6 Challenges to Savings

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An important Decision

Today there is a lot of information and misinformation about financial & retirement planning options. More than ever retired people have many important questions to answer before they can make the right decisions regarding their financial situations.

Making smart decisions is critical when it comes to

protecting wealth! Many retirees are wise to save their money and try to protect a substantial portion of their wealth by avoiding market risk. This often leads people to place their funds into traditional savings accounts, CDs or Money Market Accounts. Let’s consider CDs for a moment. Why do so many retirees put their hard earned dollars into CD’s? There are many reasons including:

  • CDs are safe (insured).
  • It is easy and convenient to get a CD.
  • You can deal with the local bank.
  • They seem simple and easy to understand.
  • They are widely held. If so many others are doing this, it can’t be a completely bad idea.
  • You may not know or understand all the options available to you.

The following information may change your ideas about the value of savings vehicles like CD’s. You may find that seemingly little issues or events may adversely affect your financial goals and cost you peace of mind.

Challenge #1

Low interest Rates

It is probably no surprise to you that CDs, savings accounts and Money Market Accounts earn some of the lowest guaranteed interest rates you can find.

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For instance, between 1997 and 2007, CD rates averaged 4.19% nationwide. This interest is taxable to the CD owner each year even if the interest is not withdrawn.

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This means a CD earning 4% is actually growing by only 3.0% after taxes if the CD owner is in the middle tax bracket of 25%.

Solution Our solution gives you the potential to exceed traditional fixed interest rates without ever exposing principal or past earned interest credits to Market Risk.* You may find this additional potential combined with safety and security is just what you are looking for.

*Annual yields may vary depending on various strategies. Yields are not indicative of any one particular company. Past performance is not a guarantee of future results. *(Source: Federal Reserve, Compiled by HSH Associates – www.hsh.com/indices)

Challenge #2

Taxation

As we just learned, interest earned from a CD is taxable every year. This happens even when you don’t withdraw or use the interest you earn. Not only does this tax have to be paid out of your current income, that money also looses the opportunity to further work for you.

Solution

Our solution allows your interest to grow your money on a tax-deferred basis. This means you do not pay taxes on your interest earnings until you make withdrawals. Tax-deferral can be a powerful wealth building tool.

For example, suppose we invest $100,000 in a bank CD and make no withdrawals, except to pay taxes, for 10-years. We’ll assume a 5% annual interest rate and a 25% tax rate. In ten years the CD balance would be $144,504 after taxes on the interest earned. At that time, if you chose to withdraw only the interest in year eleven, you would receive $7,225.20. Using the same assumptions as above but growing the money tax-deferred, our solution would now be worth $162,889 at the end of the 10th year. At that time, if you chose to withdraw only the interest in year eleven, you would receive $8,144.45.

That’s 12.7% more money for you!

Isn’t it time to make your money work as hard for you as you did for it? Don’t you think it’s better to pay taxes only when you withdraw your money? With our solution you earn interest on your principal, interest on your interest and interest on the money you would have otherwise paid to Uncle Sam! **Interest withdrawn from an annuity is taxable.

“The hardest thing to understand in the world is the income tax.”

-Albert Einstein

Challenge #3

Probate Costs

What happens to your money when you die? Does it go right to your heirs? Unfortunately without taking some action, most of your assets could end up going through the probate court. Probate is a legal process that states require to transfer your property to your heirs after you pass away.

This can take six months or more depending upon how complex the matter might be. There are also costs associated with filing fees, executor fees and legal fees that can range from a relatively small amount to as much as 10% of the estate value according to Legal Help Mate, a legal document preparation service. Since probate costs both time and money, many people seek ways to avoid or eliminate this challenge.

Solution

Our solution may allow you to save money and avoid probate delays altogether for the funds you place into it by properly designating your beneficiaries.

“Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do.”

-Mark Twain

Challenge #4

Withdrawal Penalties

You may focus so much on the interest rate and term of a CD that you don’t pay enough attention to how much money you’ll give up if you cash the CD early. If you need to access a portion of your CD, you will likely pay charges on the entire amount. Penalties are normally expressed as an interest charge. According to Bankrate.com, it is not unusual to see the following penalties.

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Many CD owners keep renewing automatically, letting their account roll over at the end of the term. Suppose you bought a two-year CD at the bank and decided to cash it out after four months. You would have to pay six-months interest even though you’ve only earned four. That means you’re digging into the principal you paid for the CD. Now consider what happens if you renewed your two-year CD each term for ten years and you needed some cash in year eleven. You will be charged all of the six months of interest to be earned that year. As your CD balance grows, your charge for accessing your money also grows.

Solution

Our solution provides a decreasing withdrawal charge that has a definite expiration date. You can select the number of years that are right for you, 5, 7, 10 or more if you like. The longer number of years normally means a higher beginning charge. Penalty Free Withdrawals: In addition you can always access up to 10% of your account at any time after the first year with NO withdrawal charges. Other provisions can waive the withdrawal fees altogether if you are facing situations like nursing home care, home health care or you are diagnosed with terminal illness. This allows you access to your funds when needed without sacrificing your interest.

