Thames Retirement Planning
The financial professionals at Thames Financial & Insurance Services can help you achieve your retirement goals by creating a personalized retirement income plan with an emphasis on guarantees and safety.
Annuities - IRAs and Qualified Plans - Social Security Planning
Annuities may be the most misunderstood and maligned financial product that retirement planners discuss, but no other product does what an annuity can do. Anyone who wants guaranteed lifetime income must consider annuities...no other product will work.
Prior to the late 1970s annuities were primarily used as a retirement income vehicle and the textbook definition of an annuity was a periodic income for a specified length of time, for life, or a combination of the two.
Things have changed. Today there are many different forms of annuities and many variations of each form. We have immediate income annuities, deferred income annuities, fixed annuities, fixed indexed annuities, and annuities that include long-term care benefits. These are all fixed insurance products that have no market risk. They are not investment products and they are not designed to compete with investment products. Investments have market risk. Fixed annuities don’t.
But there is an annuity that usually does have stock market risk. It’s called a variable annuity and it is sold by registered representatives who are registered and/or licensed to sell variable products. This is the annuity that is often criticized for high fees.
Annuities may be the most misunderstood and maligned financial product that retirement planners discuss, but no other product does what an annuity can do. Anyone who wants guaranteed lifetime income must consider annuities...no other product will work.
Prior to the late 1970s annuities were primarily used as a retirement income vehicle and the textbook definition of an annuity was a periodic income for a specified length of time, for life, or a combination of the two.
Things have changed. Today there are many different forms of annuities and many variations of each form. We have immediate income annuities, deferred income annuities, fixed annuities, fixed indexed annuities, and annuities that include long-term care benefits. These are all fixed insurance products that have no market risk. They are not investment products and they are not designed to compete with investment products. Investments have market risk. Fixed annuities don’t.
But there is an annuity that usually does have stock market risk. It’s called a variable annuity and it is sold by registered representatives who are registered and/or licensed to sell variable products. This is the annuity that is often criticized for high fees.
Most fixed annuities do not have fees but there is usually a fee for the optional income and death benefit riders that may be attached. Almost all fixed and variable annuities have surrender charges that apply if the contract is surrendered early or if withdrawals exceed the penalty-free withdrawal amount. Most fixed and fixed indexed annuities allow annual penalty free withdrawals of up to 10% of either the accumulated account value, or the premium. Surrender charges usually apply only for a specified number of years after the annuity is issued. After that there are no surrender charges and the owner usually has unlimited access to the funds.
Immediate income annuities and deferred income annuities are designed to provide guaranteed income for a specific period of time or for life. Some allow partial withdrawals but most of them are not liquid. Income annuities can be a valuable addition to your retirement portfolio but they are not for money that you may need for emergencies. These products are generally very straightforward and easy to understand. When you purchase an income annuity you exchange a lump sum of money for a stream of guaranteed income that will begin immediately or at some designated time in the future.
Why do people own fixed and fixed indexed annuities?
Immediate income annuities and deferred income annuities are designed to provide guaranteed income for a specific period of time or for life. Some allow partial withdrawals but most of them are not liquid. Income annuities can be a valuable addition to your retirement portfolio but they are not for money that you may need for emergencies. These products are generally very straightforward and easy to understand. When you purchase an income annuity you exchange a lump sum of money for a stream of guaranteed income that will begin immediately or at some designated time in the future.
Why do people own fixed and fixed indexed annuities?
- To keep their money safe
- For guaranteed lifetime income options
- For other payout options
- To earn interest on a tax-deferred basis
- To name beneficiaries and avoid probate
- To earn a competitive fixed interest rate (compared to bank and other safe money products)
- To obtain long-term care benefits (hybrid annuities)
- For the death benefit (usually at least a full return of premium minus any withdrawals)
- For the chance to earn more interest with a rate that is linked to an index (indexed annuities) For additional information please read the National Association of Insurance Commissioners Buyer's Guide for Deferred Annuities CLICK HERE
IRAs and Qualified Plans
Individual Retirement Accounts (IRAs) and the employer-sponsored 401(k), along with the Tax-Sheltered 403(b) Annuity, are the most common tax-deferred retirement plans that we encounter. But there are others, including the Keogh; the SEP IRA; and the 457 plan which is a tax-deferred compensation plan limited to certain government and non-profit organization employees.
And the Roth IRA which is meant to provide (tax-free) benefits is an important retirement and wealth accumulation tool that also has estate planning benefits that none of the tax-deferred retirement plans provide.
The 401(k) plan is the largest asset that many employees own. But most people do not leave their money in the 401(k) when they retire or change employers. Much of the 401(k) money will be rolled over into an IRA, and at some point it will be used for income. Even if the owner does not need income from the IRA, he or she will be forced to take Required Minimum Distributions (RMDs).
And the Roth IRA which is meant to provide (tax-free) benefits is an important retirement and wealth accumulation tool that also has estate planning benefits that none of the tax-deferred retirement plans provide.
The 401(k) plan is the largest asset that many employees own. But most people do not leave their money in the 401(k) when they retire or change employers. Much of the 401(k) money will be rolled over into an IRA, and at some point it will be used for income. Even if the owner does not need income from the IRA, he or she will be forced to take Required Minimum Distributions (RMDs).
The RMD rules also apply to other Qualified Plans. There are tax penalties for failure to take the correct RMD so it is important to know the rules. We have worked with IRAs and Qualified Plans for more than 40 years and can help you navigate through all of the complex rules. And we can help you manage and coordinate your retirement accounts with your other assets in order to minimize taxes and get maximum value for yourself and your family.
Social Security Planning
For most of us the primary Social Security benefit is retirement income. And regardless of what we think about the Social Security system, it is a significant source of income for most retirees. But it’s not all about retirement income for the qualified individual. There are important spousal benefits and survivor benefits that should also be considered.
The most important Social Security decision for most people is when to begin drawing their retirement income. And if they are married, it is equally important that their spouse begin drawing his or her benefit at the right time. The proper coordination of spousal benefits can produce substantial gains in retirement and survivor benefits. There is one very simple strategy that is often overlooked and it could easily be worth several thousand dollars to a family.
The most important Social Security decision for most people is when to begin drawing their retirement income. And if they are married, it is equally important that their spouse begin drawing his or her benefit at the right time. The proper coordination of spousal benefits can produce substantial gains in retirement and survivor benefits. There is one very simple strategy that is often overlooked and it could easily be worth several thousand dollars to a family.
The decision to take reduced Social Security benefits at age 62 is not always a mistake; just as delaying Social Security benefits to age 70 is not always the best thing to do. It depends on your needs, your resources, your health, and several other factors. And if you are married, the same considerations apply to your spouse. It takes some fairly sophisticated analysis to determine what you should do and we employ a number of tools that will help you make the right choices.
According to one survey, 77% of the respondents expected to receive advice from Social Security representatives. But the fact is that Social Security employees are prohibited from giving advice. They are trained to answer factual questions about the benefit rules but they are not allowed to tell you when or how you should draw your benefits.
The decisions you make about Social Security may be the most important retirement planning decisions you will ever make. Our complimentary Social Security analysis will give you the information you need to maximize the value of your Social Security benefits.
According to one survey, 77% of the respondents expected to receive advice from Social Security representatives. But the fact is that Social Security employees are prohibited from giving advice. They are trained to answer factual questions about the benefit rules but they are not allowed to tell you when or how you should draw your benefits.
The decisions you make about Social Security may be the most important retirement planning decisions you will ever make. Our complimentary Social Security analysis will give you the information you need to maximize the value of your Social Security benefits.