Retirement mistakes Baby Boomers Make

How To Get the  Most From Your Retirement Money With Safety

1. What is the most common mistake that people make in selecting investments? They often don't consider that there are 3 phases to investing money. Accumulation phase, distribution phase..spending, and Legacy phase.
   They let greed or excitement get them thinking too much about short term results, and invest too aggressively..instead of building a safe foundation first. The result is that they experience losses that they don't have time to recover from. Warren Buffett once said that there 2 main rules in investing. 1..Don't lose money....and #2..see rule #1. Investing should be a marathon and not a sprint!
2. Example trying to TIME when to buy and sell in the stock market instead.
3.  Peter Lynch who once ran the largest mutual fund in the world said: Marketing timing is impossible.

2. How does age enter into what types of savings accounts people should consider? The closer to retirement you are; the more conservative you have to be since you don't have time to recover from stock market losses. 1 rule of thumb that is a place to start is: To look at your age as a starting point for which what percentage of your savings would go into something with guaranteed interest , and the rest should be invested more aggressively.
   Younger people still need a foundation; but have MORE time to re invest and recover from losses.

3. How much money should someone put at risk?
   As much as you fell you can afford to lose and still recover.
   Other things enter into the formula too like..if you have insurance of different types, disability income etc.. Then you can take a little more risk. Getting back to age again, Baby boomers might have to be safer with their money because losing money when you are closer to retirement would create a life style change., They would have to put off retirement several years for example.

4.)There is the big rush now for Baby Boomers to retire. How can they best use their current IRA money? I like indexed annuities which offer safety, tax deferral on the interest and secondary guarantees that can pay as much as 6 to 7% out for life..

5.)What is the most commonly overlooked piece in a retirement puzzle?

Risk management while in the accumulation phase.. Retirement savings require income..Being able to set aside money for your childs college or a home purchase requires money. its lost if you disable or die.. Losing a law suit could bankrupt people..There are programs like legal insurance to help you..$19 month.

All so, simple insurance protection against income  loss

due to disability or death is often overlooked.

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Life insurance and I.R.A. Account Specialist
Serving clients and brokers since 1983

"Stretch IRA" concept has advantages for Beneficiaries

How The "Stretch Concept Works"
As we just stated, the stretch concept allows an IRA to be passed on from generation to generation. However, in doing so, the beneficiary must follow certain rules to ensure he or she doesn't owe the IRS excess-accumulation penalties, which are caused by failing to withdraw the minimum amount each year.

Primary Benefits of the Stretch Concept

Tax Deferral
The primary benefit of the stretch provision is that it allows the beneficiaries to defer paying taxes on the account balance and to continue enjoying tax-deferred and/or tax-free growth as long as possible. Without the stretch provision, beneficiaries may be required to distribute the full account balance in a period much shorter than the beneficiary's life expectancy, possibly causing them to be in a higher tax bracket and/or resulting in significant taxes on the withdrawn amount.

Flexibility
Generally, the stretch option is not a binding provision, which means the beneficiary may choose to discontinue it at anytime by distributing the entire balance of the inherited IRA. This allows the beneficiary some flexibility should he or she need to distribute more than the minimum required amount.

Benefits for Spouses
A spouse beneficiary is allowed to treat the inherited IRA as his or her own. When the spouse elects to do this, the stretch concept is not an issue, as the spouse beneficiary is given the same status and options as the original IRA owner. However, should the spouse choose to treat the IRA as an inherited IRA, then the stretch rule could apply.

Conclusion
If you are interested in having the stretch concept apply to your IRA, consult your current IRA provider or financial institution. If they seem unfamiliar with the term, ask specific questions: will the beneficiary be allowed to take distributions over a life-expectancy period? Will the beneficiary be allowed to designate second- and subsequent-generation beneficiaries? If the answer to these questions is yes, then you are able to use the stretch concept with the IRA.

If the answer is no, then you may want to discuss the possibility of making such allowances with your IRA provider. Most IRA providers would rather make such allowances than have their customer transfer his or her IRA to another financial institution that can accommodate his or her needs. Finally, be sure to consult with your tax and financial professional for assistance with making beneficiary designations that suit your financial profile and your wealth-management goals.

This article is an excerpt from a public post that should not be construed as giving, tax or legal advice..

by Denise Appleby,CISP, CRC, CRPS, CRSP, APA

KEEPING YOUR FINANCIAL ADVISOR OR INSURANCE AGENT HONEST

Article #1:  Funding your child’s college education:  Scam or Savior ? :  Tax-free policy loans from life insurance policies as a savings or income producing vehicle for your child may not provide enough income.  Read this blog to see the pros and cons.

Pros:  A properly designed life insurance plan can provide a death benefit to provide for college or other expenses as well as a tax-deferred savings vehicle with tax free policy loans. This only works though if the policy is designed with the client’s interest first.

Buyer Beware:   First:  It is illegal for an insurance agent or advisor to refer to a life insurance premium as an investment or a contribution.  It must be designated as a premium,.           Second: An improperly designed life insurance policy that uses a normal premium schedule will pay your agent handsomely but not provide you with enough savings. Using life insurance as an investment vehicle for the sole purpose of paying for your child’s college education may not work unless you pay attention to careful principles outlined below:

How to design your policy properly if at all:

            “Overfund” your policy with cash but follow the IRS Guideline Premium Tests:  In general, a single deposit is the best way to do this since the savings element of the policy has the potential to grow more quickly.  Important , If you exceed the Single Premium guideline premium rules; all policy loans may be taxable; not tax –free.

You can also use a premium schedule of  7 years or even an ongoing guideline level premium . To make sure that your agent is not designing the policy to have a higher commission and consequently; a smaller savings element; ask him to show you on the required computer printout what the single, 7 payment, and guildeline level premiums are. You are best suited to pay the maximum under these guidelines without exceeding them.  They are disclosed on all insurance company  official printouts.           

Allow 15 years or longer for the savings to accumulate:  The policies work on compounded tax-deferred interest. If a child is already 10 years old for example, and enters college at age 18; there would only be 8 years or so before the first loan is taken out.  Therefore there usually would not be enough time to accumulate interest.

Ignore computer projections that are illustrating 10% ;to 12 % returns. Even indexed universal life insurance plans that have some built in safety factors; often over estimate the yearly expected returns.  If an insurance company were to actually deliver these high interest rates routinely; they would have to increase the internal charges for the insurance.  Increasing the insurance costs; reduce your yearly yields.

Plan on keeping the life insurance in force until death.   If the policy is surrendered loans in excess of your cost basis may be partially or completely taxable.

This is important.  You  cannot defer taxes on life insurance , tax income and then cancel an insurance policy without having a potential for taxes to be due.

In summary while most advisors are honest; you should protect yourself  somewhat by working with a broker that will compare several companies for cash values and company financial stability.  Ask also for a “ Vital  Signs” comparative report which shows the different companies financial ratings from 5 different 3^rd party sources. A single A.M. Best report is usually not enough. This article is not meant to given tax or investment advice. Always consult your accountant, attorney,  for more specific advice.