Safe Money Newsletter

Responsibility

The economic crisis of the past few years has punctuated the importance of financial literacy, i.e., knowing what options are available, the risks and rewards of each, and how to adjust financial positioning in response to life changes like retirement. Many retirees entrusting their money to the market witnessed significant losses while others utilizing the safety of bank CDs suffered massive income reductions as interest rates plummeted to new lows. These folks now know, sadly too late, that financial literacy and the need to take control of key aspects of retirement planning cannot be left to chance. Nonetheless, many facing retirement continue to believe education in financial planning is unimportant and allowing a qualified professional to help them is unneeded. You are encouraged to take responsibility for your financial literacy because retirement success hangs in the balance. The major financial issues faced by retirees are reviewed below.

The Bad, the Ugly, and the Worse

The greatest fear of most retirees is not having an income for the remainder of their life. This means as you near retirement you need a plan to convert assets into income. No doubt you’ll have some Social Security but chances are it will not be enough; consequently, the challenge will be converting 401(k), IRA and investments into a guaranteed lifetime income you cannot outlive. If your income planning includes blue chip stocks that pay dividends bear in mind that companies have and will change dividends in response to economic times. Additionally, blue chip stocks sometimes lose their luster; thus, this strategy involves market risks. You might opt for fixed-income places like bonds but all bonds, even U.S. Treasury, have interest rate risks and many, including municipal and corporate bonds, also have default risks. Many retirees are advised to use a structured withdrawal plan whereby they will use a given percent of their retirement money each year by converting assets to income. The risk here is that market losses mean disproportionately more assets must be converted to maintain the needed retirement income and this leads to running out of assets to convert. An emerging strategy is to shift the risk of living too long to an insurance company by using some of your retirement money to “lock in” a guaranteed lifetime income that’s received regardless of what happens to markets, interest rates or the economy. Such a lifetime income is possible with an annuity that has a feature called a Guaranteed Lifetime Withdrawal Benefit.

No doubt inflation and taxes will have a bearing on the quality of your retirement. There is little you can do about the former except possibly keep some of your late-in-retirement money in places that historically has kept pace with inflation. The danger is that risk is associated with places like real estate, stocks, mutual funds, etc. Accordingly, you could again end up with no income late in retirement, so be extremely careful when using the traditional assets that keep up with inflation. Taxes can be managed by diversifying your tax exposure, something that most people do not do. For example, if you can defer taxes on money you will not need until later you can smooth out the tax bite and even lower the taxes you will pay on Social Security benefits. Also, you can carefully convert qualified retirement money to Roth IRAs and lower your lifetime tax bill. If you want to defer taxes or convert to a Roth you’ll either need financial literacy or a good advisor – do not attempt without either.

Answers Are Well Within Reach

Retirement is the time to minimize your risk of loss because you have no way to replace lost money. The immutable law of investing is that risk and reward travel together; thus, if the rate of return is above market so is the risk: there are no exceptions. The amount of risk you can afford is intertwined with your personal situation; therefore, what is appropriate for your neighbor may not be suitable for you. There is no easy path to financial literacy; however, you should commit to learn as much as you can, never put your money into something you do not understand and always make sure you evaluate the risk. The best way to do these is learn as much as you can on your own and then talk to me, a financial advisor, to provide the expertise you do not possess.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

Risk Factors

The stock market fluctuates wildly some days – 300 or more points, representing a change of 3% or more, is common. For a retiree with $500,000 of her retirement money in “the market”, losses could easily be $20,000 in one day, even if her portfolio is diversified. Wall Street’s recommended withdrawal strategy is 4% annually; thus, our hypothetical retiree could be running on empty for the next 300 or more days after one bad day in the market. What might the future bring? Another meltdown or a sustained rally! History will tell but there is one certainty: money in the market is at risk.

The current market outlook is far from clear. America is suffering a continuing economic malaise with unemployment alarmingly high. Deficit spending is out of control and Congress is hopelessly deadlocked over what to do. There will likely be no long-term solution without responsible fiscal policy that addresses Social Security, Medicare and defense major tax increases. The Democrats refuse to talk about cutting government spending and the Republicans are dead set against higher taxes. Federal elections are a year away and so are economic solutions given the current Congressional stalemate.

