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Beware of the Average by Thomas R. Kestler, CFP®, CLU®, ChFC®, CMFC®

We hear it all the time.  Somebody will say, “The average return in the stock market is XX%” or “The Super Equity mutual fund had an average return of XX%.”  My first reaction to any comment using averages is skepticism.


Deferred Income Annuities as Longevity Insurance

With retirement costs and life expectancies increasing, the biggest concern for many retirees is the possibility of outliving their income. To address that specific concern, Deferred Income Annuities (DIAs) were introduced as a form of “longevity insurance” in 2012. For retirees who want to maximize their future income, while protecting against extended longevity, DIAs provide an effective solution.


Using a QLAC to Stretch Your RMDs and Protect Against Longevity

The tax code allows you to defer taxes on your qualified retirement plans until you start taking withdrawals when you retire. As the term “defer” implies, the government intends to collect taxes on your retirement income at some point. To ensure that taxes can’t be deferred forever, it came up with the Required Minimum Distribution (RMD) provision. While it seems reasonable enough on its face, the RMD rule includes a very nasty penalty if it is not followed to the letter. Starting at age 70 1/2, if you fail to withdraw the proper amount, you will be charged a 50 percent penalty on the amount not withdrawn.


Annuities as a Bond Alternative

Bond investors, or investors considering adding bonds to their investment portfolio, are in a pickle. After near three decades of declining bond yields, they’ve hit rock bottom. That’s great if you have been holding bonds during that period because the decrease in bond yields pushed bond prices to record highs. However, with bond yields still hovering near historic lows, there’s only one way they can go – up. When that happens, bond prices will decline. There goes your portfolio stability, which is one of the main reasons for owning bonds.


Transferring Pension Risk through Buyout and Buy-in Arrangements

Companies seeking to reduce costs continue to offload pension liabilities at a record pace. Pension buyouts swelled to $23 billion in 2017, a 68 percent increase over the prior year. With rising interest rates and lower corporate taxes, an increasing number of companies are seeing their pension funding levels rise enough to make transferring their pension liabilities to an insurance company through terminal funding and other pension risk transfer strategies.


The Impact of the New Tax Bill on Annuities

The highly anticipated Tax Cuts and Job Act signed into law in December 2018 is the most significant tax legislation enacted since the 1980s. Most taxpayers across the spectrum – both individual and business – come out ahead with the reduction in tax rates, the increase in the standard deduction, and the business income deduction for many small businesses. The tax treatment of investment income from capital gains and dividends is left untouched. The tax advantages of annuities, long considered a target of policymakers as a source of new tax revenue, also escaped unscathed. For now, annuities maintain their tax-favored status and remain a viable investment option and planning tool for many different purposes.


Sweep the Gains from Equity Positions Into an FIA

For Investors on the glide path to retirement, they have a nine-year bull market to thank for rescuing their retirement plans. In 2017, the surging stock market produced double-digit gains in all sectors except energy, which means, if you were invested in stocks, you did well. For pre-retirees preparing to transition into retirement over the next five to ten years, it may be the perfect opportunity to lock in some gains and protect them to maximize future income.


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