Ken Himmler.com

As you get closer to retirement age, there are a few details that you need to think about for your post-retirement life.  No doubt there will be various unavoidable expenses in your life that you will need address financially.  You are also likely to have a lifestyle that you would like to continue, and hobbies that you are looking forward to taking up after retirement.  These are the things that you have been saving up for all along.  Now you need to be considering whether or not you are going to have enough money to fulfill your dreams.

The most important thing you need to consider as you get ready to retire is how much post-retirement income you are going to have, and how much you need.  There is no reason you should panic at this point, because if you have been keeping up with your retirement savings and investments you should be right on schedule.  Most people need between 70-80% of their current income to lead a comfortable, healthy retirement that suits their lifestyle.  Your individual needs may demand more or less money depending on a variety of factors in your life.

Because there are several facts that need to be considered, it is often much easier to use a retirement planning calculator to help discern your individual needs and whether or not you will have enough money to retire on time.  One such popular calculator can help, and can helpl provide a rough estimate of your monetary needs post-retirement.

Of course, it should be acknowledged that calculators are always subject to error and cannot account for every situation.  It is always advisable that you address any concerns you have about your retirement situation to your financial advisor or retirement planner.  These highly trained individuals can take into account factors beyond the scope of even the best retirement planning calculator.
 

In today’s volatile market environment, more and more investors are seeking refuge in stability. When most people think about investment bonds they conjure up words such as safe, steady, reliable.

In reality, it is still possible to lose money in bond investing which is why investors are urged to diversify their bond investments. By building a portfolio of investment bonds with varying interest rates, maturity dates, and associated risks such as creditworthiness, you can better protect the overall return on your investment.

Many people are aware of the obvious risks in bond investing, such as the issuer going bankrupt or defaulting on scheduled interest payments, but what about the less obvious risks that can still impact bond investment return?

While it’s true that the interest payments you will receive from owning an investment bond will be steady, the actual return that you receive when you sell your bond can vary. Let’s explore how the risk of interest rate fluctuation can influence the profit or a loss you take on your bond investments.

You may think that a higher interest rate would equate to a higher return, but the opposite is true in bond investing. When interest rates rise, it is highly probable that the issuer will offer new bonds with a higher paying interest rate. If this happens, then the value of older, lower-yielding bonds will take a hit. Given the choice, investors will opt for the higher interest return and this will impact your ability to sell.

It’s important to note that this fluctuation only applies to investors who opt to sell or trade bonds before their maturity date. If you hold an investment bond to maturity then you will be paid the full face value of the bond. That said, planning to hold a bond to maturity still doesn’t guarantee a return. In fact, interest rate fluctuations, especially a fall, can still impact your bond investments.

For example, if interest rates fall significantly, as they certainly have over the past year, bond issuers may opt to exercise their right to call in their bonds even before maturity. In our next post, we’ll explore why this happens and how exposed you are to the risk of having a bond called in early by an issuer.
 

Each time one taxpayer transfers wealth to another, the transfer is potentially subject to federal transfer tax, in the form of gift or estate tax. The federal transfer tax system is designed to impose a tax on each and every generation (e.g., father to son, son to grandson, etc.).

The transfer tax system accounts for the fact that a transfer might “skip” a generation by passing from parent to grandchild, for example. This is accomplished by imposing an additional tax whenever transfers of wealth are made to persons who are more than one generation below the taxpayer (e.g., father to grandson). This additional tax is called the generation-skipping transfer tax (GSTT). GSTT is imposed at the highest estate tax rate in effect at the time of the transfer (45% in 2008).

Additionally, most of the individual states impose their own transfer taxes. Together, these taxes can take an enormous bite whenever wealth is being handed down, and eventually eat away a family’s fortune. This can be troublesome to individuals with substantial wealth who would prefer to have their legacies benefit their own family members. It’s from these circumstances that the dynasty trust evolved.

A dynasty trust is created to provide for future generations while minimizing overall transfer tax. With a dynasty trust, a taxpayer transfers assets to the trust. This transfer, from the taxpayer (the grantor) to the trust, is potentially subject to transfer tax (although the taxpayer may use his or her exemption amounts to shield the transfer from tax). The trust then provides for future generations for as long as it exists. Although the trust assets effectively move from generation to generation, there are no corresponding transfer tax consequences.

