Legacy Planning: Protecting Loved Ones

Legacy Planning: Protecting Loved Ones

When a person dies, his or her assets are typically distributed to surviving family members. In general, these assets can lose substantial value, depending on the type of assets held by the decedent and the myriad laws and regulations in place governing the distribution of assets. To preserve wealth for future generations, the concept of legacy planning is critical.

What is Legacy Planning?

Investopedia defines legacy planning as “a financial strategy that prepares a person to bequeath his or her assets to a loved one or next of kin after death.” In simple terms, this means distributing one’s estate – the financial assets and physical property – to those he or she specifies according to wishes. This plan can eliminate any family disputes, such as determining who receives which assets. It can also streamline the legal processes that occur after one passes away. Most people are familiar with the concept of a will, a legal document that clearly spells out those wishes. This legal instrument is used during probate, or the process by which a will is reviewed to determine whether it is valid. During probate, a period of time after which a person dies is set aside so that creditors have the opportunity to collect any unsettled debts.

Probate court fees can reduce the value of assets intended to be handed down to surviving family members. To avoid this, some people choose to establish a trust. This is a legal entity that in effect “owns” the person’s assets, and is managed by trustees and attorneys. Assets are placed into the trust, and when the trust’s creator dies, those assets are distributed according to his or her final wishes. The trust can protect against losses incurred by court fees, and may also shield certain assets from taxation.

Tax Implications in Legacy Planning

Estate taxes have the potential to substantially reduce estate asset value once a person dies. In fact, many people are surprised to learn that estate taxes have a negative impact on assets, and may be unaware of the true value of those assets. Naturally, minimizing those taxes or eliminating them altogether makes sound financial sense.

In legacy planning, a planner will meet with the person and his or her loved ones to discuss possible taxes. Taxable assets typically include such retirement accounts as IRAs, life insurance policies, and fixed or variable annuities. Estate taxes may also be levied on cash gifts, transfer of certain properties, and real estate transactions between loved ones. Values of assets are also determined to give surviving family members a clear picture of what to expect in terms of taxation.

Legacy Planning by Balanced Financial

In addition to its many client-focused retirement planning services, Balanced Financial offers comprehensive legacy planning. The process begins by Balanced Financial’s team evaluating current assets and their values. By taking the time to meet directly with each client and to learn about his or her specific wishes, a plan begins to take shape.

Legacy planning services include many aspects that can be used to safeguard wealth and to ensure transfer to loved ones without legal challenges. These aspects include:

  • Creation of wills
  • Establishment of trusts (living, revocable, and irrevocable)
  • Creation of powers of attorney and advanced medical directives
  • Sourcing and obtaining life insurance policies
  • Obtaining long-term care insurance if desired
  • Evaluation of tax exposures and implications for surviving family members

Balanced Financial, a nationally-known financial services firm in Fort Collins, Colorado, specializes in this aspect of planning. With their help, thousands of clients have been able to pass down assets to loved ones, preserving their value and minimizing tax implications in the process.

Balanced Financial is uniquely suited to help clients with legacy planning services. The team has decades of experience and knows that most people wish to support their families financially long after they’re gone. With legacy planning, one’s family can obtain the assets needed and protect their value to thrive well into the future.

Continue reading

Advertisements
Income Planning: Preparing for One’s Financial Future

Income Planning: Preparing for One’s Financial Future

In the complex process of retirement planning, there is one commonly-overlooked area. This area is the concept of retirement income, or keeping streams of income flowing after one retires from work.

Retirement accounts have many benefits, but there are also significant limitations inherent in these plans. While it is important to set aside funds for use in one’s retirement years, managing distributions from retirement accounts is critical.

There are many strategies involved in this concept, and the income planning professionals at Balanced Financial, Inc. can help. Based in Fort Collins, Colorado and founded by noted financial expert Greg W. Anderson, Balanced Financial has helped thousands of clients navigate the complex waters of retirement income planning.

What Is Income Planning?

