Annuities can be confusing and especially when you hear people telling you, “they are bad” or “You should hate annuities” as Ken Fisher advises with his advertising.

The important point you have to understand is what annuity should you hate and why. The logic they are proposing is one annuity is bad so all annuities are bad. So let’s get to the bottom of this and take a deeper dive into annuities.

What is important to realize is there are four types of annuities that are commonly used today. Let’s take a look at each and go over the pro’s and con’s to determine if they are a good fit in retirement planning.

Immediate Annuities

An immediate annuity is where a lump sum has been turned into an income stream. The lump sum is no longer available, but instead a guaranteed income is being received that can payout over a person’s life expectancy. Overall the returns credited to an immediate annuity are very low, but the income guarantee is the real benefit.

The immediate annuity has its place in income planning, such as providing a window of guaranteed income maybe before a pension or social security starts, or it can also serve as a guaranteed lifetime income as well. It pays to shop before choosing an immediate annuity, as some companies will offer higher payouts than others.

Fixed Annuities

A fixed annuity is the simplest annuity for consumers to understand. You simply receive a rate of return determined ahead of time. Many present the fixed annuity as a CD alternative.  It is in the guaranteed principle category of investments, and is one of the safest investments for consumers available today.

With bank rates so low today a fixed annuity is a good alternative with higher rates, and it also builds tax deferred until funds are withdrawn. Depending upon one’s tax bracket, this can be  very beneficial to the client, unlike a CD that is taxable each year even if the interest isn’t withdrawn.

Fixed Index Annuities

A fixed index annuity is really just a variation of a fixed annuity, so it has all of the same safety features. What the insurance company is doing is instead of offering a fixed rate, they use those funds to purchase call options on various stock indexes, with the S&P 500 being the most common.

Each anniversary date the annuity will either capture a gain if the index it is tracking is positive, or a zero return if the index is negative. If any gains are captured they are “locked in” and added to the account value.

The returns within an index annuity will vary dramatically depending upon the design, and it is very important to make sure it is a competitive product that has solid growth potential. Working with a skilled advisor that understands index annuities is extremely important.

The FIA is a safe investment that helps to bring balance to an overall portfolio. It has been one of the best performing safe investments over the past decade and has proven itself as a solid choice for the right investor.

Variable Annuities

The variable annuity is really just an option to use mutual fund type of investments within an annuity. Depending upon the choices used within the annuity, the account value can be very risky, if stock mutual funds are used or fairly conservative if bonds funds are used.

There is no doubt variable annuities (VA’s) can have high fees and this has raised a lot of red flags throughout the financial services industry today. When you hear annuities have high fees this is the annuity they are referring to. Normally all VA’s have an annuity fee that ranges from 1 to 1.5% per year, with around 1.25% being the average.

Also the majority of VA’s will also add riders of some type, either death benefit or income riders, which can add an additional .75% to 1.5% per year as well.  Add the typical mutual fund fee of 1% or more, and you can see that a VA fee can very quickly run 3 to 4% per year. This can really diminish the growth potential of a Variable Annuity.

The VA really doesn’t have a lot to offer for the investor. If they want maximum growth, mutual funds will save the investor a significant amount with much lower fees.

The post The 4 Types of Annuities first appeared on West Coast Financial Services.

MYTH #1 – It’s All Yours…

• One extremely common misconception about the IRA is that you own 100% of it. The reality that all too often many overlook, is that you have a partnership with the IRS, aka Uncle Sam. Let’s say for instance that you have an IRA valued at $500,000 and you are in a 33% federal income tax bracket, the IRS has a future ownership of roughly $165,000 of your IRA! Sounds harsh right? Well, this is the contractual agreement you made with the IRS when you tax-deducted your contributions. In plain language, you agreed to save taxes early on, but now you owe taxes on the yield when you take it out. At a certain point, your partner the IRS will determine when you’ll pay up the big tax bill and how much of it you owe  as time goes on. If your tax bracket jumps to 50%, now Uncle Sam owns HALF of your Retirement Account! The same principles are applied to 401(k)s, 403(b)s, 457s and all other qualified retirement accounts.

MYTH #2 – You Can Dodge Taxes…

• Another fairy tale. The only way your money can come out of the vault is through the armed guard, the IRS, and believe me there is no negotiating your way out of this contract! Everyone with IRAs are required by the 1st of April of the year after you turn 70 1/2 to take taxable distributions. If you experience an untimely death while owning an IRA, wait for it…Your HEIRS will inherit the tax bill. Either way the taxes must be dealt with exactly how the IRS says and all who do not comply will suffer the consequences, which unfortunately is a horrific increase in your tax bill. Thankfully, there are strategies out there that help put the IRA owner take more control of their accounts so they can cut how much tax will be paid.

MYTH #3 – You’re Powerless…

• Lucky for you this is the largest myth of the three. Even though you don’t own the entirety of your IRA(s) and there is no way to dodge to dodge the taxes on IRA distributions, account holders can still strategically increase their income while minimizing the burden of taxation. This type of planning is where a Retirement Advisor plays a crucial role in leading you through the intimidation of regulations, penalties, and deadlines, while getting you the most out of your IRAs 401(k)s, and other retirement accounts.

The post 3 HUGE MYTHS About Your IRA first appeared on West Coast Financial Services.

THE WALL STREET JOURNAL by. Yuka Hayashi (January 24th, 2019)

U.S. banks reported a record 24,454 suspected cases of elder financial abuse to the Treasury Department last year. Furthermore, This is more than double the amount five years earlier, according to government data. The increase occurred as new federal and state laws are prompting banks to take a more active role in trying to address frauds and scams that target older customers. For their part, banks are beefing up training programs for employees on how to detect, stop, and report issues. Also, They’ve managed to accomplish this without violating a customer’s privacy. Employees are even learning to recognize early signs of cognitive decline.

The post Financial Abuse of Seniors Hits Record first appeared on West Coast Financial Services.

Below you will find The Financial Risk Cycle, which shows each age group’s calculated risk tolerance level. Risk levels can vary, but this information is in most cases a preferred guide to assessing financial risk.

Want to find out your Risk Score? Reach out to us, we’d love to help.

The post A Complete Financial Risk Cycle first appeared on West Coast Financial Services.