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>>Will Your Retirement Income Last a Lifetime?
Single-premium immediate annuities can provide you with a fixed monthly check that can last your lifetime or a specified period. The amount of your payout depends on how much money you invest, your age, and how long the cash flow will last. Over the past decade, immediate annuities did not get much attention. But now there has been a renewed interest in annuities among many investors as they evaluate their retirement income needs.

Americans Are Living Longer
The 20th century’s retirees are living longer than any previous generation. And the next generation will live longer yet. This could mean that many recently required couples may expect to need an income for 30 to 40 years. These couples are looking for lifetime, guaranteed incomes.

Pension Plans On The Deadline
Traditional pension plans use the single-premium immediate annuity concept to give you a steady income that you can’t outlive. But many companies are dropping their pension plans and only offering their workers 401(k) or other employee-managed alternatives.

To replace the pension plan’s predictable and reliable income, employees of these companies are using part of their retirement dollars to buy immediate annuities.

Nest Egg Diversification
An immediate annuity could fit into the most conservative portion of your retirement portfolio. It would complement bonds and in most cases is a better alternative than cash. And once that guaranteed income stream is established (subject to the claims paying ability of the insurance company), you could invest your remaining liquid assets in stocks for a well-balanced retirement portfolio.

Inflation Is The Enemy
An immediate annuity’s payments are fixed. So if we were to have double-digit price increases like those of the 1970’s, the purchasing power of your annuity income would decline. To plan for such a scenario, you could invest a portion of each month’s annuity payment into stocks to potentially cushion your portfolio against future inflation.

Will Your Heirs Get Anything?
When many investors think of an annuity they get the impression that once they die the payments must cease. If this is a concern of yours, you could buy an annuity that will provide payments for your lifetime plus a certain number of years to a named beneficiary.

Or you could have the payments guaranteed for your and your spouse’s lifetimes.

Will The Company Last as Long as You?
There is always the slight chance that the annuity company might have financial problems. Therefore, you should only consider top-rated companies that have a solid track record in managing annuity assets.

Immediate annuities are not the cure-all for everyone’s retirement income needs. But they can enhance the overall performance of many portfolios. And if your health is a problem, health adjusted immediate annuities can provide even more income.

Where Will Your Heirs Come Up With The $$?
It’s well known that when you die you can leave an unlimited amount of your wealth to your spouse without paying estate tax. The problem arises though when your surviving spouse dies. At that time your assets will be included in his or her taxable estate with taxes up to 50 percent due in nine months.

Would your heirs to be forced to liquidate the family homestead or other personal assets to pay the estate tax? And will your IRAs lose over a third of their value to income tax? An alternative might be a life insurance policy specifically designed to cover these costs.

Second-to-die insurance insures two lives and pays after the second person dies. It is also known as survivor life insurance, joint-and-last survivor insurance, and last-to-die insurance. The beneficiaries generally use the death proceeds to provide the liquidity needed to pay estate tax, income tax, and other settlement costs.

The premiums for second-to-die insurance may be less than a standard life policy, particularly if you or your spouse is not healthy. Insurance companies determine rates based on your projected life expectancy. Therefore, if you have a medical condition, your premium would be higher than your healthy spouse’s premium. But with second-to-die policies, the company will put greater weight on the healthier of the two of you since they won’t have to pay until the last one dies. An even if you or your spouse has a serious medical problem that would cause a standard policy to be rated or declined, a second to die policy may be obtainable.

Second-to-die life insurance is generally for couples with taxable estates over 1$ million. Now you may think that such a figure doesn’t apply to you. However, escalating real estate prices, several decades of an expanding stock market, and plain old inflation have pushed many middle-class Americans above the 1$ million mark.

Estate taxes are scheduled to phase out by 2010. But unless congress takes action, in 2011 couples with taxable estates of $675,000 or more will be looking at a potential 55 percent estate tax. An even if Congress does something, don’t forget that individual states can modify their estate tax laws (and many States are discussing imposing their own estate tax as their share of the federal estate tax declines).

For a free analysis of how to preserve your estate for your heirs (and also how you can get life insurance with pre-tax dollars), just call my office for an appointment.

Think Twice Before You Sell That Life Insurance Policy
Viatical firms got a lot of publicity back when they began buying life insurance policies from the terminally ill and selling them to investors. Now they’re going after retirees who believe that they don’t need their insurance policies any longer. These companies pay only a fraction of the death benefit, keep up the premium payments, and collect after the insured dies. Or they sell the policy to other investors. But before you sell out your cash value policy at a significant discount, there are a few things you need to understand.

The only way this can make financial sense for you is if the viatical firm will overpay you for the policy, or if your life insurance company didn’t charge enough to begin with.

Remember that the viatical company needs to make a profit, and the investor they’ll sell it to who has to see is as an attractive opportunity. Furthermore, in all of my years in this profession I’ve never known an insurance company that wasn’t in business to make money. Therefore, carefully weigh the offer against keeping the policy.

Most people who sell their policies do so because they no longer want to pay the premiums. But it isn’t necessary to get rid of the insurance to eliminate the payments. One technique you might be able to use is a tax-free withdrawal of your cost basis in the policy. Then you could change the policy to paid-up status. You’ll have some extra cash to invest, no more premiums to make, but yet still pass a benefit, income tax free to your family. Or just leave all the cash in the policy and ask the insurance company to consider it paid up.