Most people understand that retirement savings is the key to stability once the paychecks stop coming in. While Americans typically fall far behind on retirement savings – setting aside only a fraction of the money needed for future expenses – familiarity with the concept is quite common. Retirement savings strategies may take many forms, including:

  • Employer-sponsored pensions
  • Government benefits like Social Security
  • Individual Retirement Accounts (IRAs), including Traditional and Roth forms
  • 401(k) and 403(b) plans
  • Traditional stock and bond investments
  • Annuities
  • Life insurance policies
  • Real estate investments

It is important to note, though, that although there are many potential ways a person can set aside money for retirement, what happens to those funds when retirement age is reached is even more critical. It is here that the concept of income planning takes center stage. What is income planning? In simple terms, it is the process of establishing a roadmap of account and benefit distributions to ensure a steady flow of income in retirement. This can include methods of turning assets into income to fund future expenses.

Assets Into Income

You’ve saved and saved throughout your career, amassing a substantial sum of money for retirement purposes. What now? How do you turn those accumulated assets into a steady source of income that you can tap throughout your retirement years? Income planning professionals can help lay the groundwork for a systematic strategy to convert retirement assets into income without the high taxes and penalties that can harm the assets’ overall values.

Certain retirement accounts impose what are known as Required Minimum Distributions, or RMDs. These are the minimum amounts an account holder must withdraw when he or she reaches a certain age. Retirees aged 70 ½ years or older must withdraw minimum distributions from:

  • Traditional IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • Simplified Employee Pension (SEP) IRAs

If these minimums are not withdrawn according to regulations, such as taking out too little or mistiming the withdrawals, significant financial penalties may occur. For those with multiple retirement accounts, managing multiple distributions across accounts can be challenging at best or a recipe for financial disaster at worst. Income planning helps to avoid the penalties.

Taking RMDs is only part of the picture, however. A wise retiree may only withdraw the earnings from certain accounts, leaving the capital in place to continue accruing interest. This is a smart solution, yet many retirees run into difficulties with taxes. Taking too much out of any given retirement account, or taking distributions from multiple accounts at the same time can result in higher taxes; because these withdrawals are seen as ordinary income, one runs the risk of falling into a higher tax bracket. By carefully planning income amounts and distributions, one can avoid the excessive tax burdens imposed.

Income Planning Services by Balanced Financial

The financial experts at Balanced Financial know that retirement brings with it many challenges. For many, it is a time of excitement – allowing one to fulfill his or her dreams of world travel, relaxation, or spending time with family. For others, the financial headaches and uncertainty can lead to stress. Planning for retirement is difficult enough; add in the potential for taxes and penalties for withdrawing too much from retirement accounts and one can understand why professional help should be sought.

With the income planning services provided by Balanced Financial, clients can gain an understanding of what it takes to lead a stable and successful financial future. Income planning creates an easy-to-follow map, allowing for a steady stream of retirement income without the worry of higher taxes and financial penalties. By carefully evaluating each client’s unique financial goals and his or her needs, the income planners are able to offer best-in-class guidance and service. Take charge of your retirement goals by ensuring that you will have sufficient income for your expenses well into retirement. The income planning service that Balanced Financial offers is designed to give you peace of mind, knowing that you and your family will have a comfortable financial future.

Can Annuities Help Fund Retirement?

Individuals planning for their retirement have many options to choose from. These options help to secure a stable financial future, providing the funds necessary for expenses once retirement age is reached. From Individual Retirement Accounts (IRAs) to employer-sponsored pension or 401(k) plans, stock and bond investments, or real estate purchases, one can take charge of his or her retirement savings and prepare for an uncertain future. Another potential option is that of the annuity – a specialized type of account that provides guaranteed income after retirement. In this guide, we’ll explore the types of annuities and their particulars, helping you to determine if this option is right for your retirement needs.

What is an Annuity?

The term “annuity” is often discovered when one is starting the retirement planning process. Some confusion surrounds this option, especially in terms of what an annuity is and how it can benefit the diversified retirement savings portfolio. In very simple terms, an annuity is a type of insurance policy issued by an insurance company. In exchange for premium payments, the policy pays out a guaranteed minimum income to the account holder. Because the issuing insurance company shoulders much of the risk, it represents a valuable strategy for securing a stable financial future after retirement.

