Tags Archives: Retirement


Important Tax Aspects To Consider Before and During Retirement


If you’re saving for retirement, you are most likely accumulating dollars in one or more of the assets (buckets) listed below. It’s important to consider how long you may need this money to last. Today, a male and female in good health who reach age 65 can expect to live to age 84 and 86, respectively. Keep in mind those are just averages. One in four 65 year-olds today will live past age 90. Making the most of your retirement savings is important to maintaining your standard of living throughout retirement. Your money needs to keep working for you even when you no longer can.
One factor that can significantly impact the amount of money you have available in retirement is taxes. Here we’ll take a look at how your money is taxed at key ages before and after retirement.


Pre-Tax/Tax Deferred

401(k), pensions, traditional IRAs, etc.
Dollars are contributed BEFORE taxes are paid, and you will not pay taxes as the money grows. Taxes will need to be paid when you access these funds, ideally in retirement. Because you don’t pay tax on what you contribute to this bucket, there are limits on how much you can contribute, and there are additional tax penalties if you withdraw the money prior to 59½.
You pay ordinary income tax and a 10% penalty on withdrawals.
Any tax-deferred (pre-tax) assets become taxable at ordinary income tax rates.
AGE 62
If distributions cause you to exceed modified adjusted gross income (MAGI) limits, up to 85% of Social Security benefits are taxed.
AGE 65
Medicare Part B premiums could increase to $428.60/ month if MAGI exceeds limits.
AGE 70½
Required to take minimum distributions from tax-deferred assets. This will increase your taxable income.



Stocks, bonds, mutual funds, etc
The assets in this bucket are contributed with after-tax dollars. Because taxes have been paid, there are no limits on how much money you can contribute to this bucket. Any appreciation will be taxed when you sell the asset while any dividends or interest will be taxed in the year they are received.
Taxes on growth are generally payable upon the sale of the asset; dividends or interest generally taxed in the year received at either ordinary income or capital gains rates.
Taxes on growth are generally payable upon the sale of the asset; dividends or interest generally taxed in the year received at either ordinary income or capital gains rates.
AGE 62
If distributions cause you to exceed MAGI limits, up to 85% of Social Security benefits are taxed.6
AGE 65
Medicare Part B premiums could increase to $428.60/ month if MAGI exceeds limits.
AGE 70½
No Required Minimum Distributions.


After-Tax/Tax Deferred

Non-qualified annuities
The assets in this bucket are contributed with after-tax dollars. However, you will not pay taxes as the money grows.
Withdrawals from deferred annuities are taxable to the extent of gain (earnings) on the contract at the time of the withdrawal and are subject to a 10% penalty. Withdrawals in excess of the gain in the contract are a non-taxable recovery of basis.
Withdrawals from deferred annuities are taxable to the extent of gain (earnings) on the contract at the time of the withdrawal. Withdrawals in excess of the gain in the contract are a non-taxable recovery of the basis. Upon annuitization, annuity payments received are partially taxable based upon the applicable “exclusion ratio.”
AGE 62
If taxable distributions cause you to exceed MAGI limits, up to 85% of Social Security benefits are taxed.
AGE 65
Medicare Part B premiums could increase to $428.60/ month if MAGI exceeds limits.
AGE 70½
No Required Minimum Distributions.


After-Tax/Tax Favored

Cash Value Life Insurance, Roth IRAs
The premiums you pay into a cash value life insurance policy are paid with AFTER-tax dollars. The cash value that accumulates supports an income tax-free death benefit that will be received by your beneficiaries upon your death. You do not pay tax on the growth of the cash value. Distributions from the policy via withdrawals and loans are generally not income taxable. Roth IRAs have favorable tax characteristics but also limits on how much can be contributed. In addition, if your modified adjusted gross income (MAGI) exceeds $135,000 for single filers and $199,000 for joint filers you are ineligible for a Roth IRA.
You can access cash values on a tax favored basis without penalty. Withdrawals up to cost basis are nontaxable. Policy loans are nontaxable as long as the policy remains in force until death.
You can access cash values on a tax favored basis to supplement your retirement income. Withdrawals up to cost basis are non-taxable. Policy loans are nontaxable as long as the policy remains in force until death.
AGE 62
Non-taxable distributions from a life insurance policy DO NOT impact Social Security benefits.
AGE 65
No impact to Medicare Part B premiums.
AGE 70½
There are no Required Minimum Distributions for cash value life insurance and cash values can continue to accumulate.


Consider the impact taxes have on your retirement



Life insurance provides important death benefits for your family to replace income that would be lost upon your death. What you may not realize is that permanent life insurance, especially cash value life insurance, can provide an extra layer of versatility to complement the income you receive from traditional retirement assets.


The purpose of this material is to discuss the value and versatility of permanent cash value life insurance as a potential source of supplemental income to meet a variety of lifetime contingencies and needs. It is not intended to suggest that life insurance is necessarily superior to other assets designed to provide retirement income, nor is it intended to recommend the liquidation of existing retirement accounts in order to fund a life insurance policy. Rather, it is to suggest that life insurance can be used to complement and supplement traditional sources of retirement income.

11 months ago Retirement

It’s a New Year, Life Hacks to Save More Money in 2019


It’s easy to fall off track when saving up for special goals like a new home, a new car or a new addition to the household. Dinners and drinks here, concerts and ball games there — expenses can add up quickly, and before you know it, you’ve fallen behind in your savings plan.
Don’t despair, though — these clever budgeting hacks may be just what you need to avoid spending temptation, achieve your financial goals and even grow your savings in the New Year.


