strong opponent of gay marriage recently declared support for banning the Defense of Marriage Act legislation (DOMA) after learning that his son was gay. Interestingly enough, everyone either has a family member or a friend that is gay. 

Regardless of the Supreme Court outcome, it will be a historical one. Because it is a civil rights issue similar to the right to: citizenship, vote, equal education, housing, women’s rights, and basic civil rights protections from discrimination.

The right to marry will be viewed in the future with the same criticism as slavery itself. If you have watched the movie, Lincoln, you know that slavery was once an emotionally charged contentious debate in the Supreme Court, much like this one. As an African-American woman, I watched with great interest. It is difficult to imagine living life as a slave. My blood boils every time I watch its depiction. Today, it is almost silly to think that one would believe that the color of your skin once dictated citizenship and whether you were deserving of the protections of the basic human rights declared in the United States constitution intended for all citizens. Martin Luther King said it best, “As long as one of us is oppressed, none of us are free”.

I will be watching closely along with the rest of the nation. What about you?

© Carmen Coleman, President and CEO

Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300

Rochester, NY 14614

(585)325-2525 

Carmen Coleman, MBA, CRPC™ is the owner of Lifetime Financial Group. She is a financial planner and insurance consultant. http://www.lifetimefinancialnews.com Like us on FB.