12/13/2007

Year End Financial Review

With only two weeks left in 2007, it’s a great time to look at your finances to see where improvements may be made for 2008. In the middle of holiday shopping, you may decide that you just need to make more money next year. Making more money can improve things, but analyzing your financial picture can point to areas that need to be addressed. Let’s look at some key items to cover in your year end review.

Cash Flow: Do you have more month left than money? If so, look at your cash flow to determine if you’re spending more than you’re making. Look at your spending for each month, knowing some months may be better or worse than others. If you’re spending too much, analyze your expenses to see what can be cut. If you have money left over, start a savings program with the extra cash.

Financial Goals: Whether you’re planning for college, retirement, a new car, a second home, or fantasy vacation, these are all financial goals that merit special attention. First, determine the projected cost of each event and the time you have to prepare for it. Next, determine how you will fund the event, i.e., savings, liquidating assets, or borrowing the money. Then prioritize your list based on needs and wants. Needs should be most important while wants should fall lower on the priority list. Make sure to include an emergency fund on your list! This should equal at least three months of regular expenses and be placed in an account designated for this purpose.

Income Taxes:  Compare your anticipated 2007 income to your 2006 tax return. Look for ways you can reduce your tax bill this year. Consult a tax professional about credits, deductions, and loss carry-forwards. Maximize your retirement plan contributions and take advantage of the catch-up provisions if you are age fifty or older.

Unexpected Expenses: Life can throw you challenges at times when there’s no money to pay for them. This is where an insurance review would be helpful. Paying monthly premiums to manage the risk of uncertain life events is much more manageable than paying for them when they hit you.  Consult your insurance professional for coverage programs that fit your needs.

Your financial situation may not change overnight, but reviewing it at year end can help you start next year with a brighter financial future.

12/20/2007

About Annuities

Many people are beginning to show interest in annuities as an alternative investment to CDs. Annuities are popular because they pay higher rates than CDs and earnings are tax deferred. Let’s look at how annuities work to help you determine if they fit your investment profile.

An annuity is a contract between you (annuitant) and an insurance company. You agree to pay a lump sum or a series of payments to the insurance company and it agrees to pay you an income beginning now or at a later date. The money you pay in grows tax-deferred and the earnings on the money you pay in are taxed as ordinary income when you begin receiving monthly payments. Taking monthly payments is called annuitization. You can specify a time period to receive payments, or you can receive them for the rest of your life. You and your spouse can receive payments for life, if you choose this option.

Annuities may be placed in a variety of investment instruments by the insurance company. The insurance company invests your money to accumulate enough to safely pay out the annuitization schedule given to you. While life insurance pays your family cash benefits when you die, annuities pay you a guaranteed income for as long as you live. The monthly amount you receive depends on how much you paid in, the tax-deferred term, the rate it carried, and the estimated number of payments you will receive. Mortality tables are used to determine how long you are expected to live and how long the insurance company will be making payments to you.

Many annuities are sold with no up front fees or annual fees. However, it’s important to know about early termination penalties or other charges that could be levied during the term of your investment. Some annuity contracts allow up to 10% to be withdrawn per year without penalty. Verify this before making early withdrawals.

Annuity advantages include: annuities can provide you with a guaranteed lifetime income with no contribution limitations like you have with IRAs and other plans. Annual no-penalty withdrawals may be made on a restricted basis. Annuities allow retirees to shelter investment earnings that might otherwise lead to taxation of Social Security benefits.

Always consult a trusted financial advisor when purchasing annuities. Your friendly hometown bank can help you make the best choices for your investment profile.

12/27/2007

Variable Annuities

Many investments sound alike, act alike and have similar tax treatment, but you have to dig deeper to get the whole story on what can happen in different circumstances. Let’s look at what variable annuities are and how they work to help you determine if they have a place in your investment portfolio.

Variable annuities are a tax-deferred investment product that includes a small insurance contract to meet the tax-deferred requirement. The insurance contract covers your contributions, but none of your investment gains. Like IRAs, you need to wait until you reach 59 ½ before making withdrawals to avoid a 10% tax penalty. Once you start making withdrawals, they are taxed at your ordinary income tax rate.

Variable annuities don’t rank very high on my list. It’s often hard to understand how they work and even harder to know what you’re getting when you invest in one. They appear to be great on the surface, depending on who’s selling it to you. There are multiple ways for your selling agent to make money from this product. Commissions can be paid from the insurance contract, the sub-investment product, and fees from both sides can be charged. If you are paying in a lump sum of money now, your selling agent can make huge commissions. I know of specific examples where investors had large CDs to mature and they were sold variable annuities. This was not the right product for the investor, but it made star performers of selling agents and the commissions were huge.

How can this be? Some financial institutions have ‘investment desks’ in their banking lobbies. Often times, bank staffers are cross-trained and licensed to sell insurance and investment products. Sadly, they know how the products work best for the institution, but know very little about the impact it will have on their investors. One of the examples I mentioned above was a couple in their late 70s who put their lifetime savings into a variable annuity that carried a higher yield than CDs. This seemed great until a family member asked me to look at their documents and we discovered that there were excessive early withdrawal penalties. To avoid any penalties at all, the couple could start withdrawing their money at age 108!

Always, consult a trusted professional when making investment decisions. If it sounds too good to be true, get a second opinion.