1. Visualize it

Are you working towards a tangible goal, such as a new car or home? If so, constant reminders of your objective may help you stick to your budget and inspire you to find ways to increase savings to meet your goal faster.
Post pictures of your goal around your home and office. Tape one to the corner of your bathroom mirror and on the fridge door. Use a digital image of the goal as your screensaver on your desktop at work, your laptop, tablet and smartphone. You’ll be faced with reminders of what you’re working towards everywhere you go.


2. Create subtle reminders

Reset passwords on your digital devices to remind yourself of savings or debt-paying goals. For example, say you want to pay off your $5,000 credit-card balance. Set your password to something like “paydown$5000.” If you’re saving for a home, set another password to “$10kdownpayment.”
Be careful not to use the same password for every device or online account. Rather, using multiple financial goals as password inspiration makes it more difficult for electronic fraudsters to get into your accounts. (As an added bonus, these passwords can have a combination of the letters, symbols and numbers often required by password generators.)


3. Celebrate it

Sticking to a budget and a financial plan is hard work, so celebrate small achievements, such as paying off the first $1,000 of a $5,000 debt, or the first $500 saved towards your new car. To do this, include an entertainment fund as part of your budget. Even if this is just $20 a week, using it to celebrate milestones in your long-term goals can help motivate you to stay committed to your financial future.


4. Avoid temptation

We all have them: friends, places and activities that drag us down into budget-busting territory. Your best bet for dealing with them is to flat out avoid them.
Change your route to work to avoid the coffee shop selling $7 lattes, and bring coffee in a travel mug from home instead. And don’t go to the bar with “just another drink” Joe or Jane, or you could be facing “just another” big bar tab that breaks the bank.


5. Lower your interest to maximize savings

How’s your credit? If it’s good, call your lenders to ask about qualifying for reduced rates on your loans, credit lines and even credit cards. Alternatively, consider opening a low-interest credit card and transferring higher balances to it to reduce interest. This helps you meet debt repayment goals faster, simplifies monthly payments and reduces your chance of missing a payment.
Don’t get discouraged when pursuing financial goals, even if they seem out of reach. Stay the course and try one or more of these budgeting tips starting today — your progress may surprise you.

1 year ago Retirement

Want to Retire Early? Consider These 5 Things


Retiring in your 50s or early 60s might be appealing, but it requires careful planning. Consider these five factors to help determine whether an early retirement might make financial sense.
Working until at least age 65 is a common assumption when planning for retirement, but some people dream of retiring earlier than that. In fact, a recent survey found that 26% of people working today say they expect to retire before age 65. Whether early retirees hope to use that additional time to pursue passions outside their career or simply to enjoy more time for travel, family, or hobbies, early retirement requires careful consideration and planning.
Here are five factors to consider that can help make an early retirement achievable.


1. Desired Retirement Lifestyle

Lifestyle choices can have a big impact on retirement expenses. An early retirement filled with travel and expensive hobbies might require more savings compared to one focused on volunteering or part-time work.
Share a detailed vision of your retirement lifestyle with a financial advisor, who can help determine estimated savings needs. It’s also important to consider the impact of inflation on future expenses — especially when planning for a retirement that might last 40 years or more. Consider something that costs $100 today: At a 3% average inflation rate, that item would cost more than $300 at the end of a 40-year retirement.


2. Strategy for Accelerating Savings

Early retirees have fewer working years to save, and they will need those savings to last potentially 40 to 50 years, versus a more typical estimate for a retirement that might last 20 to 30 years, based on average life expectancies. For that reason, an aggressive strategy to maximize savings can help meet an early retirement date. Potential approaches include:
  • Make catch-up contributions to retirement accounts. IRS regulations allow people over age 50 to contribute extra money to their 401(k)s and IRAs. Those catch-up amounts were $6,000 for 401(k)s and $1,000 for IRAs in 2018, but the amounts can change from year to year.
  • Save additional money outside of traditional retirement savings accounts like 401(k)s and IRAs, which penalize withdrawals taken before the age of 59½. With investments such as stocks, bonds, and CDs, assets are available for withdrawal without age restrictions.
Work with a financial professional to develop a strategy for boosting retirement savings while still having enough money to meet short-term goals.


3. Guaranteed Sources of Retirement Income

Early retirees have special needs to consider when developing an income strategy. They may have to wait to access certain income sources, as people under age 59½ can’t tap savings from qualified retirement accounts such as a 401(k) without paying a 10% early withdrawal penalty (as well as income tax on their withdrawals). In addition, people under age 62 can’t claim Social Security benefits, and those who claim Social Security before full retirement age (which ranges from age 65–67, depending on birth year) also will receive a smaller monthly benefit.
Drawing on savings earlier and for a longer duration may increase the risk of outliving retirement savings, known as longevity risk. To help work around these factors, people planning an early retirement may want to consider additional income sources to help cover expenses. Some approaches include:
  • Turn a hobby or passion into a side business for additional income, or pursuing part-time work in an area of interest outside of an existing career.
  • Put a portion of savings into an annuity. Early retirees could begin collecting guaranteed income right away with an immediate annuity , or use a deferred annuity to begin providing income on a future date of their choosing. Some annuities offer guaranteed lifetime income payments, which can help protect against longevity risk. Withdrawals can be made before income payments begin, but that approach reduces the account value and could result in surrender charges or other fees.