More of the Same?

The new book Boomerang by Michael Lewis analyzes the deplorable financial condition of several European countries and California – concluding that all are on the brink of financial Armageddon. Global economic stagnation and the fiscal imbalance of many U.S. states & municipalities augurs poorly for an economic recovery near-term. Meanwhile homes continue to lose value in many communities, unemployment is stuck on high, the business sector is hunkered down, local & state governments are nearing panic, the banking industry is sick, and Congress is adding to the economic damage.

Given the foregoing it’s hard to be optimistic about an improving market. Yet, many retirees are hoping and praying their investments will get back to breakeven so they can sell and put market risks behind them. Of course, there is no assurance the market will recover past losses nor is there a guarantee against another meltdown. Nonetheless, Wall Street continues to broadcast its favorite myth: “don’t worry about short-term market changes you’ll be fine in the long run”. Really! While the market has seen record peaks and valleys in the past decade, today’s level is roughly the same as a decade ago. Parenthetically, a decade is about half of the typical retirement. If the U.S. is today where Japan was in 1990, the market is in for a long slide to one-fourth its current level.

What to do…

If you cannot afford the risk of the market, there is never a good time to “get in” nor is there a good time to “get out”. If you’re at risk of losing what you’ve saved to support you and your loved ones in retirement, now is a good time to measure your market risk. My advice: first, find a financial advisor that offers something other than market options and second, make doubly sure you understand the downside of his or her recommendations. You should never take risks with retirement money you cannot afford to lose. Retirement is the longest & most expensive journey you’ll ever take, you can’t borrow money to pay for it and you’ll have one chance to get it right; therefore, proceed cautiously and prepare accurately by working with me.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

The New Normal

The stock market, as measured by the Dow Jones Industrial Averages, is rising and falling by hundreds of points daily, setting growth records one month and reversing directions the next. The “new normal” gyrations make retirement planning next to impossible because the next prolonged downturn could be the very time you need your money. If your greatest fear is running out of money, and it is for most retirees, being in “the market” could be a self-fulfilling prophecy. Is there a better way?

The New Safety Standard

Let me introduce you to a safe money option that could be suitable for some of your retirement money: fixed index-linked annuities or just FIAs. FIAs are available from insurance companies that guarantee them with their financial strength. Insurance companies have never let us down in protecting our homes, cars, health, lives, businesses, and more, nor have they on FIAs. The aging of America, fueled by 78 million baby boomers, has given rise to a new type of risk that insurers are willing to assume: the risk of living too long, i.e., longevity risk. How do FIAs work?

With an FIA your money IS NOT invested in the stock market; thus, there is no market risk or uncertainty. The interest you’ll earn is determined by a market index and if the index rises you’ll get some of the gain but none of the loss if the market falls. The cost of “no downside” is not getting all the “upside”. This gives you the potential to realize above market earnings. FIAs will not make you rich, nor will you lose money as you can by guessing wrong in the market. FIAs are best for your “later in retirement” money. If you’re earning a pittance at your bank, or risking your retirement in the market, you should learn how FIAs can be a great place for some of your retirement money.

No Loss, Guaranteed

FIA earnings are not taxed until actually withdrawn, just like an IRA or 401(k). This permits you to pay income taxes when you want rather than the IRS deciding when you must. Also, you have limited or full access to your money via free withdrawals annually and generally the full amount if confined to a nursing home or diagnosed with a terminal illness. Your FIA passes directly to your named beneficiary without probate hassles if you don’t use it for your retirement or to cover an emergency. But the best part is that you can convert your FIA into a lifetime of guaranteed income that you cannot outlive.

