Vasilios “ Voss” Speros Tip of the day!

Vasilios “ Voss” Speros Tip of the day!
https://www.google.com/+VasiliosVossSperos 602-531-5141

Strategy for increasing retirement

Social Security is even more valuable in a low (interest rate) environment. It's gotten less attention than it deserves. But it's a large component of any financial plan.

The first reality is that most people live longer than they expect. A 65-year-old couple has an 88 percent chance that one of them will live to age 80; a 73 percent chance one will live to age 85; and a 49 percent chance one will live to age 90. So they will be collecting benefits for a long time.

The second reality is that in spite of rapid benefit growth for delay, most people take benefits early. Few take them late. The average age for starting benefits, is 63.8 years. Women draw benefits ASAP -- 49 percent start at age 62. And only 0.6 percent of men wait until age 70.

To bridge the years between 62 and 70, we suggest using a term annuity with inflation adjustment instead of taking benefits. Using Social Security estimates of inflation, we calculate that taking a typical $1,035-a-month benefit at age 62 will grow 2.5 percent a year to $1,264 by age 70. But if taking the benefit is delayed, it will be twice as much by age 70, a handsome $2,523 a month. That's a gain of $1,259 a month for waiting.

You can cover the eight years of uncollected benefits with a term annuity. This is an insurance contract that provides monthly payments for a specific period of time. In this case, we suggest an eight-year term annuity from age 62 to 70. The annuity would have an initial monthly payment of $1,035 that will rise by 2.5 percent a year, just like the Social Security benefit is estimated to increase. The cost, at recent annuity prices: a one-time payment of $100,181.

Add the monthly payments, and you discover that you'll have your purchase price back in about six years and six months. If the annuity is purchased with non-qualified money (cash that is not in a tax-deferred vehicle), we estimate that 92 percent of every dollar will be tax-free return of principal.

The payoff at 70 is doubled Social Security benefits. At the end of the annuity, you start taking Social Security benefits of $2,523 a month. That's double the $1,264 a month you would have if you started benefits at age 62. The entire amount will be inflation-adjusted as long as you or your spouse lives.

Basically, you have doubled your Social Security benefits at age 70 with a one-time investment of $100,000. A joint and survivor life annuity that is not inflation-adjusted would cost $230,586 to provide the same income. Adding inflation adjustment generally adds about 40 percent to the cost of a life annuity, so the apples-to-apples comparison cost would be about $322,000.

To put that in some perspective, my calculator tells me that the $100,181 premium would have to grow at a compound annual rate of 15.7 percent to reach $322,000 in eight years. Instead, you got your money back in less than seven years and doubled your Social Security benefits as long as you live.

The bottom line here is simple: If you are healthy and in your early 60s, thinking about retiring soon, and wanting to assure future income, the delay-Social Security strategy is the step to take before considering any other options to increase future income.

Vasilios "Voss" Speros 602-531-5141
Spence Cassidy and Associates
#LifeInsurancePhoenix #RetirementStrategiesPhoenix
http://www.scaaz.com/
http://1lifeandretirementstrategies.blogspot.com/
https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b
vsperos@scaaz.com
85018

Vasilios “ Voss” Speros Tip of the day!

Vasilios “ Voss” Speros Tip of the day!

https://www.google.com/+VasiliosVossSperos 602-531-5141

Create more retirement income

Remember the feeling in 2008, when you saw your nest egg plummet by over 40 percent in less than three months, and your heart was plummeting right along with it?

You got on the phone with your financial adviser in a panic but he assured you everything will be OK. “We have time, we will dollar-cost average, stay in the game, in the long-run the markets' average return is … etc, etc."

You have heard the reassurances before. If you are young, and retirement is a distant thought, those reassurances can dispel the fear. However, when retirement is rapidly approaching or you are already retired, you are not living in the long-run, you are living in the today, and fear can be debilitating.