4. Amount of Debt

Eliminating as much debt as possible before retirement frees up cash flow that can be used to cover other expenses. People considering early retirement can examine whether they can afford the same level of monthly debt payments if they have less monthly income once they stop working full time.
For those who need help reducing their debt load, here are a few options:
  • Consider paying off higher interest debt, such as credit cards.
  • Also consider paying off a mortgage ahead of retirement. The average mortgage payment for people over age 65 accounts for about 14% of their annual pre-tax income, so eliminating that debt can reduce expenses significantly. Read our other article on important considerations when trying to decide whether to pay off a mortgage before retirement.
Consult a financial professional to help develop a personalized debt management strategy.


5. Coverage of Medical Costs

Healthcare planning is also slightly different with an earlier retirement date. Many early retirees are no longer covered by employer-sponsored health insurance plans, but may be too young to qualify for Medicare. However, there are ways to help bridge potential health insurance coverage gaps.
For those with employee-sponsored health insurance, COBRA benefits allow employees to keep their health insurance for the first 18 months after leaving a job. COBRA can be expensive, though, as employees must pay for all of their monthly premiums (including the amount the employer used to cover) plus a 2% administration fee.
People who choose a high-deductible health insurance plan also might qualify for a health savings account (HSA), which allows account holders to make contributions until age 65 that grow tax-free — plus, funds can be withdrawn tax-free to pay for qualified medical expenses. Once HSA owners reach the age of 65, these funds can be used for any use without penalty (however, withdrawals for non-medical expenses will be subject to income taxes).
Choosing the right retirement date depends on a range of factors, but considering these factors can help determine whether an early retirement is a viable option. If early retirement sounds appealing, a financial professional can help craft a detailed plan to help achieve that goal.

1 year ago Retirement

Arm Yourself With A Retirement Income Strategy


When you think of retirement, what comes to mind? Perhaps you imagine spending time with loved ones, traveling, or pursuing a hobby. From relaxing beach vacations to sunny days on the golf course, your ideal retirement days may look idyllic.
You may have other thoughts, however, once the reality of paying for your retirement sets in. Then, you may begin to wonder if you’ll even have enough money to last your lifetime.
Currently, you may be five, 10 or 15 years away from when you plan to retire. Chances are you’ve been disciplined about saving for retirement, diligently socking away money in your IRA or employer-sponsored plan, such as a 401(k).
Saving is important, but it’s only half the battle when it comes to turning your retirement dreams into financial reality. A plan for taking income, otherwise known as “de-accumulation” or “distribution,” can be just as crucial for your golden years. While taking income sounds simple, you want to ensure that you have a plan that will help you live the retirement you want – and you don’t wind up a “day long and a dollar short.”


From accumulation to income

Creating a retirement income strategy that addresses when and how to convert your savings into a regular “retirement paycheck” can help guide you through the transition. After all, you’ve probably come to rely on a steady paycheck. You may know exactly how much each paycheck is and what expenses it covers – from housing, groceries, transportation and general bills to dining out, traveling and entertainment.
Now, consider how this income/expense dynamic will play out once you retire. Have you thought about the kind of expenses you’ll have in your golden years? Or about how much income you’ll need, and where it will come from?


Steps to get started

Let’s face it. Retirement can be expensive. That’s why it’s so important to save as much as you can now so you can build your own personal income plan. Here are some steps to help you get started in developing a more “holistic” retirement income strategy:
  1. Identify your retirement needs. Work with your financial professional to estimate the expenses you expect to have once you retire. Be sure to include essential expenses (food, housing and medical expenses) as well as lifestyle expenses (things you want but don’t actually need to survive).
  2. Estimate how much of your pre-retirement income you’ll need to replace in order to meet your needs. This step will help you understand the true cost of the retirement lifestyle you’d like to have. For instance, you may opt for a more modest lifestyle in order to leave more money to your heirs.
  3. Create a “buffer” for potential retirement risks. Retirement can include a number of gray areas that you may need to address. From unexpected health care-related expenses to caring for aging parents, there are many uncertainties. Other key risks to consider are:
    • Longevity risk – You look forward to a long, happy and healthy retirement. But you also want to ensure you don’t outlive your assets.
    • Withdrawal rate risk – Draw down your assets too quickly, and you’ll be unable to meet future needs.
    • Sequence of returns risk – An unfavorable market environment can have a big impact on your retirement savings. If you experience a high proportion of negative returns early in retirement it will reduce the amount of income you can withdraw later.
    • Inflation risk – This involves potential loss in purchasing power due to rising costs of good and services.
  4. Identify retirement income sources. When you transition from full-time employment to retirement, you’ll no longer receive the regular paycheck you’ve come to depend on. Retirement income sources, such as Social Security, company pensions and annuities can help give you a regular, guaranteed stream of income that may last your lifetime.
  5. Develop a retirement income timeline. Map out how and when you’ll take payments from your retirement income sources. Again, work with your financial professional to help you through this essential step.


The time is now

Your retirement may be one of the longest chapters of your life. Why not plan ahead so you can achieve the future you want? Be proactive and take control of your financial future by contacting your financial professional today.

1 year ago Retirement

5 Retirement Mistakes to Avoid


Retirement requires a lot of careful preparation, but no one is perfect — we sometimes make both financial and planning mistakes along the way. Dodge these five common pitfalls and you can be confident you’ll have what you need to live the lifestyle you want.