Many FIAs guarantee you 7% or more earnings annually IF you later select the guaranteed lifetime income option. This allows you to know today the exact minimum amount of guaranteed lifetime income you’ll have when you start taking it – no guess work, no market ups and downs and no risk of loss. Is the FIA safe? No one has ever lost money in an FIA UNLESS they withdrew their money early. All your worldly valuables are protected by insurance companies and you’ve not lost sleep worrying; thus, why not plan to find out more about FIAs to determine if your retirement peace of mind will benefit? FIAs can change your “hope so money” into “know so money”. Talk to me today to see if FIAs can add security to your retirement years.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

The Guessing Game

The stock market is dropping in a volatile frenzy, interest rates are near zero, and the economy is anemic. Will there be improvement? The fact is: no one knows what will happen, ever. If you’ve been advised that “selling now would be a huge mistake” or “all will be fine in the long run”, remember that economic forecasting is not a science. Those who forecast are guessing, and basing retirement on guessing is hazardous.

Your retirement plan is only as good as your answers to the following three questions:

• How long will you live?
• How will your investments and savings perform?
• How much money is needed to support the retirement you’ve planned?

Where’s the Crystal Ball?

The problem is, neither you nor anyone else can answer these questions and therein lies the problem with retirement planning. What can you do? Since we cannot know exactly what will happen, planning for minimum risks and certainty is a good second best.

The danger in “how long will you live” is “you might outlive your money”. We call this longevity risk and you can buy insurance to cover it. The solution is simple: purchase an insurance policy that will pay you a guaranteed lifetime income (and also your spouse if you elect) regardless of how long you live. How much will this cost? The cost depends on how much income you want and your current age. The insurance is embedded in an annuity with a guaranteed lifetime income feature – providing an income you cannot outlive plus giving you maximum flexibility for other unknowns. So rather than guessing “how long you’ll live” ask “how much will it cost to guarantee a lifetime income that seems reasonable for my retirement plans”? I can help you with your planning questions.

An Answer for All Seasons

How much will your savings and investments earn or lose in the coming years? Again, no one knows because markets and interest rates cannot be predicted. If you put your money at risk and guess wrong, you could be “locking in” your greatest fear: running out of money before you run out of time. The same annuity that guarantees you a lifetime income also guarantees you positive earnings until your lifetime income starts. Your money is always safe. You can even link annual interest rates to market indexes that provide above-market potential in good markets and zero losses in down markets. Ask me about index-linked annuities with lifetime income guarantees.

How much you’ll need for retirement is a function of many things: plans, health, inflation, taxes, Social Security, retirement income, and much more. It is prudent to address the first two questions first because “how much” will be partially determined by them. If you have money left after setting up an income for life, set up a reserve for emergencies, higher inflation & taxes, and “bucket list” experiences. Don’t make retirement complicated by worrying about risky investments and uncertainty. The “annuity solution” delivers certainty, predictability and peace of mind. The worry free solution is to call me to discuss the suitability of an annuity for some of your retirement money. Otherwise, answer the three unanswerable questions.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

The Setup

“It’s best to leave stocks alone to recover from the loss and to draw instead on the fixed-income (bond) portion of your portfolio.” Katherine Reynolds Lewis, Bankrate, Inc., August 11, 2011

The above “conventional wisdom” is based on two assumptions: (1) stocks will recover and (2) bonds are immune to losses. If your retirement money is in both stocks (including mutual funds) and bonds and you have losses in your stocks, you’re advised to sell bonds in your portfolio to give your stocks time to recover.

Sobering Questions

Can stocks and bonds lose value simultaneously? They most certainly can, as a cursory review of history reveals. Also, how do you know stocks will recover? Currently the Dow Jones Industrial Average (“DJIA”), a closely followed index that measures movements in the stock market, is at the same level as mid-1999. That’s 12 years without gains and that’s before we take inflation into account. If adjustment for inflation were made, the DJIA would be much lower today than it was in 1999. Twelve years is roughly one-half of a typical retirement and too long for most retirees to wait in hopes that stocks will recover.

