Annuities can provide retirement savers with many unique benefits: tax-deferred growth, guaranteed lifetime income, guaranteed interest rates, and protection from downside risk, to name a few.
For the most part, the IRS doesn’t have limits on how much money can be placed inside an annuity, giving people more opportunity to take advantage of the contractual guarantees. And if you want more growth potential for your money, fixed annuities and fixed index annuities can earn higher interest while protecting your principal.
However, one limitation that annuities have is their liquidity. Annuity owners give up having complete liquidity in exchange for these benefits, and if their money is in fixed-type annuity contracts, that is a very safe place with the dollar-for-dollar reserves that insurance companies must maintain.
So, are annuities a liquid asset? Yes, they offer some liquidity, but not as much liquidity as you might find in other types of assets in today’s markets. It’s a trade-off for those rock-solid, guaranteed benefits that they provide.
Even so, there are some provisions for liquidity in annuity contracts. You might access your money in a variety of ways: free withdrawals, cumulative free withdrawals, and waivers of surrender charges (where you get your money back in a qualifying situation) are a few.
Let’s talk about the liquidity of annuities in more detail. Read More
One of the chief criticisms of annuities is their relative lack of liquidity. This is true in some respects. Annuity owners give up complete liquidity in exchange for other benefits, including insurer guarantees for lifetime income, guaranteed growth, or protection from downside risk.
Many annuities now come with guaranteed income riders that can be turned off and on while letting you still access at least some principal. And most contracts do offer something called “free withdrawals.” Read More
Not everyone thinks this way, but the idea of ‘living forever’ appeals to many people. Or, at least, the thought of living a longer, healthier life.
There can be many upsides to living longer. Think about how you could share more in the lives of loved ones from younger generations. You would have a front-row seat to see exciting developments in technology and medical services.
You might have the chance to witness new history-making events. At the very least, it would give you the opportunity to see the impact of your lifelong legacy.
Over the past century, life expectancy in the United States rose by over 30 years. It’s no wonder why financial researchers say that people can spend as much as one-third of their lives in retirement nowadays.
Advances in healthcare, medicine, and technology have led to better management of childhood infectious diseases as well as improvements in healthcare for adults’ quality of life. Because of this, people face the prospect of longer retirements and more years that they will have to cover financially than was so in the past.
It’s clear that increasing life expectancy has and will continue to have big effects on retirement. Among other goals, the primary challenge is figuring out how much income you will need to sustain your preferred lifestyle over many years. Read More
As another year passes by, more people join the ranks of retirees. Since 2011, roughly 10,000 baby boomers have turned 65 years old each day, according to Pew Research. It predicts that trend to go on until 2029.
From second-act careers to volunteering and entrepreneurship, baby boomers are already reshaping the mold of retirement. And they are bound to keep redefining it, as record-breaking millions are set to leave the workforce.
With a new era of retirement living on the horizon, it’s prudent to take note of our retirement income planning strategies.
Will they provide reliable income streams and financial security for what could well be a decades-long retirement? Do they give a long-term assurance of you being able to enjoy your desired lifestyle? Or when it comes to these goals, does your income strategy have more of a question mark hanging over it?
In their career years, many people work with a financial advisor to build their life savings and plan to continue so in retirement. One notable survey of 200 advisors by investment company Incapital shows how advisors are preparing today’s retirees for the economic uncertainties of tomorrow.
The survey’s focus? What retirement assets these financial advisors were using to generateretirementincome for their clients. Read More
How much income will your annuity contract pay you? The answer depends on what age you start collecting income from your annuity.
If you start income at age 70-75, you will receive higher payouts. If you begin your annuity income in your mid-50s, it will be less than what you would receive in your 60s or later.
Annuities therefore resemble Social Security in that their payouts will increase the longer you wait to take them. But annuities with qualified money, or pre-tax dollars, in them have required minimum distributions that must be taken by age 72.
Why is this? Since the insurance company is on the hook for paying you guaranteed income for a certain period or life, it manages its risk based on the age of when you start that guaranteed income stream.