Another idea if you don’t want premiums, is to exchange the policy to a paid up single-premium policy. You will earn tax deferred (and in many cases tax free) interest on your money which you can withdraw each year. Wouldn’t it be nice to have your policy pay you for a change?

If you own cash value life insurance policies and would like to know options on using this asset for greater benefit, my office will contact you to review your policy and explain the alternatives.

Use The Down Market To Your Income and Estate Tax Advantage
A declining stock market and dropping interest rates can sometimes put financial plans on hold. But there may be an opportunity during this current slowdown for investors who expect the economy to recover. If you transfer property now, you may be able to reduce the size of your taxable estate and improve your chances of passing on more tax-free funds to beneficiaries.

First, the income tax advantage: any stocks that you want to hold long term yet have a loss currently, should be sold so you can take the deduction on your tax return (limitations apply). You can then repurchase these shares in 31 days (if you repurchase sooner, IRS does not allow the deduction). Some people are so emotionally tied to never taking a loss, they miss this tax advantage. IRS is happy to help you but you will not get a call on the phone. You must make the sale to capture the tax advantage.

Secondly, if you have an IRA, converting to a Roth IRA is more beneficial when your IRA has dropped in value. By converting to a Roth, you convert a tax deferred account to tax free, but must pay the accumulated income tax on today’s value. What better time to make the conversion when the value is down and your tax will be lower?

As to estate taxes, you can transfer more assets and use less of your $1 million exemption. Let’s hypothetically assume you have 1000 shares of stock that were worth $1.2 million 2 years ago. You could have transferred those shares out of your estate (e.g. to a trust) but would have had to pay gift taxes on the amount over $1 million. If today, those shares have declined in value to $1 million or less, you can transfer them without tax. Reduced values allow you to transfer more property before estate taxes take effect.

To learn how to make the most of asset values that have declined, call my office.

CD Annuities Give You More Options
Do you have a bank or brokerage CD that is about to mature and would like an investment that offers competitive rates but with more flexibility? A CD annuity could be just right for you (Note that FDIC insurance applies to CD’s but not to annuities which are guaranteed by the issuing company).

And the income is not taxable until you decide to remove the interest earned. So if you don’t need to withdraw the income each year, the earnings can continue to accumulate.

Whereas with your bank CD, the interest is taxable in the year it’s credited to your account, whether you take it out or not.

Rates on CD annuities are guaranteed for terms ranging from 1 to 10 years. When your annuity matures, you can take the money and pay income tax on the interest or preserve the tax deferral and renew the contract. And if you don’t like the renewal rates offered by the annuity company, you can roll the annuity tax-free into another firm’s product. Generally you can continue deferring the income tax until age 85. At that time you usually must begin taking payouts based on your life expectancy.

You are allowed to take out some of the principal before the CD annuity matures. If you take withdrawals beyond policy limits, you could have a surrender charge or possibly reduce the interest rate on the remaining balance for the rest of the term. A better alternative might be to annuitize the contract and avoid extra charges. However there are some companies that waive withdraw penalties if you need the money for hospital or nursing home bills.

Another consideration is what will happen if you die before the CD annuity term ends.

If you name your spouse as the beneficiary, he or she would be able to take out the principal and interest in a lump sum or annuitize it for a series of payments or keep the money in the account until it matures. Beneficiaries other than your spouse typically must withdraw the money within five years of your death or over their life expectancies if payments start within a year of your death.

CD annuities are best suited for funds that you won’t need for several years and can be an attractive alternative to the bank’s products to help reduce your tax bill. For current rates just give me a call.

Will Your Heirs Have to Forfeit Half of Your IRA?
Years of working and putting away money into your IRA can be a blessing during retirement. For many retirees it represents a significant source of income, an emergence fund, and an asset to pass to their heirs. However for those whose IRA’s have grown large enough to trigger federal estate taxes, comes the burden of how to plan for what their beneficiaries will face.

Estate taxes are payable nine months after your death. And without liquid assets immediately available, your heirs will be forced to sell your IRA and lose up to 50 percent of your hard-earned dollars to the IRS. An irrevocable life insurance trust will create those needed dollars.

Withdraws could be made from your IRA each yeah, given the beneficiaries of the trust, and used by the trustee to buy the life insurance. The irrevocable life insurance trust would then own the policy of your life. When you die, the death benefit is paid to the trust, kept out of your estate, and can be used to pay the estate taxes.

You could also authorize your trustee to use the death benefit to buy illiquid assets, like your home or business, from your estate. This would give your heirs the cash to pay the estate taxes without a forced liquidation.

You’ll have broad ability to direct the trustee in the management and distribution of the policy’s proceeds. But to keep the benefits out of your estate, you cannot have any incidents of ownership in the policy. Although, you can get money from the trust if you need it and even have the beneficiaries determined based on their actions (i.e. they collect only if they finish college). Even if you don’t have a taxable estate, a life insurance trust may have other uses. You may want to put life insurance in a trust to protect or control assets if the beneficiary is a minor, has difficulty in managing money or want to influence their behavior with cash (we Americans do believe that money talks and you can make yours do so even after you’re gone).

Or maybe you plan to provide for your current spouse. But you also want to make sure that your children from a previous marriage get something without increasing the value of your estate and making it taxable. This could be accomplished by naming your spouse the beneficiary of your IRA and your children the beneficiaries of the trust.

For an analysis of how the current estate tax law might deplete your IRA’s and how an irrevocable life insurance trust may ease that hardship contact my office.

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