Back to President's Articles

12/13/2007

Year End Financial Review

With only two weeks left in 2007, it’s a great time to look at your finances to see where improvements may be made for 2008. In the middle of holiday shopping, you may decide that you just need to make more money next year. Making more money can improve things, but analyzing your financial picture can point to areas that need to be addressed. Let’s look at some key items to cover in your year end review.

Cash Flow: Do you have more month left than money? If so, look at your cash flow to determine if you’re spending more than you’re making. Look at your spending for each month, knowing some months may be better or worse than others. If you’re spending too much, analyze your expenses to see what can be cut. If you have money left over, start a savings program with the extra cash.

Financial Goals: Whether you’re planning for college, retirement, a new car, a second home, or fantasy vacation, these are all financial goals that merit special attention. First, determine the projected cost of each event and the time you have to prepare for it. Next, determine how you will fund the event, i.e., savings, liquidating assets, or borrowing the money. Then prioritize your list based on needs and wants. Needs should be most important while wants should fall lower on the priority list. Make sure to include an emergency fund on your list! This should equal at least three months of regular expenses and be placed in an account designated for this purpose.

Income Taxes:  Compare your anticipated 2007 income to your 2006 tax return. Look for ways you can reduce your tax bill this year. Consult a tax professional about credits, deductions, and loss carry-forwards. Maximize your retirement plan contributions and take advantage of the catch-up provisions if you are age fifty or older.

Unexpected Expenses: Life can throw you challenges at times when there’s no money to pay for them. This is where an insurance review would be helpful. Paying monthly premiums to manage the risk of uncertain life events is much more manageable than paying for them when they hit you.  Consult your insurance professional for coverage programs that fit your needs.

Your financial situation may not change overnight, but reviewing it at year end can help you start next year with a brighter financial future.

12/20/2007

About Annuities

Many people are beginning to show interest in annuities as an alternative investment to CDs. Annuities are popular because they pay higher rates than CDs and earnings are tax deferred. Let’s look at how annuities work to help you determine if they fit your investment profile.

An annuity is a contract between you (annuitant) and an insurance company. You agree to pay a lump sum or a series of payments to the insurance company and it agrees to pay you an income beginning now or at a later date. The money you pay in grows tax-deferred and the earnings on the money you pay in are taxed as ordinary income when you begin receiving monthly payments. Taking monthly payments is called annuitization. You can specify a time period to receive payments, or you can receive them for the rest of your life. You and your spouse can receive payments for life, if you choose this option.

Annuities may be placed in a variety of investment instruments by the insurance company. The insurance company invests your money to accumulate enough to safely pay out the annuitization schedule given to you. While life insurance pays your family cash benefits when you die, annuities pay you a guaranteed income for as long as you live. The monthly amount you receive depends on how much you paid in, the tax-deferred term, the rate it carried, and the estimated number of payments you will receive. Mortality tables are used to determine how long you are expected to live and how long the insurance company will be making payments to you.

Many annuities are sold with no up front fees or annual fees. However, it’s important to know about early termination penalties or other charges that could be levied during the term of your investment. Some annuity contracts allow up to 10% to be withdrawn per year without penalty. Verify this before making early withdrawals.

Annuity advantages include: annuities can provide you with a guaranteed lifetime income with no contribution limitations like you have with IRAs and other plans. Annual no-penalty withdrawals may be made on a restricted basis. Annuities allow retirees to shelter investment earnings that might otherwise lead to taxation of Social Security benefits.

Always consult a trusted financial advisor when purchasing annuities. Your friendly hometown bank can help you make the best choices for your investment profile.

12/27/2007

Variable Annuities

Many investments sound alike, act alike and have similar tax treatment, but you have to dig deeper to get the whole story on what can happen in different circumstances. Let’s look at what variable annuities are and how they work to help you determine if they have a place in your investment portfolio.

Variable annuities are a tax-deferred investment product that includes a small insurance contract to meet the tax-deferred requirement. The insurance contract covers your contributions, but none of your investment gains. Like IRAs, you need to wait until you reach 59 ½ before making withdrawals to avoid a 10% tax penalty. Once you start making withdrawals, they are taxed at your ordinary income tax rate.

Variable annuities don’t rank very high on my list. It’s often hard to understand how they work and even harder to know what you’re getting when you invest in one. They appear to be great on the surface, depending on who’s selling it to you. There are multiple ways for your selling agent to make money from this product. Commissions can be paid from the insurance contract, the sub-investment product, and fees from both sides can be charged. If you are paying in a lump sum of money now, your selling agent can make huge commissions. I know of specific examples where investors had large CDs to mature and they were sold variable annuities. This was not the right product for the investor, but it made star performers of selling agents and the commissions were huge.

How can this be? Some financial institutions have ‘investment desks’ in their banking lobbies. Often times, bank staffers are cross-trained and licensed to sell insurance and investment products. Sadly, they know how the products work best for the institution, but know very little about the impact it will have on their investors. One of the examples I mentioned above was a couple in their late 70s who put their lifetime savings into a variable annuity that carried a higher yield than CDs. This seemed great until a family member asked me to look at their documents and we discovered that there were excessive early withdrawal penalties. To avoid any penalties at all, the couple could start withdrawing their money at age 108!

Always, consult a trusted professional when making investment decisions. If it sounds too good to be true, get a second opinion.

Back to President's Articles