The insurance company also builds estimates of statistically how long it believes you will live into every single one of its income payments. These estimates are based on life expectancy and mortality data. Read More
Calculating how much income you will need for retirement isn’t necessarily an easy task. Your health expenses will probably increase, but your mortgage payments may decrease or stop. Meanwhile, other expenses might continue to change over time.
Of course, you likely won’t have to deal with payroll taxes as much. Chances are you will also see expenses tied to employment, from transportation to a professional wardrobe, decline as well. But other costs may appear in retirement, from pursuing long-sought hobbies to traveling or spending more time with loved ones.
Although you may not even know where to start when trying to estimate how much retirement money you will need, there are a few rules of thumb that you can follow to help get you started. Read More
People are living longer than before, leading many to ask: “How long could my retirement really last?” In generations past, retirement represented a relatively short period of time in most peoples’ lives. They would work until they were 60 or 65 and then live perhaps a few more years before passing away.
But this has become a thing of the past. Today, some retirees could live for as long as another 30 years after they finish with their careers. Many of them are now travelling around the world, starting new businesses, or doing charity work.
The answer to this question will depend upon many factors, such as your projected longevity, financial resources, and current health. If you come from a family of long-lived forebearers, then you may have a good chance of living that long yourself. If you smoke or drink heavily, then your lifespan may not last as long as it would if you quit doing those things.
Thanks to advances in medicine, technology, and wellness, people’s lifespans are longer than before. The National Vital Statistics Report from the Department of Health and Human Services revealed that the average American’s lifespan has increased by 30 years over the past century. Read More
Uncle Sam can be one of your key partners in your retirement saving. If you have money in a traditional IRA or an employer-sponsored retirement plan, then that money automatically receives tax-deferred status in the eyes of the IRS. Other accounts like SIMPLE IRAs and SEP-IRAs also benefit from this tax-favorable treatment.
Generally, your contributions to those accounts are tax-deductible. The money inside the account grows tax-deferred, or without taxes on the earnings over time, as long as withdrawals aren’t taken.
But you can’t enjoy this tax-deferred growth forever. Required minimum distributions are one way that Uncle Sam ultimately collects his tax dues.
Once you reach your early 70s, the IRS sets required minimum distributions (or RMDs) for you, and when you start . You will be required to start pulling a certain amount of money out of your traditional IRAs and qualified plan balances every year.
The same goes for other kinds of IRAs with pre-tax money status. And this money will be taxed at your top marginal tax bracket, regardless of how long it’s been in the account.
Before wide-ranging retirement reform called the SECURE Act was passed, the age for starting required minimum distributions was 70.5. However, the SECURE Act, passed in 2019, moved the starting age for RMDs to 72 for those born on July 1, 1949, through and including December 31, 1950.
Then the SECURE Act 2.0, passed in 2022, backed up the starting age for RMDs to 73 for those born on January 1, 1951, through and including December 31, 1959. This RMD starting point is slated to rise to 75 in 2033, for that matter, unless the law is changed yet again.
There is no capital gains treatment available for traditional IRAs and qualified plans, save for one exception. The sale of company stock held inside a 401(k) plan can be spun off and sold separately under the Net Unrealized Appreciation (NUA) rule. Read More
Retirement planning is, in many ways, a guessing game. You can’t be sure of exactly how long you will live. How much income you will need might not be clear. And you don’t know if you will need long-term care support.
Even so, prudence dictates that we have some roadmap for these unknowns. It’s better to plan for these contingencies. Otherwise, you could wind up in financial trouble at some point in your retirement years.
Here are five financial fails to avoid in retirement so you will be better prepared when you retire. Read More
As the end of the year approaches, now is an excellent time for you to schedule a meeting with your financial advisor. An annual review of your financial situation is an ideal reason to come together.
Not only can you review the financial progress that you made during the year. Your annual review meeting also provides the opportunity to go over your investment portfolio, insurance coverage, and overall financial plan. It’s a crucial moment to see whether any changes are needed, especially if your circumstances have changed somehow.
Of course, money matters and retirement are a moving target. So, you can also set new goals and update your estate plan if necessary.
All of that being said, if you do have a meeting on the books, you might be unsure of the “ballpark” questions to ask your advisor during your financial review. Below are four questions to help guide your discussion and make the most of your annual review meeting time. Read More
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