Unfortunately there is no market strategy that guarantees you’ll not run out of money before retirement ends. Sadly, many retirees cannot afford the risks of the market, yet that is exactly where they have their retirement savings. Obviously they’ve not taken a stroll back through the years since 1999 and reviewed what happened. From January 2000 until October 2002 the market fell 38% in response to the dot.com bust and did not recover to the 2000 level until October 2006 – over six and a half years later. After the market matched the 2000 peak it continued to rise until October 2007. It then went into a tailspin loss of 54% in response to the housing bubble before bottoming out in March 2009. Since then, it has been extremely volatile and is currently far below the previous peak in 2007.

Hopes and Dreams

Where will stocks go from here? We are currently enduring an extremely volatile market along with an uncertain economic future. It seems prudent to believe that lower stocks are possible. How about bonds? Bonds fall in value when interest rates rise. It is anyone’s guess which way rates are headed but they can’t go much lower. Loose fiscal policy during and after the Great Recession does not augur well for falling rates, should the economy recover. Therefore, hope for the best, but prepare for the worst.

If your retirement money is in the market – stocks, mutual funds, variable annuities and/or bonds – ask yourself this question: can I afford losses? If the answer is NO then you may want to reconsider where your retirement money is kept. Ask your financial advisor to tell you about safe money options that provide a lifetime income regardless of what happens to markets and rates. This is where some of your retirement money may need to be.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

Two Sides to the Coin

In recent months the financial press has been filled with recommendations to use immediate annuities to lock up a lifetime income. Even the Government Accounting Office (“GAO”) recommends supplementing Social Security with a lifetime income annuity. In today’s low interest rate environment, immediate annuities that lock in historically low rates might not be a smart move because logic says stay in “short maturities” when rates are low. How can a lifetime income be locked-up now, yet not locked into today’s low rates? Here are two alternatives that deserve your consideration.

Climbing the Rungs

First is the “laddered approach” to investing. Since you’ll likely use your money piecemeal over the full length of your retirement, some investments can mature near-term to meet next up needs whereas other money can be earmarked for late-in-retirement use. Accordingly, it makes sense to select maturities that come due when the expected expenditure will occur. You can ladder maturities rather than locking in today’s near zero interest rates. Let’s consider an example.

Assume you have $250,000 in retirement savings and want to supplement your Social Security and other income over the next twenty-five years. A five-rung income ladder can be built for you by allocating money to each rung, or bucket. We’ll start with an immediate annuity as the GAO has recommended and use term annuities for the other rungs. We’ve assumed a 3% rate for the immediate annuity, a 5% return on the longer money, and a 3% rate of inflation. The first rung of your ladder will use $59,000 to purchase an immediate annuity that pays approximately $12,900 a year for five years. The next rung will use $50,250 to provide at least $14,815 income for years 5 through 10 – slightly higher to compensate for inflation. Rungs 3, 4 and 5 will use $45,283, $40,803, and $36,766, respectively, to provide income of $17,037, $19,593, and $22,532 for the three remaining five-year periods. The unused $17,898 will serve as reserve emergency savings that grows to $29,154 at the end of ten years and $47,489 in twenty years and is always available for use.

Bear in mind that a very conservative 5% earnings rate was used over the entire 25 year period. Judging from history, it seems logical to assume that you’ll do much better, which means the annual income shown above will be higher. Importantly, you have not locked in today’s fixed rates for the entire period as happens if only an immediate annuity is used. Using fixed index-linked annuities as the savings choices gives you safety, flexibility, predictability, and tax advantages. A plan similar to the foregoing can easily be prepared by your financial advisor and just as easily implemented to give you peace of mind. Since future interest rates are unknown, your future income will be close approximations. To take up the potential slack the reserve emergency fund is created. Your plan not only has inflation protection and potential higher future earnings rates, but also prevents you from running out of money.

Take it Easy

The second option that beat an immediate annuity is the “lazy way”: lock in a lifetime income using an index-linked fixed annuity whose gains are permanently retained, even if the market nosedives or interest rates go to zero. Once your guaranteed income is turned on, there are automatic lifetime income guarantees and peace of mind. You will not earn a bundle if the market soars, but you won’t sing the blues if the market tail spins.

