Will You Have the Income You Need in Retirement?

Brought to you by William Scott

Scott Financial Solutions

Wealth Preservation Specialist

There are literally tens, if not hundreds, of millions of Americans who are in or near retirement. With the economy still struggling, these people are beginning to wonder how they can get a guaranteed lifetime income so they don’t run out of money over the next period of life.

Many retired people look to others for help in answering these questions. However, many friends or family members aren’t as educated as they might think about investing, and some financial planners are biased. When the market crashes and the money is gone, these seniors realize that their financial situation is dire, indeed.

In addition to wanting to survive, most retirees want to thrive. They don’t just want to pay rent or mortgage and have food on the table, but they want to be able to celebrate life with their family and friends. This means keeping a higher standard of living. In addition, expenses like healthcare usually go up at some point during retirement, and it’s good to plan for these, too.
The Situation for Today's Retirees:
According to the Employee Benefit Research Institute (EBRI), 64% of Americans with low incomes will run out of money after 10 years of retirement. In the next highest income bracket, 29% of people will run out of money after 20 years. Shockingly, after the same 20 years, 13% of people in the highest bracket will also be out of money. This means that these people will be unable to cover their living expenses and medical expenses not covered by insurance.

EBRI also found that the total dollar amount of shortfall, when you add the uncovered financial needs of all of these people together, is $4.55 trillion dollars. This is referred to as the National Retirement Savings Shortfall. In the past, the government has rescued people who couldn’t cover their own expenses. However, with the huge budget deficit that the United States now carries, they will struggle to rescue anyone in the future. They may be able to help people survive, but the government won’t be able to give them the income that will let them thrive.

The EBRI isn’t the only institute coming out with figures like this. In 2007, Ernst and Young found that nearly three out of every five new retirees in the middle class would outlive their assets if they try to keep the same standard of living that they’re used to. These people will have to lower their standard of living by 24% if they want to stand any chance of not outliving their assets. People seven years away from retiring are in even worse shape. They will have to reduce their standard of living by 37% if they don’t want to run out of money. In addition, this study showed that nearly 90% of American investors who don’t have some sort of defined benefit pension plan will outlive their savings.
Old Solutions for a New Market:
In the 1980s and 1990s, the stock market was in a bull market, and many came to see that as normal. Financial planners told people to buy when the market dipped, because it would always come back. However, this advice has decimated the portfolios of many retirees over the last ten years.

The stock market simply cannot always rise. Over a 5-, 10-, or 15-year period, it could, in fact, go down or flat line. Rydex/SGI has shown that there have been long periods in US history when the market has fallen or shown very little gain.

One example of this is the period from February 1906 to June 1924. Over that 18-year period, the Dow Jones lost .24% every year. Stocks purchased at the beginning of this period would have lost more the 4% by the end of it. When you add in inflation, the loss of buying power would have been much greater than that.

Similarly, if you had purchased stocks in September 1929 and held them until November 1954 (that’s a quarter century!), you would have gained only .07% each year, or 1.69% over the whole time. Adding in inflation, you would have actually lost buying power over that 25-year period. February 1966 through October 1982 only showed a .05% gain per year, and February 2000 through December 2009 actually showed a net loss of 4.68%.

Even in recent history, this plan has not worked. Between 1999 and 2009, inflation averaged 3% per year, so money in the stock market lost more than 30% of its buying power in 10 years. If you had mutual fund fees of 1% per year and advisor fees of 1% each year, you’d have lost approximately 5% of your buying power in those 10 years. When you add this to the stock market losses, you would have lost more than 50% of your buying power.

For a retiree, this can be devastating. After all, who can reduce their living expenses by 50%? Thus, many retirees are going back to work just to pay the bills. Clearly, the old “buy and hold” method doesn’t work anymore. Unless you’re willing to wait 15 or 20 years or more for the market to go back up (and this isn’t viable for most retirees, who need their income), you need another solution.
Is There a Solution for Retirees in Our Times?
The problems facing retirees are dire. When people run out of money, it isn’t temporary, because they aren’t generating income anymore. However, there are solutions to this complex, multi-faceted problem that Americans from all walks of life are facing.

