Chickens, Pigs, Bulls and Bears: The Stock Market is a Barnyard

The great novel Animal Farm, written by the legendary author George Orwell, is about animals and how they live together in a hierarchical society. As it turns out, he may have been talking about the stock market.  The market is full of these named animals and each has a different place on the investment pole.

Pigs are greedy, chickens fearful, bears hide and sleep, bulls charge ahead. Over the years, these names have become synonymous with a person’s investment interest or view of how the market is going to move. Really, the names of the animals signify an individual’s approach or philosophical investment strategy.

Here are the animal definitions converted to investment philosophies:

Bull: A Bull Market means the economy is growing and means investor confidence and anticipation of market growth.

Bear: A Bear Market is the opposite, the economy is weakened or expected to weaken.  The stock market is expected to be lower in the future.

Pig: A Pig Market is a high risk big score (or big loss) position. Pigs are impatient, greedy and emotional towards their investments and only think of themselves.  Pigs normally get slaughtered.

Chicken: A Chicken Market is fear.  Chickens have no specific plan and are driven by fear of losing their money. Fear overrides common sense and any plan is quickly changed if a loss occurs.
If you have a plan based on reality you are probably not a pig or a chicken.  It means you have used good, available information and are heading towards your goal.  As we age, the goal can also change, from accumulation to income.

But what about this….what if you can’t afford to lose any of your important money!  How do you evolve from the barnyard descriptions with a philosophy that makes sense to you?  In other words, how does your retirement plans relate to safety, security and stability?

While no one approach makes sense for everyone, using a new financial vehicle called a Fixed Indexed Annuity with an income rider attached really works for many people.  The annuity provides total protection from any downside movement in the stock market while providing a guaranteed yield in the range of 4% to8% when used as income. (income rider)

If it is time to take a new approach to some of your important retirement funds, consider this powerful option, then maybe you will no longer be a barnyard animal, you could be soaring like an eagle.

You can request more information and a free annuity quote by filling out the form on our website.

Or you can research annuities further in our Annuities 101 section.$

www.RayBuckner.retirevillage.com

Your Guide To Choosing A Tax Professional

Choosing a tax professional is vital to proper financial management, and most advice-oriented articles will tell you that your tax professional is the person you should consult for any and all tax-related matters. If you don’t have a tax professional, now is the time to find one, and this guide can help you.

Why Do I Need A Tax Professional?

Taxes are complicated, and full of regulations and ever changing laws. Depending on your situation, your tax return may be simple, or involve a series of very detailed steps. If you don’t know what you’re doing, tackling a complicated tax return by yourself can potentially create problems, i.e. audits. Trusting a local tax preparation service isn’t always a foolproof option either. A trusted tax professional, someone whom you’ve selected and whom you feel comfortable working with, is a valuable asset, and depending on their expertise, the tax professional you choose may be able to save you more money on your returns.

Are There Different Types of Tax Professionals?

Tax professionals can be either Certified Public Accountants (CPA) Enrolled Attorneys (EA) or certified and non-certified tax preparers. The obvious caveat in choosing a licensed or non-licensed tax preparer is that only a CPA or an EA can represent in you in court, should the need arise, and the local tax preparer many not be as knowledgeable as a CPA or EA.

CPA:

When most people say that they are looking for a personal accountant, they are really looking for a CPA. CPA’s are best for those with more complex taxes, like small business owners, and for those who are looking for a long term relationship with a tax professional who can help them discover tax saving strategies. It is important to do careful research in order to find a CPA who is properly qualified to meet your more complicated tax needs. The first step in finding a good CPA is to check with the State Boards of Accountancy to make sure that a potential CPA has been licensed and has not been subjected to any disciplinary actions. All CPA’s are licensed at the state level, but it is important to know that licensing requirements can vary from state to state. CPA’s in the Virgin Islands, for example, are only required to have a high school diploma, while CPA’s in Ohio are required to have completed 150 hours of college course work, and have a concentration in accounting. You should also inquire as to whether a CPA is a member of the American Institute of Certified Public Accountants, a professional organization that offers some disciplinary oversight.

Enrolled Agents:

Enrolled agents are a better choice for many tax filers, since they are less expensive and more dedicated to preparing individual returns. Enrolled agents are also licensed by the IRS, and like Tax Attorneys and CPA’s, are required to meet certain criteria in order to practice. This group is not regulated at the state level, however, so the IRS will not be able to inform you about any ongoing complaints. You can call to see if an ERA has been suspended or disbarred.