Up-front bonuses and rate guarantees allow you to not only earn great rates until the income is started, but to know precisely the minimum amount of your lifetime income. While this isn’t as exciting as trying to outguess the market or as near-sighted as keeping all your money liquid as if it will be needed tomorrow, it is a prudent and safe way to address your greatest fear of outliving your money. Work with your financial advisor to craft the right plan for your circumstances so you can find peace of mind in retirement.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

Things Change, That Much is Certain

Every time money is put aside for later use, two competing emotions must be balanced: the desire to safeguard principal and the urge to make higher returns. These two concerns are always competing objectives: financial home runs are hit only by taking risk. There are numerous stories of savers who put their money in what was represented as safe and high-yielding investments only to learn later that their money was gone: scams, misrepresentations, or misunderstandings. Oftentimes higher risks are rationalized because in the “long run” all will turn out well. What if the trends of past history shift? After all, we’ve never had two market meltdowns in the same decade, current market volatility has never lasted this long and being part of a “global economy” is a new experience. What’s more, there is no historical experience with 75 million baby boomers reaching retirement age in less than two decades. Future economic and financial history could very well be different than the past.

Guarantees and Promises

Today’s average retiree is moving toward giving up the potential upside in favor of protecting the downside. Since 2006 bank CDs and savings accounts have risen 20% and over $60 billion have been placed in index-linked fixed annuities. These popular safe money places have one thing in common: guarantees. On the other hand, a recent survey indicated that barely one-third thought stocks were a good investment currently. In the eyes of retirees whose greatest fear is running out of money, anything with a “guarantee” deserves a closer look. The market only “promises”, the others guarantee.

What’s Really Important

As market indexes approach the previous highs of 2007, nerves are frayed that another melt down is right around the corner; yet, bank rates less than inflation assure the loss of purchasing power. What to do? Stop worrying about risks and rates by turning attention to “how long retirement money will last” because this is what’s important. We generally “insure risks” we can’t afford to take because insurance companies have successfully managed risk for centuries by spreading it over a large number of people. Insurance companies have a very long history of operational stability, financial strength, and delivering on their guarantees. The same “large number principle” has given rise to “longevity insurance” that provides a guaranteed income for life. This guaranteed income can be combined with the other lifetime income: Social Security, so the fear of running out of money is gone as are the worries of future market, rate or price changes. The money not used to lock up a guaranteed lifetime income can be put at risk in hopes of making big gains.

Guaranteed Lifetime Income

The index-linked annuities mentioned above are offered by insurance companies and can be converted into a guaranteed lifetime income at any time. If managing longevity risk in retirement is a priority, I can help you get a guaranteed lifetime income.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

Running the Retirement Race

Retirement is a marathon, not a sprint. The finish line could be over thirty years away and conditions early in the race will have a substantial impact on how you hold up in the final leg. While you may have saved adequately for the retirement race there is still concern about what could happen. Like a marathon where foul weather and leg cramps are uncontrollable, retirement has medical problems, investment losses, inflation, and more. Just like the marathon runner, retirees cannot control all the risks they face but some risks can be anticipated and managed. It’s wise to frequently review your strategies and take a closer look at new development that could have a bearing on retirement.

An Historical Perspective

Think back thirty years, the early 1980’s, about your life and the changes that have occurred since! There has been a bout of double digit inflation (early 80’s), an Internet bubble (late 90’s), a 50% market meltdown (2000-02), a second market decline of over 50% (2007-09) and a housing collapse and Great Recession (2008-09). The federal deficit is now out of control with no painless way to correct, and political gridlock is adding to economic uncertainty. How will these developments, and others yet to appear, affect your retirement? Let’s take a look at several major risks likely to be faced.