There are ways to securely invest your money that can give you the guaranteed lifetime income that you need and want. When you take steps in planning your retirement and choose low-risk investments of your money, you’re more likely to have the retirement money you need.

One of these low risk financial vehicles that we recommend for retirees and pre-retirees that can offer you a guaranteed lifetime income is a hybrid income annuity.

Some of the features we like to look for in an Annuity we would recommend include:

• 10% bonus... so if you put in $100k now, you will automatically get a 10% bonus = Start with $110k from day one
• A $100k deposit = Guaranteed income account $241,916 in 10-years
• The ability to make up to 26% per year (market upside without the downside)
• Lifetime income without losing control of the money (don't commit annuicide)
• Double your income (x2) for home health care, assisted living, and long-term care
• Low fees (less than 1%)

If you would like to get a free quote for your own financial portfolio with some annuities that have passed our tests and would be recommended for retirees and pre-retirees that have these types of benefits in place call our office at 602-750-3891 or 520-705-4596.

Click here for a FREE E-BOOK, "Secrets of a Stress Free Retirement - How to Make Sure You Don't Outlive Your Nestegg!"

To get more information, so you can make the best decision for you and your family, call:

Scott Financial Solutions

Your Wealth Preservation Experts

602-750-3891 or 520-705-4596

http://www.smartmoneyplan.com/williamscott

Using the Prudent Man’s Rule to guide your retirement planning

With today’s market feeling topsy-turvy for many investors, it’s easy to feel nervous about outliving your income or having it disappear when the market goes down. Fortunately, there’s an easy principle, called the Prudent Man’s Rule or the 4% Rule, that can help you figure out how much you can take from your investments and continue to have enough income.

Brought to you by William Scott

Scott Financial Solutions      

Your Wealth Preservation Experts

Background information on the Prudent Man’s Rule:
Before you can fully understand the Prudent Man’s Rule, there’s some background information you should know first. This will help you understand how the rule can help you in a practical way, so that you feel reassured about your income and how long your money will last.

There are three main categories of investment, based on how much risk is involved. The most aggressive investment vehicles are stocks, mutual funds, exchange trade funds, and variable annuities, which will go up and down with the market. Then, there are moderate risk investments, like corporate bonds, preferred stocks, indexed fixed annuities, REITs, and investment trusts, where you can make 5-8% each year.

Finally, there are the safest investments, which fluctuate the least based on the market. These include CDs, government treasuries, T-bonds, fixed annuities, and tax-free municipal bonds. However, you pay for your safety because these only grow 2-4% every year. There are good and bad aspects of each of these categories of investment, and you don’t want all of your money in any one category.

It’s also good to remember that there are two ways to make money. You can take a lot of risk, or you can commit to leaving your money in the investment for a period of time. If you’re unwilling or unable to take the risk, you’ll need to commit to a time investment.

Finally, it’s important to remember the Rule of 100. If you subtract your current age from 100, that is the percent of your money that you should have in the market, or in aggressive investments. The rest should be in moderate to low risk vehicles.

What is the Prudent Man’s Rule?
The Prudent Man’s Rule, or the 4% Rule, is actually very basic. It states that, provided you are not moving for aggressive growth, you can take 4% of your money out in income every year without worrying about outliving your money or having it disappear out from under you. Some planners say that you can take up to 5%, depending on the structure of your portfolio.

How does the Prudent Man’s Rule help investors?
The easiest way to understand how the Prudent Man’s Rule can help an investor is to look at an example. For this example, a man gets $1500 each year from social security and his wife receives $1000, and they do not have a pension. This gives them $2500 per month or $30,000 per year in income.