1. Mistiming a spouse’s Social Security claim

Sure, you know the benefits of waiting to take Social Security. Benefits decrease by more than 40 percent if you start taking them at age 62 instead of waiting until 70. But where Jeff Gitterman, CEO of Gitterman & Associates Wealth Management, sees people trip up most is on a younger spouse’s Social Security claim.
Let’s say that a husband and wife are 70 and 66 years old. If the husband is taking full Social Security, his wife can take a spousal benefit, which can be up to half of her husband’s benefit. This won’t affect the husband’s benefit, and it allows the wife’s benefit to mature. At 70, she can stop taking half of her husband’s benefit and start taking 100 percent of her own. This is especially important for a younger female spouse because women tend live longer than men. Women also spend more on medical care and are more likely to enter a nursing home.

Money should support your “ lifestyle, not be your lifestyle.


2. Thinking it’s too late to start

Saving for retirement can be intimidating if you got a late start, but don’t let fear stop you from putting away as much money as you can. Start by making sure you’re maxing out your contributions to any current work retirement accounts, especially if your company matches them.
If you’re 50 or older, you can make catch-up contributions. In a traditional or Roth IRA, you can put away $6,500 a year, which is $1,000 more than people younger than 50 can contribute. If you put away money through a 401(k), you can contribute up to $23,000 a year, compared to $17,500 for younger savers.


3. Not picturing what retirement will be like

Gitterman prompts clients to close their eyes and ask themselves this question: “On the first day of retirement, what am I doing?” Frequently, the response is “I don’t know.”
A job gives back a lot of things other than money: accomplishment, leadership, fulfillment and the satisfaction of work completed. If you don’t know how you’ll replace these parts of your life, retirement can feel empty. Taking time to explore what this new chapter of life looks like will not only help you plan for retirement mentally, it will help you plan financially as well — you need to know what your money is going to fuel.


4. Keeping retirement accounts separate in retirement

Maybe you have a 401(k) from an old job in one brokerage house, your current 401(k) somewhere else and a pension in yet another spot. That’s not such a big deal while you’re still working, but when you retire and start taking benefits, it’s easier on you — and your future heirs — if everything is in one place.
That way, you or your financial planner can figure out where to take distributions from, and when the time comes, your executor will have everything in one place, which will make that job easier during what will be a difficult time.

Taking time to explore what this new chapter of life looks like will not only help you plan for retirement mentally, it will help you plan financially as well — you need to know what your money is going to fuel.


5. Putting money before lifestyle

Retirement shouldn’t be about hitting a certain dollar number, but rather about saving enough for the retirement you want to have. “Money should support your lifestyle, not be your lifestyle,” says Gitterman. For some, that means traveling the world. For others, it means working part-time. For some, retirement is as simple as sitting on the beach and reading a book. All three require different funding.
“I have people walk into my office and swear they can’t retire, and then an hour later they’re putting in their retirement papers,” he adds. For many people there is a disconnect between their retirement savings and how much their desired post-retirement lifestyle will actually cost, explains Gitterman. Making that connection can help you time your retirement appropriately and save more — while you’re still working.
If you don’t yet have a financial plan, give us a call. We’d be honored to help you help you look beyond short-term temptations in pursuit of your long-term goals.


Generating Wealth to Leave a Lasting Legacy


The greatest strength of life insurance lies in the ability to provide money to a family when someone passes away. Sometimes this amount can be many multiples of the premiums that were paid into the insurance policy.
Many people think of life insurance only as a way to provide for a family after the loss of a breadwinner. But some families are also using life insurance as an “asset” to ensure that an inheritance can be passed on to their family, regardless of how their other assets perform. This is increasingly important to many families, still uneasy after the 2008 market crash and unsure of where the market is headed. A badly timed down market can devastate a planned legacy for years. The chart below shows market fluctuations in recent years, based on the five-year S&P 500® Index, without dividends.
By taking a portion of your assets each year to cover the cost of life insurance premiums, you may be able to hedge a portion of your portfolio against fluctuations in the marketplace, because payment comes from the life insurance company, not your assets directly. Knowing that your beneficiaries will be cared for may also allow you to make other choices with your remaining assets — perhaps a more aggressive, growth-oriented strategy, or you might invest more conservatively, knowing you don’t need as much growth.


how does the strategy work?

A hypothetical example of how the strategy works can be seen in the chart below. It shows what you might expect from the same dollars if they were paid into a life insurance policy as premiums, or if they were placed in a hypothetical investment account.
In the early years, life insurance death benefits typically offer substantially more than the hypothetical investment. As time goes on, the leverage offered by life insurance may be reduced as the non-life insurance assets grow and compound. At some point there is a crossover, where the growth in the investment account outweighs the benefit provided by the life insurance policy. Of course, it’s hard to know which strategy is more beneficial unless someone knows their precise life expectancy and whether it is before or after this crossover point.
However, this is a conversation you can have with your Financial Professional. They can run numbers for you and estimate the Internal Rate of Return in the years before and after your life expectancy.

For you to get the most out of your policy’s life insurance benefit, it has to stay in force until you pass away. If your policy ends or terminates, or if you otherwise dispose of your policy before your death, your beneficiaries would receive a substantially reduced benefit, and any proceeds they would receive could be subject to income taxation.


Life Insurance as an Asset: in Action

  • 60 years old
  • Widowed
  • Portfolio of $3,000,000 in real estate and equities
Helen’s Objectives: Helen wants to make sure that her children and grandchildren receive a meaningful inheritance. While Helen expects to receive a 7% return on her investments over time, she is concerned that, in today’s environment, the assets might underperform. For example, if her assets receive only a 5% average annual return over time, her beneficiaries might receive substantially less than her expectations. Assuming a blended income and capital gains tax bracket of 27.50%, that 2% difference in return rate over 28 years could result in a difference of over $3,000,000 in the legacy for her children. A down market near Helen’s death could have that type of effect on years of wealth accumulation.