Risky Diversification

At the top of the risk ladder is “the market”. Up one day, down the next and no guarantee that all will be well in “the long run”. Japan is suffering from an economic malaise that is approaching twenty years and the USA could very well be at the beginning of a similar period. If you have money in the market you cannot afford to lose, work with your financial advisor to lower your risk. How do you know if you have market risk? If the value of your retirement money is going up and down, you have market risks. Diversifying with many market investments will not eliminate risks: you will still lose money if the market nosedives. Yes, you could also make substantial gains if the market soars, but the opportunity for big gain holds the risk of big loss. Don’t gamble with your retirement money: you have no way to replace it if you bet wrong. Given the current economic and financial uncertainty, do not postpone adjusting your market risks.

Guaranteed Lifetime Income

The greatest fear of, and thus a high risk for, most retirees is outliving their money. Money in retirement must be delicately balanced: use, or lose, too much early and suffer later, or use too little early and wind up with unused money and regrets. Social Security partially offsets this risk for many retired Americans but these lifetime benefits are likely to be too little. Wouldn’t it make sense to use some of your retirement money to guarantee a lifetime income that makes up the shortage in Social Security? You could then stop worrying about running out of money in retirement, using too much early on or having too much later. In response to the massive number of baby boomers turning retirement age, the insurance industry has developed annuities with a guaranteed lifetime income. Anyone can qualify to purchase these annuities regardless of their health. Call me to learn how to supplement your SS benefits with a lifetime income guaranteed by an insurance company – the same folks that insure your home, car, life, health and all other assets you can’t afford to lose. Doing nothing about retirement risks is the biggest risk you can take. Don’t delay your risk review, take action today.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

Strange Bedfellows

Most people would love to avoid paying taxes on money they earn. Also, most people hate the thought of life insurance. Would you believe these two are related? Bankers have been rewarded with FDIC insurance and investments get favorable tax treatment from capital gains and dividends, but life insurance offers “tax free” earnings for policyholders: tax free “living benefits” and tax free “death benefits”. Below are several, but certainly not all, ways to use life insurance in your retirement years.

Decisions, Decisions

Heirs pay no income taxes on money received from a life insurance policy owned by their benefactor. Tax free life insurance benefits means the estate you pass forward can be larger. Would you prefer your estate go to the government or your heirs? No doubt estate taxes will become progressively more onerous in future years and life insurance can soften or eliminate the blow. If you take some of the money earmarked for heirs and use it to buy life insurance, several distinct advantages can result: (1) taxable money in your estate would be replaced with a tax free asset, (2) the tax free asset can be moved to make your taxable estate smaller, (3) the tax free death benefits would pay your estate taxes, and (4) your estate remains intact for your heirs. Permanent life insurance also has “living benefits” because, at your option, money can be withdrawn tax free. Your financial professional can design life coverage for your circumstances.

Aging Gracefully

One of the biggest risks faced in retirement is the need for expensive convalescent care provided at home, in a nursing home, or assisted living center. You can protect yourself with a traditional long-term care policy, but unless care is needed the money was wasted; thus, few retirees choose this “use it or lose it” option. Some traditional life insurance policies pay for convalescent care should such be needed. The total benefits for convalescent care are generally a multiple of the life policy’s death benefit, are tax-free when received, and will last for a stipulated number of years. Also, several of the combination policies will return all premiums paid should you cancel the insurance or need the money for an emergency. Many retirees concerned about ending up in a nursing home are opting for this tax free protection.

Bonanza!

If you’re taking Required Minimum Distributions (“RMD”) from your IRA and don’t need the money, life insurance could be a financial bonanza. Why not use RMD money to buy life insurance that grows tax free, passes tax free, and can be withdrawn tax free should an emergency befall you or your family? Let’s say you’re married, near retirement and your employer’s retirement plan offers (i) a higher income paid only during your lifetime or (ii) a lower income paid as long as you or your spouse live. Which option is best? It might be smart to take the higher single-life income, use part of it to purchase a life insurance policy whose tax free death benefit could provide the surviving spouse a lifetime income that exceeds the option available from the employer’s plan.