This couple also has a portfolio of approximately $400,000. In the past, their advisors specialized in stocks and stock funds, and so they have diverse and aggressive investments. Over the last 10 years, though, with market fluctuations, they didn’t make money and their principal actually eroded, to the point where they are now concerned about outliving their money or having to make major lifestyle changes.

Using the Prudent Man’s Rule, you can determine that they can take $20,000 out of their money every year, as long as their investments aren’t too aggressive. Since they had 85% of their money in the market, that percentage was too much. So they moved 70% into low to moderate risk investments, generating a 5-7% yield. This covers the extra $15,000-$20,000 that they want to take out each year. Since they didn’t need an 8-12% yield, they didn’t need to leave their money in the market and bet the whole house.

If you would like to see how the Prudent Man's Rule can help you plan your retirement, Simply call 602-750-3891 or 520-705-4596. 

Click here for a FREE E-BOOK, "Secrets of a Stress Free Retirement - How to Make Sure You Don't Outlive Your Nestegg!"

To get more information, so you can make the best decision for you and your family, call:

Scott Financial Solutions

Your Wealth Preservation Experts

602-750-3891 or 520-705-4596

 
 

Understanding the Indexed Fixed Annuity

Brought to you by William Scott

Scott Financial Solutions      

Your Wealth Preservation Experts

One popular type of investment for people looking for safe places for their money during retirement is the indexed fixed annuity. However, there is more to this annuity than you might see at first glance, and it’s important to understand all the ins and outs before you choose to invest.

What is an Indexed Fixed Annuity?
An indexed fixed annuity offers investors both safety and potential gains. If the market goes up, you participate in those gains. If the market goes down, though, you don’t lose money. Exactly how much you can make with an indexed fixed annuity depends on the terms of the specific account.

When you invest in an indexed fixed annuity, the insurance company puts your money into an investment grade bond or treasury portfolio. When that portfolio generates interest, they then invest the interest in the market. Note that they never touch the principal, just the interest. They use it to buy options, specifically calls. When the market goes up, they pull out the gains, buy more of the bond portfolio, and the gains become principal. Therefore, when the market goes down, the bonds aren’t affected and so your income flatlines.

This type of investment has been popular recently because, even with increased market volatility, investors are able to get the market upside without the downside. However, most indexed fixed annuities do not allow you to get all of your gains. In return for your money’s safety, you turn over some of what you make to the insurance company.

How Can My Indexed Fixed Annuity Earnings be Limited?
It’s important that you understand how your earnings can be limited in an indexed fixed annuity, so you can read the terms and figure out if a particular investment is a good idea for you. Most annuities will limit your gains in at least one of the three ways discussed below, and your goal is to lose as little as possible.

First, insurance companies may set a cap, or a ceiling, on your earnings. For instance, they may say that the most you can make in a year is 8%, or even 15%. The specific cap depends on the terms, and your goal is to get as high a cap as possible, or maybe even no cap at all.

Many companies that don’t cap your earnings charge you a fee instead. Again, the specific fee varies by account, though 2% is common. This means that, no matter how much the market gains, you subtract 2% and that is your gains. So if the market goes up 20%, you gain 18%. You want to be sure that a fee is only charged when the market makes money, so your account doesn’t end up losing value.

Finally, some insurance companies will only give you a percentage of the gains. Many companies will offer you 80% of what the market makes. This means that if the market goes up by 20%, you get 16% of that. However, if the market loses, you don’t lose anything at all.

In general, companies will offer better terms for a longer term accounts. These accounts can take anywhere from 0-20 years to mature. The longer the term, the higher the yield, and the more money to put into the market from that yield. The sweet spot seems to come for terms between 7 and 14 years.

How Will My Indexed Fixed Annuity Interest be Credited?
When insurance companies calculate your earnings on an indexed fixed annuity, they use one or more of the major indexes, like the S&P or the NASDAQ. Usually, you can choose the index or indexes you want tied to your account. After that, there are two ways they can credit your earnings.

