Kiplinger's Retirement Report - August 2017
RETIREMENT REPORT
Your Guide to a Richer Retirement
VOLUME 24 | NUMBER 8 | AUGUST 2017 | $5.00
Decode Annuities To Find the Best Fit
DO YOUR EYES GLAZE OVER WHEN YOU HEAR THE WORD
annuity? When you imagine handing over a large chunk of money to an insurance company in exchange for promised income, do those glazed eyes turn into a death stare? No doubt, annuities usually don't generate a lot of excitement. They can be shrouded in jargon, and when you look under the hood, you're confronted with a
complicated collection of moving parts. Making shop-
ping more difficult are all the choices to be made:
Do you need income now? Do you need income later?
Do you need lifetime income, or income for a certain
number of years? No wonder so many potential buyers
simply walk away.
But don't automatically turn your
IN THIS ISSUE
back. In some situations, the right product could be a good fit for a financial
INVESTING 6 | Rebalance in Bull Market 8 | Picking Dividend Payers
plan, particularly for MANAGING YOUR FINANCES
those who don't
9 | Plan for Special-Needs Child
have a pension. Having a stream of guaranteed income from
11 | Your Questions Answered 12 | Information to Act On
an annuity might provide peace of mind that essential
TAXES 14 | Moves to Make Midyear 15 | Estate Tax Deadline
expenses will be covered if you live
CHARITABLE GIVING 16 | Give Back to Hometown
well into your eighties or nineties.
If you're mulling
CAREGIVING 17 | Create a Caregiving Contract
an annuity purchase, RETIREMENT LIVING
this beginner's guide 18 | Improv Keeps Mind Sharp
will cut through the
jargon and look at
common options you'll come across. "One of the funda-
mental challenges is that annuities come in so many
different flavors and types," says Matt Sadowsky, direc-
tor of retirement and annuities at TD Ameritrade.
The first step: Pinpointing where you fall on the
JOHN W. TOMAC
401(K)
CERTAIN.
Retirement Income Planning
Retirement planning isn't just about saving. It's about making sure those savings can be turned into the income you'll need to live the life you've always envisioned. At Fidelity, we'll help you create: ? A guaranteed* income stream protected from changes in the market ? Investment growth potential to help with rising costs ? A balanced plan that's flexible enough to change when needed
To learn more, go to diversifiedplan or call a Fidelity Representative at 800.596.5053 to talk about your retirement income needs today.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. *Guarantees are subject to the claims-paying ability of the issuing insurance company. Fidelity Brokerage Services LLC, Member NYSE, SIPC. ? 2016 FMR LLC. All rights reserved. 775226.2.0
retirement-planning spectrum. Are you still squirreling away money for retirement? Or are you starting to spend your nest egg? Those answers can help you focus on which set of products might be right for you. "It's very important to distinguish between annuities," says annuity expert Jerry Golden, president of Golden Retirement, in New York City. "If you need to make an automobile claim, you don't tap life insurance."
Accumulation phase annuities are usually bought by people in their fifties and sixties, whereas payout phase products are more likely bought by those in their sixties and seventies, says Golden. Some accumulation products might work for those in their later years, but the payout phase products are meant for those who want guaranteed income. "Age is important, but time until income is received is the real driver," he says.
In either phase, it's not easy to comparison shop. The particular mechanics of a product can vary from insurer to insurer. Annuities can be costly, but costs often aren't transparent. Ask a lot of questions to delve into the details of products you are considering, and scour the fine print to make sure you understand the contract you are getting into.
Accumulation Phase Annuities Consider three types of accumulation annuities: fixed deferred, indexed and variable annuities. In comparing them, you can "look at a scale of how much exposure you want to the equity market," says Ray Caucci, senior vice president of product management, underwriting and advanced sales at Penn Mutual.
Fixed deferred annuities are one of the simpler products to understand. These offer a guaranteed interest rate for a certain term, such as five or 10 years. The rate is set by the insurer, based on market rates. Craig Simms, senior vice president of Vantis Life Insurance Co., says "2.6% is the best rate now for five-year contracts," which he says are popular now.
These products tend Fixed Deferred Annuities
to sell well when there
Interest rate guaranteed.
is a gap between certifi- Simple structure.
cate of deposit rates
and fixed annuity rates.
As with a CD, if you hold the money in the contract
to maturity, you will receive a scheduled amount of
interest. Unlike a CD, the annuity's interest isn't taxed
along the way. Tax is deferred until the earnings are
withdrawn.
If you pull your money out before the term ends,
you could incur a surrender charge. At the end of the
term, says Simms, the insurer will offer a renewal rate
with no new surrender charges. For example, he says
the company might offer a one-year rate with no sur-
render charges, or you could buy a new product with
a higher rate and a new surrender period.
Indexed annuities are a type of fixed deferred annui-
ties with a growth rate pegged to the performance of
an equity index over a certain term. But the money
isn't invested directly into the market, and you won't
get the full market gain. The key with these annuities
is understanding the formula behind your return,
says Golden.
For instance, you might have a "participation rate"
of 50% of Standard & Poor's 500-stock index gains
during the contract
term. If the market rises 10%, you're only
Indexed Annuities
going to get 5%. But if
Cap on gains, but downside
the contract also has a
also limited.
"cap rate," which lim-
Critical to understand
its the credited return,
formula behind your return.
perhaps to 4%, you'd
only get 4%.
If the market falls, "it has a floor, which is generally
zero," says Caucci. That limits the downside.