Choose Wisely

The above examples are just some of the ways that life insurance can be used to enhance your retirement years. The consensus opinion is that taxes will rise in the coming years in response to huge government deficits. Life insurance with tax free growth, tax free access, and tax free death benefits is worthy of investigation by retirees who have estate, long-term care, RMD, joint lifetime income, and other concerns. To qualify for life insurance you must be “insurable” which means in reasonably good health for your age. If suitable for your circumstances you should purchase “early” because you cannot purchase “one day late”. It costs nothing to find out if you are “insurable” but an uncertain future means you should not postpone the decision if you think life insurance can add value to your retirement or happiness for your heirs. Call me and together we can determine if life insurance is suitable for your circumstances. When you next hear “life insurance”, think “tax free”.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors

Just the Facts

These are retirement facts: your non-working years could be one-third of your life; the need for medical care will rise; the greatest fear is running out of money. Additionally, worries include higher taxes, inflation, losing Social Security, bad investments, medical problems and insufficient savings. Retirement money must be protected as there is no time to replace it. The following are common mistakes that result in running out of money in retirement.

Most retirees have little experience in managing large amounts of money. During their working years money was generally managed for them in 401(k), 403(b) and other employer sponsored retirement plans. Inexperience with money management invariably increases the chance of mistakes. Accordingly, prudence says find and work with a financial retirement advisor; however, many retirees do not, and generally this is a costly mistake.

All or Nothing

Without professional help, many retirees continue to manage their money in retirement like they did while working. Most, if not all, is placed in risky places that go up and down with the economic cycles. This is suitable if you have more money than needed for retirement, but most people are fearful of not having enough. Retirement is about keeping what you’ve saved rather than speculating in hopes of scoring big gains. If you would suffer unaffordable losses if the stock market nosedived again, you’re in urgent need of a meeting with me to review other safe money options. Taking too much risk is the number one cause of running out of money in retirement.

Others take zero risk by keeping all their money super-safe in insured bank deposits as if it will be needed tomorrow. The cost of this strategy could be a severe loss of earnings. It is a financial fact that better earnings are possible with longer term commitments, even in bank deposits. Therefore, it is better to space your retirement money maturities to coincide with when the money will be needed. “Laddering maturities” can be complicated; thus, it is best to work up a plan with me to assure you get best results. Laddering allows you to target the “longer term average” rather than guessing the best time to “go long” or “stay short”. Diversification of maturities is less risky.

Performance of a Lifetime

Another common mistake made in retirement is measuring your money by “how tall it is” rather than “how long it is”. How long your money will last is what’s important. Your greatest unknown in retirement is longevity risk: outliving your money. There are safe and attractive ways to convert your retirement money to a lifetime income you cannot outlive – just like Social Security – and you would be wise to consult with me to see if a guaranteed lifetime income is suitable for you. The lifetime options can be structured to give you a great deal of flexibility in case your circumstances change, you need your retirement money for emergencies or just change your mind. Securing a lifetime income adequate for your needs could take only a fraction of your retirement money; thus, you should investigate this option for the peace of mind it offers.

Many retirees give little thought to their tax bite. They have few deductions because their mortgage has been paid, medical bills are below deductible limits, investment earnings are taxable even if not used and taxes are levied on Social Security benefits. With just a modest amount of planning, earnings from savings/investments can be tax-deferred or tax free which leaves more money for retirement. Additionally, taxes on your Social Security benefits could be less. Paying fewer taxes means more dollars for retirement.

Retirement is the biggest purchase most people ever make, you can’t borrow to pay for it and you’ll have only one chance to get it right. The wisest, safest and most productive way to plan your retirement and manage your money is to find a trusted financial retirement advisor.  I am a member in good standing with the National Association of Insurance and Financial Advisors since 1993.  I look forward to helping retirees and those nearing retirement find the peace of mind in their financial retirement plan that my current clients enjoy every day.

Original article by Shelby J. Smith, Ph.D.

To learn more about Safe Money Retirement Solutions, contact us today for a no obligation consultation or call my office at (520) 322-9773.

Wm. Jed Mayfield, CSA
President, Mayfield Agencies, Inc.
Mayfield Financial & Estate Protection Services, Inc.
Member of NAIFA since 1993
National Association of Insurance and Financial Advisors