Tax Attorney:

If you anticipate problems with the IRS, it makes sense to have a Tax Attorney in your corner. This could happen if you’ve had a complicated sale of a small business over the past year, or if you’ve neglected to file your taxes for a period of several years. Tax attorneys are also occasionally used to file returns that deal with complicated estate and trust issues. If none of these scenarios apply to you, however, you most likely don’t need a tax attorney.

Choosing A Tax Professional: Ask The Right Questions

You may get a good referral from a friend, co worker, or even your personal financial planner, but you should always check the background and qualifications of the person in question, before you meet them face to face. Once you do sit down for that first meeting, the following is a list of questions that you should ask:

• What types of tax services do you offer?
• Are there any areas that you focus on?
• What other services do you offer?
• Who will prepare my return?
• How aggressive or conservative are you regarding the tax law?
• What is your experience with audits?
• How does your fee structure work?
• What qualifies you to be a tax advisor?
• Do you carry liability insurance?
• Can you provide references of clients who have financial situations similar to mine?

 Regardless of the type of tax return that you use, make sure that you read all documents carefully, before you sign on the dotted line. Tax time doesn’t have to be stressful, and it shouldn’t be, as long as you take the time to research your next tax preparer thoroughly.$
www.RayBuckner.RetireVillage.com

Maximize Your Social Security Benefits

Social Security (SS) is one of the largest retirement assets and makes on average 64.8% of total household incomes and is often the largest and most mismanaged asset in your retirement income plan. 74% of Americans voluntarily receive reduced income.

When you retire your income stops and you start living off the money you’ve saved. You need to maximize your Social Security benefits to put as little pressure on your retirement assets.  Every dollar you increase your Social Security income means less money you’ll have to withdraw from your nest egg to maintain your lifestyle.

When you elect to start your SS benefits it could be the difference between tens of thousands if not a hundred thousand dollars or more in lifetime benefits, impacting your retirement lifestyle.

1. What’s the best option and time to elect Social Security benefits? 

Nearly 50% of all Americans file for benefits at age 62. Some need income because of poor health and don’t think they’ll live long enough to benefit them or their family. For married couples, a simple break even analysis is usually the wrong answer. I believe people collecting at age 62 simply don’t understand their options and make decisions based on rumors or emotion.  It’s tough to generalize SS strategies.  Each spouse’s age, benefit amounts and health outlook play a big role in how and when to claim.  The point is, don’t claim before you look at the multiple benefits and strategies. These strategies are available for married, single, widowed, government employees and people that have already started benefits but are not 70 years old yet.  Don’t be fooled into thinking SS is a “Slam Dunk!”  Through, 2728 separate rules and guidelines outlined in a 170 + page manual by the Social Security administration, 9 strategies which include switch options, 81 yearly or 972 monthly age combinations, and 567 sets of calculations.  You need to maximize your lifetime benefits by using strategies available to both you and your spouse.

Who will provide you with reliable advice for making these decisions?

Most people look to their financial advisors for SS claiming advice, but most financial advisors don’t understand SS’s complex rules or guidelines. People tell me all the time that their financial advisors tell them to call the Social Security Administration or start your benefits as soon as possible and invest the income.  Which could have significant risk.

2. Why not ask Social Security for advice?

SS representatives are actually prohibited from giving election advice, are not licensed to ask you about your retirement accounts, other assets, or evaluate the impact of your decision on the rest of your financial plan. Plus SS representatives in general are trained to focus on monthly benefit amounts for the individual not lifetime income for the family. Taking SS benefits at the right time will be one of the biggest financial decisions you’ll ever make, so you need to get it right.  Getting it right on your own is almost impossible.

3. Why is it important to use someone trained in SS timing?

Taking your SS benefits at the right time will have a lifetime impact and could make a huge difference to a retiree’s standard of living.  It will have an effect on your retirement and savings accounts.  That’s why it’s imperative to coordinate the preservation and distribution of these accounts to delay your SS income and avoid paying excessive and unnecessary taxes. SS is taxed at a lower rate than your retirement accounts or any other income.