Helen’s Wealth Transfer Strategy: As a hedge against that risk, Helen’s financial professional suggests she take $30,000 each year, or 1% of her accessible assets, and direct the funds to a life insurance policy on her life. She can own this policy outright, although she may want to consider using a trust. If structured properly, life insurance owned by an irrevocable trust will generally keep the proceeds of the life insurance out of the insured’s estate. This will prevent the proceeds from being subject to estate taxation. Estate taxes aren’t an issue for Helen, but for others they could be an issue.
Helen’s Results: Assuming a policy on Helen’s life (a 60-year-old female who receives an underwriting category of Preferred non-tobacco user), her beneficiaries might see the following results. Each year’s life insurance premium is $30,000. That may purchase a life insurance benefit of $2,300,000. Helen’s portfolio is reduced slightly due to the premium expense, but the life insurance benefit gives her a potentially more effective transfer strategy.
Additionally, the death benefit will ensure a return of the funds contributed, something few other financial assets can offer.
In effect, by using her assets to buy life insurance Helen is giving up some upside potential for greater safety in her wealth transfer strategy — By directing this relatively small amount of her net worth into life insurance, she adds a stabilizing element to the dollars ultimately transferred to her family (provided the policy stays in force).

If Helen received a lower rate of return, using life insurance could help offset the risk of loss or underperformance. Through the purchase of life insurance, Helen has, at least in part, shifted the risk of underperformance from her to the insurance company.


Make a Difference with Life Insurance

Ultimately, at her life expectancy, Helen’s purchase of life insurance increases the amount passing to her beneficiaries.
  • If Helen continues to receive the expected pre-tax return of 7% average annual growth, her beneficiaries would gain an additional $437,040.
  • If Helen receives a lower pre-tax return of 5% on her assets, the gain to beneficiaries would be $833,325. In fact, if Helen had invested the $30,000 annual premium at a 5% return, she would have to wait until she was age 92 before the funds would grow to a level greater than the $2,300,000 life insurance death benefit.


Other Considerations

Although using life insurance as a part of your wealth transfer strategy may make sense, you should weigh this against other considerations relative to your long-term financial strategy. Points to consider are:
  • By purchasing a life insurance policy, you will consume a portion of assets that might otherwise grow in your investment portfolio. Although life insurance has the potential to offer leverage in the early years, leaving the premium dollars in your portfolio might provide more to your beneficiaries over time. This is particularly true if you live beyond your life expectancy. You should not dedicate excessive amounts of assets to life insurance. Instead, consider life insurance as only one aspect of your overall financial picture.
  • The effectiveness of this technique depends on the underlying pricing assumptions in the life insurance policy. Should the life insurance fail to meet the pricing assumptions, or should you live significantly beyond your life expectancy, the anticipated death benefit may not provide your beneficiaries with the anticipated leverage.
  • Your ability to purchase life insurance is conditioned by financial and medical underwriting. Based on your overall medical and financial profile, the total amount of life insurance protection you might be able to purchase could be limited or cost prohibitive.
  • The ability of the life insurance carrier to pay its obligations will also affect your planning. You should be certain that you are working with a sound carrier and monitor the carrier’s overall financial ratings on a periodic basis.


You have choices.

Life insurance is one of those choices. When used properly, it can not only protect your family from the unexpected loss of a breadwinner, it can help ensure your beneficiaries a predetermined death benefit. In turn, you will have other choices for the balance of your portfolio.


Thinking Retirement? Enhance Your Benefits with Pension Maximization


Retirement is a time for you to reap the benefits of a lifetime of planning and saving. But what if your preparations aren’t enough? What if the pension you primarily counted on to maintain your lifestyle for you and your spouse isn’t as much as you thought it would be? Consider this: At or prior to retirement, you may be required by your employer to make an irrevocable choice of either a “maximum pension benefit with no survivor benefits,” or a “reduced pension benefit with survivor benefits.”



The first option maximizes the retirement income from your pension or profit-sharing plan while you’re alive, but benefits cease upon your death. Should you elect this option at retirement and die shortly thereafter, your spouse may be left with no source of continuing income.
The second option provides a smaller retirement benefit while you are both living, but ensures that your spouse receives an income in case you die first. But in many instances, if your spouse dies before you, you will continue to receive the lower pension benefit for the rest of your life, even though your spouse never received any income.
Neither choice sounds very appealing, does it? Fortunately, there may be an additional choice called Pension Maximization.

Important Note….

At retirement, the spouse must sign a waiver to make it clear that a single life pension is acceptable.


Pension Maximization: What You Need to Know

The Pension Maximization technique combines purchasing a life insurance policy with electing the “maximum pension benefit with no survivor benefit” option for your pension. With this technique, you may be able to:
  • Maximize your pension benefits during your lifetime.
  • Help provide for your spouse’s financial independence through the life insurance coverage.
  • Use existing savings to help supplement your retirement income with a tax-deferred product.
This concept can work if the insurance is purchased at the time of retirement (ideally, the premiums are lower than the pension gained by taking a “single life” option), but you should note, it may not work if there are any health problems at that time. Therefore, it is generally better to ensure that the proper insurance is in place to help provide a secure retirement income for your spouse.