The first strategy is called point-to-point. This will usually have a period of one, two, or five years. The company will note where the market is at the beginning of the investment period, and then will look at where it is at the end. They see how much the market has gone up, and that is how much gain you’re credited with. If the market goes down, your account flatlines.

An example of this is an annual point-to-point account. If the index starts at 1000 when you invest and it’s up to 1200 a year later, that indicates 20% gains for you, minus any cap or fee, of course. If the market goes back down to 1000 a year later, though, you don’t lose money. And if it’s back to 1200 at the end of the third year, you gain 20% again.

It’s important to note that the market doesn’t have to go above 1200 for you to get gains. Anytime it goes up over the period of your account, you gain, even if it crashed previously.

A second crediting strategy popular with indexed fixed annuities is called monthly averaging. With this method, the company looks at where the market is each month. They add up these numbers, divide by 12, and that indicates your percentage gains.

Neither of these strategies is necessarily better or worse than the other. If the market is going straight up, point-to-point will gain you more interest. If it’s volatile or you’re concerned about one bad day wiping out all of your gains, monthly averaging is a better strategy.

Once again, you’ll need to read the fine print to find out exactly how each strategy will be handled. For instance, some companies will cap your point-to-point earnings at something like 2 ½%. If this will not work to your advantage, you may want to choose another account.

You can usually choose which crediting strategy will be applied to your accounts, and you can often change each year, or have a percentage of your money handled one way and the rest handled the other.

If you have questions about these crediting strategies or indexed fixed annuities in general, Simply call 602-750-3891 or 520-705-4596 

Click here for a FREE E-BOOK, "Secrets of a Stree Free Retirement - How to Make Sure You Don't Outlive Your Nestegg!"

To get more information so you can make the best decision for you and your family, call:

Scott Financial Solutions

Your Wealth Preservation Experts

602-750-3891 or 520-705-4596

What is a Fixed Annuity and is it for Me?

Brought to you by William Scott

Scott Financial Solutions

Your Wealth Preservation Experts

Fixed annuities features are very similar to a CD’s, offering a guaranteed rate of return over a set period of time. If you invest a lump sum of your money over a particular period of time, you will receive a guaranteed rate of return back when that time is up. Typically, the longer you’re willing to invest your money, the higher your rate of return will be.
Benefits of a Fixed Annuity
Many people like fixed annuities because they are tax deferred. Keeping your retirement savings in a traditional investment account can mean that you must pay taxes on thousands of dollars of interest every year. The 1099s that you receive for your interest have to go on your tax return, and can push you into a higher tax bracket.

With fixed annuities, you don’t pay taxes on the earnings until you make a withdrawal or begin receiving an income from your fixed annuity. This allows you to plan ahead for tax season, and not be surprised when you suddenly owe more than what you had originally planned.

Fixed annuities, according to many, are some of the safest investments around. There are several safeguards in place that work to keep your money safe.

Companies that offer fixed annuities have to keep dollar-to-dollar reserves. This is a state required law, which means that they can only lend out the money you invest with them one time. On the other hand, a traditional bank can lend your money up to 9 times, so there is a greater chance for loss. Because they can only lend it out once, these companies tend to select conservative investments, which keep your money even safer.

Every company that holds fixed annuities must be part of a group of reinsurers. If one company in the group fails, the others have to reinsure them, or guarantee their investments. Most companies holding fixed annuities have between 4 and 14 reinsurers per company.

Note that these regulations only apply to non-fraternal companies. If an annuity is with the Knights of Columbus or a similar fraternal group, it is not regulated by these laws.
Drawbacks to a Fixed Annuity
Some fixed annuities may have an adjustable interest rate. This means that the interest rate is fixed for the first year or so, but can potentially go down thereafter. If you’re looking to invest in a fixed annuity for a particular period of time, ensure the company will pay the same rate of return for all years invested. 