4. How will earnings effect my benefits?

When taking benefits prior to your Full Retirement Age (FRA) could cost you 50% of your benefits.  At ages 62-65 $1 of your SS benefits is deducted for every $2 of earnings over $15,120. In the year of your FRA, $1 of your SS benefit is deducted for every $3 of earnings over $40,080 (only applies to months before FRA). Once you reach FRA, you will receive your full benefit payment regardless of how much you earn but Federal taxes will apply.

As an example: 

Social Security Taxation (Filling Jointly)
 
Threshold Income                                       Taxable Portion of Benefits

Less than $32,000                                                      0%
$32,000 to $44,000                                                  50%
More than $44,000                                                     85%

Managing the impact of taxes.  As much as 85% of your benefits may be subject to income taxation. Nearly every source of income is included: wages, pensions, dividends, capital gains, business income; tax-exempt interest. It’s important to time your SS benefits along with the withdrawals from your retirement accounts to reduce or eliminate unnecessary or excessive taxes. Forbes had an article in reference to SS “Secrets.” “When it comes to possibly paying federal income taxes on your Social Security benefits, withdrawals from Roth IRAs aren’t counted, but withdrawals from 401(k), 403(b), regular IRAs, and other tax-deferred accounts are. So there may be a significant advantage in a) withdrawing from your tax-deferred accounts after you retire, but before you start collecting Social Security,  b) using up your tax-deferred accounts before you withdraw from your from your Roth accounts, and  c) converting your tax-deferred accounts to Roth IRA holdings after or even before you retire, but before you start collecting Social security.

5. How can you maximize your lifetime Social Security benefit?

This is not the government’s money it’s your money that you’ve paid into the system for years. This is not Welfare or Food Stamps. You need to know the rules to maximize your SS benefits for yourself and your family.  Get what you are owed!

6. Why should I delay my Social Security benefits?

From age 62 to 66 your benefits will increase by an average of 6.25% per year and from age 66 to 70 it goes into supercharge mode at 8% per year plus Cost of Living Adjustment (COLA). Most people are unaware that married couples have strategies like restricting or filing and suspending their application available to them, leaving money on the table. These strategies have the potential to increase their lifetime benefits by tens of thousands if not a hundred thousand dollars or more.

7. What else is there to consider?

People learn to focus on tax efficient ways to acquire assets, my responsibility is to find the most tax efficient way to distribute your assets.  Your SS may be taxed, if you have a pension, depending on what state you live in could be taxed (like Michigan), and when you turn 70 1/2 you have Required Minimum Distribution (RMD) your retirement account is taxed.

The IRS has a plan for you, what’s your exit strategy?  One simple approach is to provide more money for your retirement and less for the IRS. This requires a complete in depth look at your overall financial situation and determining what assets should be planned for retirement, education and other life expenses.$
www.RayBuckner.retirevillage.com

Indexed Annuities: What Are They? Should You Invest In One?

Indexed Annuities are also known as Fixed Indexed Annuities (FIAs) and occasionally as Equity Linked Annuities (EIAs). It is easy to become confused with the term “indexed” but the explanation is really quite simple. It means that your actual annual yield (interest earned) is tied to an independent third party source, such as the Standard and Poor’s 500 Stock Index (S&P 500). Your funds are NOT invested in the stock market; they are on deposit with the insurance company who issued the annuity.

What exactly is indexing? Indexing is simply an investment strategy that follows the performance of select securities, the S&P 500. It is a collection of 500 American stocks which help measure the overall performance or benchmark of the US economy.

Think of it this way, you are outsourcing the yield for your annuity, trust a third party instead of taking what an insurance company decides to credit you.  It is really a hands off approach that uses an outside source to determining yields, a disinterested third party.

FIAs are not for everyone and I will let you in on a little secret; your actual yields will not mimic the actual results of the S&P 500. Your actual yields will be a percentage of the actual return. Is that fair?  Yes it is because for that reduced return you will never be exposed to loss or any risk of loss.  Your funds are fully guaranteed.

In the past you were offered only two choices about investing. Put your money in the stock market and be exposed to gains and losses. Or, deposit your funds in safe places such as banks and treasuries and earn a lower rate of return. You had your choice: safety or higher returns.

With the invention of the Fixed Indexed Annuity you were offered a wider choice, higher chances of yields but no chance of loss. Now you can have the best of both worlds: safety and yields.