For more information on dynasty trusts and other trusts such as family foundation, you can go to http://kenhimmler.com.

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What is it?

For the most part, annuities will impose various administrative charges and fees. At first, the expense may seem minimal. However, over time, the cumulative effect of the charges and fees can be substantial. These expenses typically arise when dealing with variable annuities. However, fixed annuity contracts may also assess fees in the form of surrender charges.

For more information on fees on variable and fixed annuities such as a guaranteed annuity or equity indexed annuity, you can go to http://kenhimmler.com

Fixed annuities

Fixed annuities usually do not impose express charges and fees (except for surrender charges). Because there are fewer fees involved with fixed annuities, it may seem that it is the cheaper alternative to the variable annuity. However, this may not always be the case, because a fixed annuity will usually contain implicit charges that are reflected in the interest rates in the underlying contract. These implicit charges arise when the insurance company sets the interest rate that it promises to pay at a lower rate than the rate it expects to earn on its investments (sometimes, the difference is called the spread). This spread allows the insurance company to make sure that it will recover its administrative costs.

Variable annuities

Annual maintenance charge

The annual maintenance charges for variable annuities may typically range from $0 to $100. These charges are usually deducted from the various investment accounts in which the annuity holder has placed his or her funds.

Example(s): Mr. Smith purchases a variable annuity from ABC Insurance Company. Mr. Smith has placed 20 percent of his funds in a money market fund and 80 percent of his funds in a growth fund. ABC has an annual maintenance charge of $50. Mr. Smith’s money market fund will be charged 20 percent or $10. Mr. Smith’s growth fund will be charged 80 percent, or $40.

Tip: Some contracts will waive this charge when the annuity’s value exceeds a certain amount (e.g., $25,000).

Investment management fees

Investment management fees pay for an investment management group that advises the insurance company on which investments to buy and sell. Investment management fees for variable annuities may range from .25 percent to .75 percent. While a variable annuity account can be charged a flat percentage rate, some variable annuity contracts will call for each type of fund to incur a different percentage cost.

Example(s): Mr. Smith purchases a variable annuity from ABC Insurance Company. Mr. Smith’s funds are within a money market fund and a growth fund. ABC charges an investment management fee of .35 percent for the money market fund and .60 percent for the growth fund.

Mortality and expense risk charge (M & E charge)

The mortality and expense risk charge (M & E charge) is imposed by insurance companies to protect against risk associated with the annuity contract (e.g., an annuitized contract paying out income longer than mortality tables projected the life expectancy of the annuitant). Generally, the M & E charge ranges between 1 percent and 1.5 percent of the value of the variable annuity account. The M & E charge is deducted proportionately from the variable accounts, similar to the annual maintenance charge (discussed previously).

Transfer fee

Some variable annuities will charge a fee for the transfer of funds between investment accounts. These charges can range anywhere between $0 and $15 per transfer. Some annuity contracts will allow a certain number of transfers per year without charge, assessing a charge for any transfers over the permitted number.

Surrender charge

Most annuity contracts will assess a charge for partial and full surrenders from the contract during a certain time period after the annuity is purchased (usually 5 to 10 years). This charge is often referred to as the surrender charge and can have a wide range that decreases over time. Depending on the annuity contract, the surrender charge percentage will be applied either to the full amount surrendered or the portion of the withdrawal that exceeds the earnings of the contract. Some annuity contracts allow some withdrawals without a surrender charge (e.g., 10 percent of the contract value or the contract earnings). The surrender charge is intended to prevent annuity owners from moving funds in and out of the annuity and allows the insurance company to recoup its losses if the contract does not remain in force for a lengthy time period.

Tip: Some annuity contracts will provide that there will be no surrender charge if the annuity holder dies or becomes disabled.

Tip: Keep in mind that if you surrender your annuity when you are under the age of 59�, you may also be subject to the 10 percent penalty tax that applies to premature withdrawals.