Some people want to stick their IRA into a fixed annuity, but that doesn’t usually make sense. Since an IRA already offers tax deferment, that benefit of a fixed annuity won’t help you any. The only reason one may choose to invest their IRA into a fixed annuity vehicle is the rate of return being higher than what you might get in another type of investment.
Should I Buy a Fixed Annuity?
There’s not one type of annuity that is a good choice for every person. Some will prefer an immediate annuity, others a fixed, and even others will need different investments altogether.  

  

Click here for a FREE E-BOOK, "Secrets of a Stree Free Retirement - How to Make Sure You Don't Outlive Your Nestegg!"

To get more information so you can make the best decision for you and your family, call:

Scott Financial Solutions

Your Wealth Preservation Experts

602-750-3891 or 520-705-4596

10 Commandments For Building Wealth...

1. Start early. By saving $1,000 a year at age 25, you could end up with five times what you'd have if you started at age 45.
2. Use your 401(k). You put in pretax dollars so it's a great savings plan. Passing up employer contributions is giving up free money.
3. Diversify properly so you don’t become an unwilling victim of having too many eggs in one basket.
4. Don't try to beat the market by short term trading. Even the best fund managers have trouble beating the S&P 500.
5. Don't chase trends. If you hear about a "hot" stock, investigate it. Go to investopedia.com.
6. Make saving automatic. If you are maxing out your 401(k), get payroll deductions transferred to a Roth IRA, or other tax deferred vehicle.
7. Take the long term view for your equity assets. Buy and hold can get the job done without the worry that most traders suffer through.
8. Be diligent about your tax planning. Make sure you take advantage of every single legal loophole you can to reduce your income tax liability to the lowest legal level possible. (And make sure to change your withholdings so you get your tax savings NOW instead of loaning your money interest free to the IRS!)
9. Get rid of credit card debt. Rank them by their interest rate and pay off those with the highest rates first. For low-interest student loans, consider making minimum payments and investing in your 401(k) instead.
10. Make sure to do financial planning and review it once a year at a minimum!

Please keep in mind that this tip is designed to be of help for you, but is not to be relied upon as advice. It is merely a reminder that there are many choices you have available to you, and that planning is the only way to find the right answers for your situation! As with any financial issues, make sure you get the right information before making a decision! If you have any questions, we'll be glad to help you!

For a FREE E-Book click here

Scott Financial Solutions

Your Wealth Preservation Experts

602-750-3891 or 520-705-4596

www.smartmoneyplan.com/williamscott

Go to my web site and sign up for a free e-book

"Secrets of a Stress Free Retirement"

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Wealth Preservation & Guaranteed Insured Investments: Do You Have Savings That Doesn't Earn Interest?

The U.S. Treasury Department reports that more than $15 billion worth of savings bonds have stopped earning interest but are still held by investors. To check the status of a bond, go to savingsbonds.gov. Click on "Individual/Personal," then click on "Find out if your Treasury securities have matured." There you can figure out if your bonds are still paying or how long you can expect them to earn interest. If they've stopped earning interest you should check with us and find out if you should cash them in, and what to do next.

The one thing you don't want to do is keep any savings account that doesn't earn any interest!

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Refunds Of Overpaid Income Taxes

Many clients we deal with get refunds of overpaid income taxes each year when they file their returns. Forever, we've been reminding clients NOT to get refunds, but rather to have us help you plan your income taxes so you get no refund, and have bigger paychecks all year long instead. (You can do this totally legally, by adjusting your withholdings down, so you get more each paycheck, and eliminate or reduce getting refunds at tax time which are nothing more than interest free loans to the government!

So, here are two ways millions of Americans continue to loan money to the Federal government at zero interest, which we think you should have zero interest in doing!

If you need help, you know who to ask.  Let us help you establish sound savings and tax programs so you minimize or stop loaning YOUR money to Uncle Sam for free!

For a FREE Weekly Financial Tip click here

Scott Financial Solutions

Your Wealth Preservation Experts

602-750-3891 or 520-705-4596

www.smartmoneyplan.com/williamscott

Go to my web site and sign up for a free e-book

"Secrets of a Stress Free Retirement"

and a Free Financial Tip of the Week