Annuities May Help Make Your Income Last a Lifetime

With demographic trends pushing the length of retirement to 25 or 30 years and beyond, it's important to create a retirement investment strategy that generates an income stream that you won't outlive. If you're looking for an investment vehicle that promises a guaranteed, lifetime income stream, then you may want to consider annuities. Simply put, annuities can help ensure that you won't outlive your savings.

Annuities Defined
Annuities are insurance contracts that promise future payments. They’re long-term, tax-deferred investment vehicles designed for retirement purposes.  There are two distinct phases to annuity investing: the "accumulation phase" occurs when you are contributing, while the "annuitization or distribution phase" occurs when you withdraw money.

While annuities may be attractive because they usually impose no contribution limits and offer tax deferral, they also have other appealing features as well, such as their numerous "payout" options in the distribution stage. For instance, during retirement you can receive your money from an annuity in a single lump sum or as a series of regular payments over your life or some other predetermined number of years. Some retired clients find it easier and less stressful to manage their household expenses through a regular income stream, just as they did while working.

But getting a regular income stream doesn't necessarily limit your options. Today's annuities offer the flexibility, access and control over your money that often wasn't available in the past. Product innovations have resulted in optional benefits that provide downside guarantees¹, the ability to capture the market's upside, inflation protection and cost-of-living increase features, all of which may help investors plan for a long retirement.

In short, annuity payouts through a regular income stream may be an important part of your retirement portfolio. If you own an annuity now, you might want to consider using it to potentially generate income. For more detailed information about the role that annuities might play in your financial future, contact a qualified financial professional.

¹Riders are additional guarantee options that are available to an annuity or life insurance contract holder.  While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policyholder should review their contract carefully before purchasing.  

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.  Variable annuities are sold only by prospectus. Guarantees are based on claims paying ability of the issuer.  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. 

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.

© 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 #623104

Is a Million Dollars Enough?

If your clients left $1 million to their family in the form of a life insurance policy’s death benefit, would it be enough? You may be surprised at the answer.

A Quick Case Study

Tom and Susan are a married couple with:

·         A $200,000 mortgage

·         Annual incomes of $60,000 each

·         Two children, ages 2 and 4

In the event Tom or Susan should pass away, they want:

·         To provide for their children’s education

·         Their family to be able to pay off all expenses and debt

·         Their family’s standard of living to remain the same

·         The surviving spouse to retire comfortably

Upon the passing of one spouse, the other spouse receives the $1 million benefit. Subtract from that the mortgage, college costs of $95,000¹ and funeral and other final expenses of $5,000, leaving a lump sum of $700,000. A hypothetical return rate of 6% would create an annual income stream of $42,000. That amount replaces only 70% of the spouse’s missing income ($60,000) with no adjustment for inflation.

If Tom and Susan would like to maintain the annual pre-tax income of $60,000 (and assuming a 3% inflation rate and an annual pre-tax investment rate of 6%), the lump sum will last only 14 years.

¹  Based upon both children attending school with current tuition of $20,000 a year, taking into account 4% inflation and 8% return on a lump sum of money for 16 and 14 years, respectively.

In the case of Tom and Susan, a surviving spouse would only be able to maintain the family’s current standard of living for 14 years. What are your clients’ needs, and do they have the appropriate coverage in place?

This case study can serve as a valuable illustration and encourage a dialogue between you and your clients regarding the importance of proper life insurance coverage.

© Carmen Coleman, President and CEO

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

Rochester, NY 14614

(585)325-2525 

Tracking# 716056

Exp.  3/13

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

The Benefits of Bypass Trusts

Trying to predict the federal estate tax is about as easy as trying to predict the stock market. After a decade of almost yearly changes, the government has currently legislated a temporary fix that expires 2012. Given the uncertain nature of the tax, couples need to remain vigilant about estate planning. Bypass trusts can help a couple maximize use of the federal estate tax exemption and ultimately bequeath more of their wealth to successive generations.

For bypass trusts to achieve their goal, a couple needs to value their assets, title them appropriately, and review their estate plan every few years to determine whether the trust's funding mechanisms remain appropriate. Trusts are complicated legal entities, and it is important to seek advice from an estate planning attorney with experience in this area.

Why Consider Bypass Trusts?