How Pension Maximization Works

This graph illustrates how pension maximization works while both you and your spouse are living, or when only one of you is living.


Pension Maximization in Action

Carl Robinson, age 52, married to Catherine, age 50, has been working for Company XYZ for the past 25 years and is planning to retire at age 65. Recently, Carl received an estimate from his representative in Human Resources who told him that at age 65, he would receive $2,500/month from his pension plan, provided he doesn’t elect a survivorship benefit. Carl is concerned that if he dies first, Catherine will not see any of his remaining pension benefit. Without survivor benefits, Carl’s early death would mean that most of his pension will be wasted.
If Carl elects the survivorship benefit, his payments will be reduced to $2,100/month, but Catherine will receive a predictable income of $1,050/month (based on a 50% survivorship benefit) after his death. The problem with choosing a survivorship benefit is that if Catherine lives for a short period of time and dies before Carl, Carl will face a lifetime of reduced pension income, even though Catherine and he never received any financial benefit from electing this option. If they both live full lives and die within a year or so of each other, little benefit is ever realized after years of a reduced pension.
Alternatively, Carl can choose to take the maximum pension benefit ($2,500) with no survivor benefit and purchase a life insurance policy prior to his retirement. It is recommended that Carl select an amount that would provide Catherine with a similar income benefit to what it would have been if he had chosen the survivorship benefit ($1,050/month).
The life insurance premiums can be paid while Carl works, or paid using discretionary income. As previously mentioned, it is better for Carl to purchase the life insurance policy sooner than later to reduce the cost of insurance and to take advantage of his current good health. If Carl continues to work and accrue benefits, he needs to consider whether the life insurance policy will be large enough to provide a real choice upon actual retirement at a later date.


In this scenario, the advantages are:

  • Carl and Catherine receive larger pension benefits while Carl is alive.
  • If Catherine dies first, Carl can surrender the policy for cash surrender or leave a death benefit to his children.
  • If Carl dies prior to retirement, Catherine gets the face amount of the insurance policy.
  • Catherine controls how the death benefit is invested if Carl dies first.
  • A portion of the death benefit proceeds (payable in monthly installments) will be income-tax-free if the death benefit is used to buy an annuity. Typically, pension income is fully taxable.
  • Loan capability may be available on the life insurance policy, but, if outstanding, will reduce the net death benefit payable.
  • Flexibility to change the beneficiary under the life insurance policy that you may not have under the pension benefit.


Points to Consider about Pension Maximization:

  • If your pension annuity payments have a cost-of-living adjustment, you will need to factor the cost to purchase a much larger amount of insurance in order to provide your spouse with a comparable retirement income.
  • By not electing the reduced pension survivorship benefit, in some cases your spouse may lose all rights to any retiree medical coverage if your employer sponsors the coverage. Sometimes this coverage is linked to receiving pension benefits, which would terminate when Carl died if he selects the maximum pension benefit.
  • The person on whom the insurance would be issued must be able to qualify for the purchase of life insurance before any further analysis is done.
  • You may want the spouse who signs the waiver to own the life insurance in order to ensure the insurance policy remains in effect.
  • Failure to keep the life insurance in force up to the insured’s death will result in no death benefit proceeds for the spouse.


Is Pension Maximization Right for You?

It depends on a number of factors, such as your financial situation, health, objectives, and the options and benefits you have under your employer’s retirement plan. Your financial, legal and tax advisors can assist you with your decisions and in developing the strategy that is most appropriate for you.


Estate Planning and The Federal Estate Tax


One of the largest expenses associated with settling an estate may be the federal estate tax. There are some very important planning opportunities you can utilize that may reduce the amount of estate tax due as well as provide a mechanism for the payment of taxes.
The Tax Cuts and Jobs Act provided a top marginal rate of 40% and doubled the estate and gift tax exemption amount to $11,180,000 per individual, indexed for inflation.
If you have an estate that exceeds the current exemption amount, you should take a careful look at how the federal estate tax, combined with state level estate taxes or inheritance taxes and other estate expenses such as costs of probate, can substantially reduce the amount of assets passing to your heirs.


Minimizing the impact of estate taxes

There are several ways you can minimize some of these taxes. One way is to make annual exclusion (nontaxable) gifts which will slowly reduce the amount of your estate which may be subject to tax when you die. You may gift this amount to an unlimited number of individuals each year. Your spouse may gift an equivalent amount, thereby doubling the amount of tax-free gifts that can be made to another person in any one year.
Another way to minimize the amount of estate tax due is by using a combination of trusts called a family (or credit shelter) trust and a marital trust, commonly referred to as an A-B trust arrangement. Under this structure, when the first spouse dies, a portion of his/her estate equal to the estate tax exemption amount would be placed in the family trust. It can be structured so the surviving spouse receives the income or principal from the family trust for his/her life if the need arises. The balance of the estate is placed in the marital trust, which qualifies for the unlimited marital deduction so no federal estate tax is due. The martial trust is required to distribute all income to the surviving spouse each year. When the survivor dies, the assets in the marital trust will be included in the spouse’s estate, but all the assets in the family trust pass to the heirs, completely sheltered from further estate tax.
A third way to maximize the amount of assets passing to heirs at death is through the use of an irrevocable life insurance trust. You can set up a trust and gift dollars to the trustee, who purchases a life insurance policy on your life inside the trust. Each year you can make a gift of the premium into the trust (gift-tax free, up to the annual exclusion amount) and the trustee pays the premium. When you die, the death proceeds are paid to the trust and the trustee manages those dollars for the benefit of your heirs. If structured properly, the proceeds of the life insurance policy will not be includible in your estate for federal estate tax purposes at your death.
Additional methods of minimizing estate taxes include making charitable gifts, utilizing private annuities, and entering into installment sales with family members with respect to particular assets in your estate.