No more guarantees

The guarantees of the past are in the past. Social Security remains mired in uncertainty. Traditional pension plans are becoming obsolete. In the early 1990s, 35 percent of private sector workers had a traditional pension plan, providing them lifetime guaranteed income.

Today, that number sits around 18 percent. Why? Because corporations are tired of being on the hook for providing lifetime income for their retired employees. They are tired of the liability and the expense. So in the early ’80s they began switching to less-costly employee benefit plans, plans that shift the risk and the cost to their employees, namely 401(K) plans. Now employees must make wise investment decisions, and when they retire, be responsible for making sure the money lasts their entire lifetime, neither one guaranteed.

Living longer

A healthy 65-year-old couple today has a 50 percent chance of having one of the spouses reach age 92, and a 25 percent chance of reaching 97. Advancements in medical technology are great news if you want to live a long time, just bad news if you didn’t save enough for retirement.

Stock market volatility

If you retire in a year like 2008, your money will run out 12 years earlier than expected. You cannot afford to lose money as you approach retirement or during retirement; the penalty is too costly. Even more debilitating can be the mere thought of another crash. It can consume you. You find yourself glued to the CNN ticker watching stock prices rather than enjoying the moment.

The solution

As Americans have shifted their focus from accumulation to distribution, so has the financial industry. In response to the growing need for guaranteed retirement income, the insurance companies and brokerage firms are providing a new type of annuity.

The fixed index annuity allows clients to shift a portion of their non-guaranteed assets like CDs, U.S. treasuries, stocks, bonds, money market funds or others into a guaranteed contract at the insurance company. The annuity combines the best features of immediate, variable and fixed annuities. It gives the policy owner a conservative growth rates (typically 5-7 percent), access to a portion of the capital, a death benefit, and at retirement a guaranteed lifetime income stream they can’t outlive.

Shifting the risk from the individual to a pool of policy owners at the insurance company allows you to create more retirement income. Individuals are able to spend the interest and principal in their accounts, with no risk of stock market loss or worry about running out of money. This type of annuity should be used as a personal pension plan.

Before allocating your entire IRA to a fixed index annuity, consider the following:

Strength of insurance company

Annuities are not FDIC insured. The guarantees are backed by the claims paying ability of the issuing insurance company.

Historically, mutual insurance companies have been extremely stable in all market conditions because they are owned by their policy holders not stock market based. They are largely restricted to investments consisting of conservative assets like AAA and AA bonds, must maintain a surplus of funds to ensure claims can be paid, are tightly monitored by rating agencies such as Moody’s, Standard and Poor’s, and A.M Best, while state guaranty funds add an additional layer of protection.

Growth

FIAs are not meant to compete with stock market returns. They are considered a conservative asset allocation. So for funds you want at risk, with the potential for 100 percent of stock market gains, the FIA is not a good choice.

Liquidity

A fixed index annuity is not a place to store your rainy day fund. A policy owner in most cases may access only 10 percent of the funds without a penalty during the surrender period. So make sure you have enough cash on hand in other assets for emergencies.

Fees

Fixed index annuities do not have a 1 percent management fee like mutual funds. However, additional income riders typically will have a fee, so make sure to understand all fees associated with your annuity before signing on the dotted line.

Americans are seeking guaranteed income, with more flexibility and options than older annuities provide. The financial industry has responded by developing the fixed index annuity. In 2013, $38.6 billion was moved from assets at risk into fixed index annuities, up 17 percent from 2012.

The golden years should be spent with peace of mind. After 30-40 years of working, worrying about the kids, career, and saving for the future, we think it is time you take a little break.

Vasilios "Voss" Speros 602-531-5141

Spence Cassidy and Associates

#LifeInsurancePhoenix #RetirementStrategiesPhoenix

http://www.scaaz.com/

http://1lifeandretirementstrategies.blogspot.com/

https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b

vsperos@scaaz.com

85018