** Withdrawals made before age 59 ½ may be subject to a 10% Federal penalty.

“There are three faithful friends – an old wife, an old dog, and ready money.”

-Benjamin Franklin

Challenge #5

No Lifetime Income

After working hard all your life you managed to put away enough for what you anticipate to be a comfortable retirement. Your retirement account represents a lifetime of effort and overcoming challenges that life has brought your way. Congratulations! You’ve made it. As expressed earlier, safety is a primary reason so many have placed their assets in CDs. It only makes sense to be careful in retirement right? Safety of principal is very important in retirement but so is the need to create a predictable lifetime of income. Life expectancies are on the rise! For many, retirement will now last 20 to 30 years or more. This means your resources will need to last as long as you do. Let’s examine one scenario for a 70-year old seeking safety and income for retirement. She currently owns a 1-year CD earning 4% per year with a value of $100,000. She has other sources of income and a fairly reasonable lifestyle. After considering her current situation, she has concluded that she needs an additional $9,100 per year from her CD. Assuming she makes her withdrawal from the CD each year prior to renewing, she can avoid any charges. The challenge is that at this pace, she will run out of her money in just fourteen and a half years.

Solution

Our solution provides both safety and lifetime income guarantees. The same $100,000 placed in our solution creates exactly $9,118.50 per year for the rest of her life, no matter how long she lives.* In addition, this income stream makes good sense at tax time as well because each payment received is a blend of principal and interest, over 70% of each payment is excluded from taxation. That’s right. An income that you can NEVER outlive! Isn’t that the kind of Security that you really want?

*Subject to the claims paying ability of the life insurance company. Results may vary depending on the specific product purchased.

“Here is the test to find whether your mission on Earth is finished: if you’re alive, it isn’t.”

-Richard Bach

Challenge #6

Market Risk

Markets rise and fall on a daily basis. Accessing your money at the wrong time (during a downturn) can dramatically affect how long your resources will last. Many individuals would like to see their money grow faster but realize the risk of a negative market movement. Is there an answer?

Solution

With our solution, if the market goes up, you will receive an interest rate credit to your account value. If the market goes down, your principal and past interest credits are totally preserved. You don’t loose a penny!

*How it works: Our solution protects your principal and links your interest credits to the movement of an external market index. This allows you to participate in the good years and sit out the bad. The goal is to provide you with the potential to exceed traditional fixed interest rates without exposing your principal and past interest credits to market risk. Maybe this is the time for you to consider your next steps with a qualified representative.

*Early withdrawals may be subject to surrender charges which may intrude on principal if the amount withdrawn exceeds the penalty free amount.

Our Solutions are Guaranteed

If you find yourself interested in our solutions, we want you to know all about your options. These solutions can be achieved through the use of Fixed Annuities, Fixed Indexed Annuities and Immediate Annuities. Annuities with these features and benefits can be purchased from America’s most financially capable insurance companies. Some of the companies we work with have been in business for over 300 years. Annuities are guaranteed by the insurance company and receive special treatment within the tax code that may benefit you. Before making any decision to purchase an annuity, you should meet with a qualified insurance agent to evaluate if an annuity might be suitable for you based on your personal situation. Your agent can access ideas, products and strategies that you may find useful in achieving your long term financial goals. Like any financial product, Annuities are not suitable for everyone. Before purchasing any Annuity, you will be provided with full disclosure of the features, benefits, and costs associated with the product you are purchasing. If you would like more information about annuities, ask about receiving a copy of the “Safe Money Kit.” The Safe Money Kit includes useful information including the “Annuity Buyers Guide,” created by the National Association of Insurance Commissioners (NAIC) & eye opening reports from America’s leading Universities.

Summary

Let’s look at what we’ve learned.

We’ve revealed an alternative to savings vehicles that provide the potential for a higher yield. A Fixed Annuity or Fixed Indexed Annuity may accomplish this goal. We have evaluated the power of deferring the taxes owed on the interest you earn until you choose to use this money. Again, a Deferred Annuity may be a great option for you. By properly designating your beneficiaries, you may avoid unnecessary delays and costs associated with probate. Annuities are well positioned to serve you in this way. Most Annuities allow access to your funds through 10% penalty free withdrawals. You may also benefit from needed liquidity when confined to a nursing home or when you are receiving home health care. (Please refer to the specific policy for surrender charges and waiver provisions)

The need for Lifetime Income can be fulfilled through proper Annuity planning. You may use an Immediate Annuity or you may want to use a Deferred Annuity with a Lifetime Income Benefit added to it. If you seek the potential to exceed traditional fixed interest rates without exposing your principal and past interest credits to Market Risk, you may want to consider learning more about a Fixed Indexed Annuity.

 

Disclosure
The information contained in this booklet provides general information. The author has made best efforts to provide accurate information that is readily available in the public domain. This information is not a solicitation of any specific company or product. This information is not Investment Advice, Tax Advice or Legal Advice. Please consult a qualified advisor for assistance in those areas.

 

(Source: producertraining.com)

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