Here’s how it works at a high level:

  1. Determine what property is included in the gross estate.
  2. Determine the fair market value for each item of includible property.
  3. Deduct administrative expenses, debts and unpaid taxes, funeral expenses, state death taxes actually paid, and certain losses during estate administration to arrive at the adjusted gross estate.
  4. Subtract the value of any property qualifying for the marital deduction (in the case of a married person’s estate) and any bequests to charity to arrive at the taxable estate.
  5. Add to the taxable estate any gifts that didn’t qualify for the gift tax annual exclusion the decedent made after 1976 to arrive at the total estate tax base.
  6. Compute the tentative estate tax by applying the estate tax rate schedule to the estate tax base.
  7. Subtract from the tentative estate tax the estate tax applicable credit amount (equal to the estate tax exemption on the date of death), foreign death tax credit, gift taxes paid on post-1976 taxable gifts, and any other credits available to arrive at the estate tax due and payable.




There is a perception today that estate planning means planning only for the distribution of property at your death. In reality, the purpose of estate planning should be for you to enhance your estate during your accumulation years, to maintain your financial security during your retirement years, and to provide for the most efficient transfer of property at your ultimate death. With proper planning, these goals can usually be met while at the same time avoiding the conflict and delays inherent in the estate distribution process, and reducing expenses.


If you don’t have a financial advisor, or looking for a second opinion, search our database today.

1 year ago Retirement

5 Financial Goals an Advisor Can Help you Achieve


Financial advisors can offer more than retirement planning advice. They can consult on a number of goals that affect overall financial health.
A good financial advisor is like a doctor: one helps take care of physical health; the other helps protect financial health. And just as you consult a doctor for a range of health questions, you can work with a financial advisor for more than just retirement planning.
Here are five areas where a financial advisor can help people stay on top of their financial needs.


1. Optimizing Saving Strategies to Help Achieve Your Desired Lifestyle

Having enough savings is a key element of financial health, and a financial advisor can provide crucial guidance on optimizing a saving strategy — from offering ideas for reducing expenses to calculating how much to save.
Develop and refine key parts of a savings strategy by asking questions such as:
  • How much money do I need to achieve my desired lifestyle before and after retirement? A financial advisor can help clarify financial goals, develop estimates for how much it will cost to achieve them, and create monthly savings targets to help keep you on track.
  • How can I save while managing competing financial priorities? Financial advisors can help prioritize different financial goals, from saving for retirement and children’s education to setting aside money for vacations or home improvement. They can help identify the most effective mix of savings tools to reach those goals.


2. Crafting an Appropriate Investment Strategy

A financial professional can help people make more informed decisions. In fact, pre-retirees with a financial advisor are twice as likely to feel confident about their retirement planning than those without an advisor.
Ask questions like these to help make investment decisions:
  • Do I have the right mix of investments for my age and income? Many people change their investment mix as they age, moving from an emphasis on growth in early years to the need for income and savings protection near retirement. A financial advisor can help find the best mix of stocks, bonds, cash, and other tools to provide the right mix of growth and income for an individual’s age, income, and other factors.
  • How can I reduce the risks in my financial plan? People face multiple risks to their savings, from the threat that market declines will decrease the value of investments to the chance that they’ll outlive their savings. Some people are more concerned about certain risks than others—and an advisor can help identify the most pressing concerns and develop an appropriate investment strategy to manage them. For example, a financial advisor might suggest additional savings protection strategies for someone most concerned about running out of money in retirement.


3. Minimizing Taxes

Taxes may be a fact of life, but there are tax-smart strategies that can reduce their impact.
Work toward minimizing your tax burden by asking questions such as:
  • What are the tax implications of making changes in my investments? Financial advisors can explain the tax ramifications of buying and selling different investments, helping people keep more of what they’ve earned. Short-term investment gains, for example, are taxed at a higher rate than long-term ones, so timing is important.
  • How can I minimize taxes in retirement? An advisor might suggest a diverse mix of retirement accounts with different tax structures. For example, some people balance withdrawals from 401(k)s and traditional IRAs — which are subject to income tax — with income from a Roth IRA, which is tax-free.


4. Planning for Medical Expenses

Healthcare costs are one of the top retirement concerns for most Americans, but financial advisors can help prepare for these expenses. Asking these questions can ensure healthcare considerations are included in a financial plan:
  • How do I make sure I’m well taken care of in the event that I can’t make medical decisions for myself? Financial advisors can assist with planning for a debilitating illness by helping find a lawyer to draft a medical power of attorney that designates who will make medical decisions in case it is needed. Advisors can also initiate a conversation that makes this person aware of those plans.
  • How can I make sure I have enough money for future medical expenses? There are types of insurance that specifically address future medical expenses, such as long-term care insurance riders and chronic illness coverage. An advisor can help assess the suitability of these options, and review existing coverage to determine whether it provides inflation protection or other options that enhance financial security.