If the S&P 500 has a down year and is worth less than it was a year ago (your anniversary) you do not participate in any downside movement, your account remains exactly as it was the previous time period, fully guaranteed from loss of principle.

Other benefits of Fixed Indexed Annuities:

Tax Deferral

The Power of Tax Deferral is the ability to defer any tax liability until a future date. Annuity values accumulate on a tax deferred basis until either withdrawn or inherited by a named beneficiary.  Your money can grow faster because the interest you earn is not taxed until a later date. “Annuity compounding” means you will continue to earn interest on you money and on the taxes which are tax deferred

Guaranteed Lifetime Income

Along with the protection from exposure to risk, FIAs can provide you with a guaranteed income stream, an income stream that can be for any time period desired, even lifetime.  Most plans allow for the inclusion of a spouse so income can continue for both lives. Income riders are now available on FIAs, these riders allow for better control over how an income is received and management of the actual money in the annuity. Numerous options exist to meet almost an income need of the annuity owner.

Stability

Annuities are safe, secure and stable.  Money in an annuity is managed by the general investment fund of the insurance company. The funds are invested in bonds, US Treasuries and often some stocks.  The company is absorbing any risk of asset performance by assuming all contractual promises to the annuity owner. This guarantee provides stability for your important funds, funds that need to be there for your retirement needs or your personal goals.

Guarantees

Annuities have layers of protection in place for the owner of an annuity.  The first is the insurance company itself.  An insurance company invests in conservative assets primarily bonds.  The bond portfolio can be corporate bonds, US Treasury bonds and municipal bonds. The second layer of protection is regulation. Insurance companies are some of the most regulated institution in the financial world.  They are audited by individual state departments of insurance who access the financial condition of the insurance company. Insurance companies are rated by independent rating companies such as A.M. Best Company, Standard and Poor’s and Fitch Ratings. The ratings services look deep into the assets and liabilities of the insurance company and assign a financial strength to them.  Generally any insurance company with at least a “B” rating has more than ample strength to meet any and all contractual obligations.

We have examined benefits and advantages of annuities, now let’s look at the disadvantages.  Remember annuities are not for everyone.

 Disadvantages of annuities

If you access your money in an annuity prior to age Pre-59 1/2 the IRS will add a pre-distribution tax penalty of 10 percent.  Annuities are designed to be used later in life, after age 59 1/2

Surrender penalties: Almost all annuity contracts have a penalty for early withdrawal much like a bank certificate of deposit. Annuities are longer term commitment (generally a minimum of 5 years) so if an insurance company holding your funds is an issue, then an annuity may not be for you.

Investments held for a time period may qualify for a capital gains tax liability which is generally less than an ordinary income tax liability.  Annuities are tax deferred vehicles and do not qualify for capital gains treatment.

Annuities are not included in step-up in basis at death.  Current tax laws allow for non-qualified assets such as stocks, bonds, and real estate stock to have a tax basis change at death to whatever the current value of the asset.

Is an annuity right for you?  It all depends on how an annuity will be used in your specific situation. Make certain you fully understand the details of your annuity as well as the benefits you can enjoy.$

www.RayBuckner.RetireVillage.com

Should I Invest In An Annuity?

Should you invest in a house? An IRA? Stocks and bonds? How should you invest your important money?

The answer is actually quite simple if you can answer just one question.

“What is the purpose of your money and what do you want it to accomplish?”

Most people can’t answer that question immediately.  The reason is simple; it is a very hard question to answer.  The funds could be for a new car, a vacation home, retirement, education.  The answer is dependent on the goals of the person asking the question.

Should you invest in an annuity?

I believe that the basis of all long term investing that concern funds for retirement should be in something safe and secure and free of risk.  I also believe that a portion of your long term retirement funds should have some degree of risk.  With risk comes the possibility of gain, gain can help offset inflation and add to the retirement pot.

My father didn’t invest in the stock market; he kept his money in the bank.  Did he make a mistake being so conservative? Did it cost him money in the long term by not investing more aggressively?  No, he didn’t lose money by investing in banks; he lost the “opportunity” to make more money.  That was his downside, he lost an opportunity, but he didn’t lose his money, it was still safe and secure.

Consider a plan that includes an annuity as your choice for your safe and secure funds for one simple reason.  Insurance companies who provide  annuities do not care how long you live, they will accept the responsibility of providing you income, income you cannot ever outlive, regardless of how long you live.