A married taxpayer may bequeath an unlimited amount of assets to a spouse without triggering federal estate taxes, a practice known as the unlimited marital deduction. A missed opportunity can arise when a surviving spouse inherits these assets and subsequently dies with an estate that is worth more than the amount of the federal estate tax exemption in effect at the time. In this scenario, the estate tax exemption of the spouse that died first was not used and, in effect, was wasted. Bypass trusts address this situation by maximizing the exemptions of both spouses.

 

How Bypass Trusts Work

Couples often establish bypass trusts within the framework of a living trust that determines legal ownership of the couple's assets. Estate planning experts typically recommend that each spouse maintains a bypass trust with assets that are worth close to the value of the current estate tax exemption. Assets within the bypass trusts typically are those that the couple does not intend to use during their lifetimes but instead plans to bequeath to heirs.

Upon the death of the spouse that dies first, the surviving spouse inherits the decedent's assets that are not part of the decedent's bypass trust. Because of the unlimited marital deduction, there is no immediate tax liability for these assets. The surviving spouse is the beneficiary of the decedent's bypass trust, which will not be included in the surviving spouse's estate. The assets used to fund the decedent's bypass trust thus bypass the estate tax that otherwise would have been assessed upon the death of the surviving spouse. When the surviving spouse dies, the couple's heirs become beneficiaries of both bypass trusts.
If you believe that a bypass trust may be suitable for your situation, an estate planning attorney can help you learn more about the details.

© 2011 McGraw-Hill 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 # 1-024480

Roth IRAs — Powerful Planning Tools for All Generations

If the current income restrictions associated with Roth IRAs prevent you from using one for your own planning purposes, consider taking steps to ensure that your children or other younger family members establish and fund a Roth IRA of their own. Roth IRAs offer ample tax benefits for retirement — particularly for younger investors. Yet perhaps the more long lasting benefit of the Roth IRA can be realized when it is used as a wealth transfer mechanism.

Roth IRAs for Minors
One of the main contributors to successful retirement planning is time — the more of it you have, the better the result. For this reason alone, setting up a Roth IRA for a child can be one of your best long-term planning strategies. When investment compounding has upwards of 50 years to run its course, even a relatively modest savings rate can produce substantial wealth.

There is no minimum age requirement for opening a Roth IRA, and many IRA providers will accept accounts for minors. In most cases, the only real issue is whether the child has taxable earned income. Fortunately there is no requirement that the same "earned income" is the money that funds the IRA. If your child earned income from a summer or part-time job, but then spent it, there is no restriction on using money provided by parents to establish and fund the IRA account.

You can contribute up to $5,000 to a Roth IRA in 2009 as long as your child earned at least that much. However, contributions cannot exceed your child's income for the year. Contributions to a Roth IRA are not tax deductible, but earnings are never taxed provided your child meets the distribution requirements — chief among them waiting until at least 59 ½ before tapping the account.¹ While he or she probably cannot imagine ever being that old, there are other ways to put Roth IRA savings to good use prior to age 59 ½, such as the purchase of a first home.

Wealth Transfer with a Roth IRA
As effective a retirement planning tool as a Roth IRA can be, its greatest strength may be its potential as a wealth transfer instrument. Unlike traditional IRAs, minimum distributions are not required from Roth IRAs once the owner reaches age 70 ½. Therefore, a child theoretically could have held a Roth IRA his or her entire life never having tapped into it and then pass it on to his or her beneficiaries upon death. At this point the account would fall under the same minimum withdrawal rules that pertain to traditional IRAs. However, beneficiaries may choose to string out those withdrawals over many years, continuing to earn tax-free income on the remaining account balance.

The hidden value of the Roth IRA is its exceptional growth potential. If heirs decide to spend or withdraw Roth IRA assets immediately upon inheritance, the Roth's strategic value as a wealth transfer tool is lost. If however, they choose to let the Roth IRA continue to grow and only withdraw what is required by law each year, the true power of the Roth IRA can be realized.

¹Distributions from a Roth IRA may be tax free if you are at least 59 ½ years old and have owned the Roth IRA for at least five years; your withdrawal of up to $10,000 (lifetime limit) is applied to a first-time home purchase; or you die or become permanently disabled.

© 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 #623073