Miscellaneous fees

Variable annuities might also levy charges for administrative expenses, such as record maintenance, accounting, and reporting. In addition, a variable annuity may charge extra for certain guarantees to be written into the annuity contract. Finally, several states levy a state premium tax on annuity premiums. The tax is generally a percentage of the gross premium paid and it is generally deducted prior to the computation of sales charges. Some insurance companies choose to add the cost of the tax into the price of the premium, rather than levy a direct tax.

Recently C.D. Ulrich CPA won a hard fought battle with the IRS. For years Ulrich really believed that the IRS was unfair to taxpayers (I really want to laugh right now but I am trying to be professional as I think the IRS has never been fair) when it came to the taxation of the stock they received from the demutualization of the insurance companies.

In the 90s many mutual insurance companies decided that they would go public and they went through the effort to sell their stock to the public. When they demutualized ( a mutual company is a company that is mutually owned by their policy holders) they not only sold stock to the public but the policy owners all got stock for owning policies.

You may have been one of the lucky (or so you thought) few that received notice that you were going to get a stock distribution from owning that policy until you also received a bill for taxes on the entire amount of stock distributed. As an example if you owned a policy with John Hancock and you received $100,000 in stock you would have been taxed on the entire $100,000.

Mr. Ulrich thought this was a rip off (like all the other financial planners out there) but he had the guts and staying power to fight the mighty IRS and he won.  His opinion was that if you are a mutual owner of a company you have paid for your policy which would constitute a cost basis for the stock. You are only getting an exchange for the premiums you paid. This means that if you take the first example of getting the $100,000 you would only pay tax if the $100,000 increased to $105,000. Then you would only pay tax on the increase of the $5,000.

Currently if you have ever received a distribution check from a company that has demutualized then you might be entitled to a refund. We are reviewing this for clients and people that contact us. The best way you can find out if you might be eligible for a refund is to send us an email to taxrefund@kenhimmler.com   Please let us know the company you received stock from, when and the amount. If we feel you might be eligible then we will contact you for more information. Please include your name and your mailing address and phone number in the email you send us.

What is a trust?

A trust is a legal entity that is created when you transfer property to a trustee for the benefit of a third person. The trustee manages the property for the beneficiary in accordance with the terms and the instructions in the trust document. In legal terms, the trustee has legal ownership of the property, while the beneficiary has beneficial ownership.

Creator of trust

The person who creates the trust is called the grantor, settlor, donor, or trustor. The grantor usually decides what assets will be transferred to the trust, who the beneficiaries will be, what the terms and conditions of the trust will be, and who will be the trustee. The grantor may also be a trustee and/or a beneficiary. Moreover, a beneficiary can be a trustee. The only arrangement that will not work is if the sole trustee is also the sole beneficiary (the legal and beneficial interests are said to merge and the trust is therefore disregarded as a legal entity).

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Major considerations

How much will you need in retirement?

When do you plan to retire? What kind of lifestyle do you desire? How much do you have right now that you can count on for your retirement? What about Social Security; do you know what kind of benefits you can expect? These are all factors you will need to consider when you determine how much you need. To understand how they tie together, see Determining Your Retirement Income Needs.

Know how much you have

Take an honest look at your present net worth. If you’re like most people, you’ve got a long way to go before you can afford to retire. Knowing how much you currently have earmarked for retirement will assist you in saving for your retirement. See Net Worth.

Implement a savings plan

Take an honest look at your current spending. Just as in planning for other financial goals, you need to implement a savings plan. Think about establishing a long-term systematic savings plan to put aside funds for retirement. If you haven’t already done so, consider the benefits of establishing and sticking to a spending plan.

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A revocable living trust (also known as an inter vivos trust) is a separate legal entity created to own property, such as a home or investments.

The trust is called a living trust because it’s meant to function while the grantor is alive. The trust can continue after the grantor’s death, but the trust becomes irrevocable the moment the grantor dies.

Revocable living trusts are used to accomplish various purposes:

1. To ensure that property continues to be properly managed in the event the grantor becomes incapacitated
2. To reduce costs and time delays by avoiding probate
3. To lessen potential challenges to or elections against a will
4. To maintain privacy
5. To avoid ancillary administration of out-of-state assets

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