5. Tackling Estate Planning

Thinking about what will happen to your money after you’re gone may be difficult, but can help ensure loved ones are taken care of financially. Financial advisors can explain the importance of this process and partner with other professionals to develop an estate plan.
Important questions to ask:
  • How can I ensure my money and other assets go where I want them to after I’m gone? A financial advisor can help find an estate planning attorney to develop a legal structure that reflects your wishes, while also identifying insurance or other financial tools that provide for surviving spouses and children.
  • How do I implement my estate planning attorney’s recommendations? Financial professionals play an important role in implementing estate plans, from making sure specific assets are properly titled and transferred to trusts to reminding people to update beneficiary forms on retirement accounts, insurance plans, and other documents.
  • Asking these questions can help you take control of important financial decisions and maximize the benefits of a relationship with a financial advisor.

Last posted at Brighthouse Financial


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Life Insurance Can Play an Important Role In Your Retirement Plan


Most people understand the importance of purchasing life insurance to protect their loved ones.
With term life insurance, they can purchase this protection for a specific period of time, and money is paid to the beneficiaries if the insured person dies during that period. In contrast, permanent life insurance lasts as long as the policy owner continues paying premiums — and will pay the death benefit whenever the insured person dies, not just during a specified term.
Permanent life insurance also goes beyond basic protection by adding the potential to build cash value through interest credits, market returns, or dividends. That cash value can be used in the future for kids’ education, emergencies, retirement needs, or any other purpose, typically without triggering income tax on the withdrawals .
It’s important to note that the primary purpose of permanent life insurance is protecting loved ones with a death benefit. It is not a savings or investment vehicle, but if needed, it can provide flexibility and access to a policy’s cash value, making it a valuable addition to a retirement plan.


A Closer Look at Permanent Life Insurance

Premiums for permanent life policies can be higher than for term life, because the coverage is provided for life and there is potential to build cash value that can be used in the future. Permanent life insurance policies offer several other benefits as well, including:
  • No annual limit on premium payments, allowing policyholders to potentially build a larger pool of assets for future needs.
  • No penalty for withdrawals taken before age 59½, providing flexibility for meeting cash needs at any age.
  • No required minimum distributions (RMDs) at age 70½, allowing assets to continue growing for longer periods and providing a potential pool of money for later in retirement.
  • The potential to transfer wealth to beneficiaries tax free through a death benefit.


3 Uses for Future Retirement Needs

A diversified retirement plan typically includes a range of savings and investment vehicles, such as 401(k)s, IRAs, and assets such as stocks and bonds held in brokerage accounts. Adding permanent life insurance can complement this mix by providing a death benefit to help cover expenses if anything happens to the insured person, along with access to cash value with tax benefits.
Here are three potential uses for permanent life insurance in a retirement plan:

1. Providing a source of funds to help cover large expenses

Permanent policies typically grow their cash value relatively slowly during the first years of a policy, as most premiums are being used to fund the death benefit. That means a permanent life policy isn’t likely to be a large source of funds early in retirement. After the first 10 years or so, policyholders can tap the cash value of permanent life insurance if needed through:
  • Withdrawals. Policyholders can withdraw from the cash value for any reason, but withdrawals may be especially helpful in managing large expenses during retirement, such as medical costs or home repairs. The money taken out is generally tax-free as long as long as the policy does not qualify as a modified endowment contract and policyholders only withdraw up to the amount they’ve paid in premiums. If the withdrawals exceed the amount paid in premiums and include some gains, the portion of the withdrawal made up of those gains will be taxed at the policyholder’s ordinary income tax rate. However, withdrawals will permanently reduce the policy’s cash value and future death benefit. Depending on the policy, there may be fees for making withdrawals.
  • Loans. Policyholders can take loans from their cash value. While often not taxable, loans typically have a set interest rate and will permanently reduce the policy’s cash value and death benefit if not paid back.
It’s important to remember that the key difference between permanent life insurance and other portfolio assets is the tax-free death benefit it provides. Withdrawing too much of a policy’s cash value during retirement can reduce the amount of money available for beneficiaries as a death benefit, potentially eliminating the primary purpose of permanent life insurance policies. Policyholders should examine any near-term uses for their plan’s cash value against the potential impact on their future death benefit, seeking a balance between meeting current needs and maintaining protection for loved ones. A financial professional can help strike this balance.

2. Opportunity for tax-deferred cash value accumulation

The cash value in a permanent life policy can grow tax-deferred, meaning the policyholder won’t owe taxes on gains until they begin withdrawing money. This feature means these policies can serve as a complement to other tax-deferred savings options such as IRAs and workplace retirement plans. A permanent life policy may be especially attractive to people who max out their contributions in workplace plans and traditional IRAs and are not eligible to contribute to Roth IRAs.

3. Helping to cover healthcare costs with optional riders

Some insurance companies offer optional features (called riders) that can be added to life insurance policies to help protect against healthcare costs that aren’t covered by Medicare or other insurance in retirement. These riders either give policyholders early access to their death benefit (which permanently reduces the value of that benefit) or cover the care outright.
For example, a chronic illness rider can help pay for expenses that arise from being permanently incapacitated by a chronic illness, such as Alzheimer’s. With a chronic illness rider, a portion of the policy’s death benefit is accelerated, and funds can be disbursed in advance to pay for any need, including non-medical expenses.
For people who are eligible, selecting one of these riders may help prevent other retirement savings from being consumed by healthcare costs. A financial professional can help determine if it makes sense to add a rider to a life insurance policy at the time of purchase.


Evaluating Options

While protection is the core purpose of all life insurance, permanent life insurance can offer distinct tax advantages, growth potential, and access to cash that may help strengthen an overall retirement plan. A financial professional can help determine the right type of life insurance policy to consider adding to your retirement plan.


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