How Does an Annuity Work?

When establishing an annuity policy, the individual first selects the annuity product, then invests into it via premium payments – much like a traditional insurance policy. Premium payments may be monthly, annually, or in a lump sum. After a specified period of time, depending on the specific language of the annuity policy, the insurance company begins to pay out an income. The income payment may also be paid out on a monthly, quarterly, or annual basis, and can even be received as a lump sum in some cases. There are two major types of annuity: deferred and immediate.

A deferred annuity is that which is invested in over a period of time – typically until the account holder reaches retirement. Once retirement is taken, the account holder begins to receive income payments. Money (the premium payments) grows in value until retirement.

An immediate annuity functions differently; in this type, the account holder makes an initial premium payment, and the income payments begin almost immediately. This type is very popular with those nearing retirement age, and can help cover retirement savings shortfalls.

Variable Vs. Fixed Annuities

In the world of annuities, there are two common ways that insurance companies use to help funds invested in the accounts grow over time:

Fixed annuities provide a set or “fixed” income payment amount, regardless of the performance of investment markets the premium payments are invested in. This choice is perfect for those who are concerned about investment risks; the insurance company guarantees a minimum and maximum income payment, and the initial investment cannot be lost.

A variable annuity does not have a set income payment amount; the amount fluctuates with the performance of investments made by the insurer. This option is better for those with a higher tolerance for risk, and can outperform other annuity types in terms of growth if the market is favorable. If the market should experience a downturn, however, the account holder may not receive much or any income.

An Indexed annuity is the new kid on the block; they are only about 20 years old.  They are an interesting hybrid of the two ideas above where they offer 100% guarantee of principal and no chance of a negative return or investment loss – while at the same time giving you the opportunity to participate in a rising stock market.   The latest news on these is the Un-Capped crediting options that literally have no upside limit on your accounts ability to benefit from a Bull equities market. We have recently had clients get credits of 37.4%, 24.6% and 30.4% on a 24 month cycle.

Choosing between these types and categories of annuity can be challenging. To best prepare for one’s financial future, it is always a good practice to seek the help of a qualified retirement planning professional. Retirement planners can help you select the right type of annuity for your current and future financial needs, giving you the information needed to make smart investment choices.

Annuities: Pros and Cons

As with any investment strategy, there are advantages and disadvantages to the annuity as a retirement income method. A retirement planning professional can help you understand these pros and cons, but in general, annuities are viable retirement option for many people.

Pros of annuities include:

  • Diversification – investing in different retirement accounts is the key to long-term financial stability, and annuities help to diversify the retirement portfolio.
  • Reaching retirement goals – many retirement accounts like IRAs, government benefits, and 401(k) plans may be limited in the amount able to be invested and their payouts after retirement. Annuities, on the other hand, offer a guaranteed income, and can serve to supplement or even replace income sources from other retirement savings plans.
  • Ensuring lifetime income – once retirement is reached, retirement accounts such as IRAs and 401(k) plans may become exhausted as the retiree pulls funds out of the accounts. Eventually, the retiree is left with little or nothing for expenses, especially if that person were to live long after retirement is reached. Annuities pay continuous and guaranteed income for the lifetime of the policy holder, and will continue to do so regardless of how long that is.

Drawbacks to annuities are few, but bear consideration. These cons include:

  • Potential for fees and penalties – some annuities require annual maintenance fees of as much as 3-4%. Surrender charges or penalties for early withdrawal from certain annuity accounts may also impact the value of the account.
  • Money tied up – deferred annuities pay income at a specified point after retirement is reached – sometimes years into the future. What happens, then, if you retire and need money now? This option may hamper one’s ability to have liquid assets for unforeseen expenses. To avoid potential problems, individuals should consider portfolio diversification to ensure that money is available whenever it is needed.

Speak to a retirement planner today to see if annuities are right for your current and future retirement goals. Annuities represent guaranteed income and significant advantages for a long and prosperous retirement.