Once you base is in place, then add investments which can have some risk but also some larger rewards.  Then as you age and get closer to retirement time, slowly convert your risk investments to the safe and secure side, the annuity side.  A simple and easy approach to managing your own retirement plan.

Should you invest in an annuity?  Yes, as the foundation of your retirement plan.$
www.RayBuckner.RetireVillage.com

Use A Safe for Your Important Money

I have a friend named John. You might also have a similar friend.  He may be a co-worker, business partner, golfing buddy, your in-law, or your neighbor. My friend John has a special item in his life, John has a safe.  This isn’t any ordinary safe; it is a special safe that John keeps his important money in.

John’s safe protects his money so it is never at risk and no one can withdraw John’s money from his safe, except him.  He is the only one with the combination to his safe. John’s safe has a special feature, it increases John’s money by paying guaranteed interest each month.

In addition to the protection of the safe, John’s funds in his safe are available to him when he needs them. He can withdraw funds from his safe, he can convert the funds in the safe to income, he can let the funds in the safe grow. John has numerous options and is in control of his safe.

What is John’s safe? His personal safe is a simple, easy to understand guaranteed fixed interest annuity. A fixed interest annuity earns Interest each month that can never be lost. John can withdraw the funds and use them in any manner he chooses.  If John selects the guaranteed income option, John can make sure the money in his Safe pays him an income for as long as he lives and that can include John’s wife! Lifetime income neither can ever outlive.

A fixed interest annuity is protected 24 hours a day. Risk is never an option. There is one other feature about John’s safe (guaranteed annuity) should John pass away;  the safe automatically changes ownership to John’s designated beneficiary.  That change happens almost immediately and without the need for probate and the expenses associated with it.

So like my friend John, you can have your retirement dollars protected in your own safe and it is always there for you risk free, earning interest and awaiting further instructions.$

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Don’t Gamble. Leverage like Buffett

Warren Buffett and other smart investors make money by borrowing to invest in low-risk, low-return securities, sort of like a “specialized margin” account.  Other folks, who don’t have enough borrowing power to play the leverage game (interest rates on margin accounts can be high for the little guy), can only generate profits by investing in riskier assets.

The irony about risk taking is that most of us are in the second group, small investors. But it can also include professional investors such as many mutual fund managers.  If they don’t take some risk, they lose the opportunity to make money. Often time the reason the market will move with a stock  is because the demand for a better return triggers the increase in it’s valuation. This of course drives up the prices of those assets, thus reducing their returns.

That all sounds well and good, but what is the answer?  How can you leverage your funds and take advantage just like the big players?

One way is to look at your money from a different point of view, not as money but as “what is the money for?”  Have you ever considered why investors like Buffett try and make so much money? Does it mean they can eat better, sleep better, take more vacations?

Their goals are different than the goals of most of us. We want and use our money for life’s demands; education, food, housing and retirement.  Their money is for two things: keeping score and their legacy. They mostly do it for status.

So how do we “game” the system?  Like I said, by looking at the reason for using money from a different view.  Why not look at your retirement money not from how much you can accumulate but by how much income it can provide?

Think of your money for its intended use and for most of us that would be retirement income and money to enjoy the security later in life.  There is a way to beat the system, it is easy, simple and the big boys won’t know about it.  Why won’t they?  Because they don’t care, they only care about their reasons for their money.

How would you like to “earn” 5-7% on your retirement account? You can, it is available and it is guaranteed.  How can that be?  Simple, if you use your funds as an income instead of a pile of money, many insurance companies will pay that rate on the funds which will be used as retirement funds. It is called an Income Rider and it is available as an add on with annuities. The amount earned in your account stays in the income accumulation side, the amount you actually can receive as retirement is based on other factors such as age.  Many contracts are different so do your research carefully.

How can they do that?  Insurance companies know how many people will use these funds for this use. They plan for it and they reinsure their liability in the event things change and they pay out more than planned. They insure their obligation to you just like you can insure your retirement income for you and your spouse.

How do they reinsure the retirement obligations promised to you; yes you guessed it, the Warren Buffett’s of the world insure the companies promises.

Want to know more about how these products work, here is an easy to understand video:
https://www.youtube.com/watch?v=ChHaRxguEkM