Ask how earnings are credited, because the method
EDITOR IN CHIEF AND PUBLISHER Knight A. Kiplinger
EDITOR Rachel L. Sheedy KiplingerRetire
SENIOR EDITOR Eleanor Laise
EleanorLaise
ASSOCIATE EDITOR Mary Kane
marykkane
CONTRIBUTING EDITORS Sally Abrahms, Beth Brophy, Susan B. Garland, Kimberly Lankford
ART DIRECTOR Yajaira St. Fleurant
EDITORIAL PRODUCTION MANAGER Kevin Childers
VICE PRESIDENT OF MARKETING Denise Elliott
SUBSCRIBER SERVICES Telephone: 800-544-0155 E-mail: retirementreport@
Fax: 515-246-1020
EDITORIAL OFFICES 1100 13th St., N.W., Suite 750
Washington, DC 20005 Telephone: 202-887-6491 E-mail: retire@
Fax: 202-496-1817 KiplingersRetirementReport
ONLINE SUBSCRIPTIONS Subscribers may sign up for free online access, including past issues and annual indexes, at .
ADVERTISING SALES Mark Taussig
Telephone: 202-887-6528 E-mail: mtaussig@
REPRINT SERVICE PARS International Corp.
253 W. 35th St., 7FL New York, NY 10001 Telephone: 212-221-9595 E-mail: reprints@
CONTENT LICENSING Paul Vizza
Telephone: 202-887-6558 E-mail: pvizza@
Kiplinger's Retirement Report (ISSN# 1075-6671) is published monthly; $59.95 for one year; $114.90 for two years;
$169.85 for three years. Copyright ? 2017 by The Kiplinger Washington Editors Inc., 1100 13th St., N.W., Suite
750, Washington, DC 20005. Periodicals postage paid in Washington, DC,
and additional mailing offices. POSTMASTER: Send address changes to Kiplinger's RETIREMENT REPORT,
P.O. Box 62300, Tampa, FL 33662.
| AUGUST 2017 KIPLINGER'S RETIREMENT REPORT 3
FROM THE EDITOR
The looming crisis in long-term care has been a recurring theme at recent financial-planning conferences I've attended. No one likes to think about being unable to take care of himself or herself. But when age or disease takes its toll, having a support system is critical. And there's significant concern that too little attention is being paid to how to provide care to the nation's growing elderly population.
The fight in Congress over health care is shining a light on the role that Medicaid plays. Medicaid is the primary payer for long-term care, including $55 billion in 2015 for nursing homes, according to the Kaiser Family Foundation. But Medicaid helps cover care only for those with few assets.
Long-term-care insurance can protect a person's assets by helping to cover care costs, but that market faces significant challenges (see "LTC Insurers Steering Through Tough Times," June). And even finding a caregiver to hire can be problematic. It's a tough job that doesn't pay well, even though the demand is growing.
Whether it's by choice or by necessity, many families try to provide care for loved ones at home as long as possible. Drawing up a caregiving contract can help spell out who will do what (see our advice for creating one on page 17). And such a contract may even provide for some kind of compensation to a family member who takes on the role full-time.
Rachel L. Sheedy, Editor
can vary. Usually, earnings are credited on an annual basis, says Ken Nuss, founder of AnnuityAdvantage.
While some indexed annuities are tied to the performance of a well-known index, others are tied to one of the company's making. If you are unfamiliar with the index being used, ask what investments comprise the index. When shopping, "you have to compare the underlying indices," says Dylan Huang, senior vice president and head of retail annuities at New York Life.
Check the surrender period, which most commonly is seven or 10 years for indexed annuities. And read the Financial Industry Regulatory Authority's investor
alert on indexed annuities at to learn more
about how these complex products work.
Then, there are variable annuities. "With a traditional
variable annuity, you have unlimited upside but also
unlimited downside," says Caucci. You participate fully
in the market by investing your money in mutual-fund-
like subaccounts within
the annuity. You can buy some
Variable Annuities
downside protection by
Invest in mutual-fund-like
paying extra for a rider
accounts.
that offers a guaranteed
Can buy guaranteed income
minimum withdrawal benefit. Generally, with
riders.
this kind of contract,
your account has a cash value and a market value. The
cash value would increase, say, annually, giving you a
certain amount of guaranteed income if you follow the
rules of the contract. The market value would be what
your actual assets are worth, and that value could fall if
the market drops even though your cash value is rising.
Be aware of the rules for maintaining the guarantee;
for instance, if you withdraw too much from the ac-
count in one year, you may lose the guarantee.
You defer paying tax on earnings while your money
is invested. "A VA has traditionally been used for the
benefit of tax deferral and growth potential," says Sad-
owsky. Ask about surrender periods; you may have to
keep your money in the account for perhaps five or 10
years to avoid incurring a withdrawal penalty.
Variable annuities can bridge the accumulation and
payout phases. Generally, you can tap variable annui-
ties for cash after the surrender period and without
IRS penalties after age 59?, but the earnings would be
taxable at your ordinary income rate. You can choose
to "annuitize" the money--that is, turn the account into
guaranteed income for life. Part of the payouts would
then be considered a return of capital and not taxable.
If you have held a variable annuity for a while, don't
be quick to get rid of it. "Before the financial crisis,
some VA features were fairly liberal," says Caucci. The
guaranteed minimum withdrawal benefit on old vari-
able annuities could be as high as 6%, he says, while
today's guarantees are more likely just 4%.
As for costs, Caucci says there's a basic insurance
charge that comes out of the variable annuity's net as-
set value. The subaccount funds will have their own
fees. Riders for guaranteed income and death benefits
for beneficiaries come at an extra cost, and if you run
afoul of the surrender period, you'll incur a penalty.
|4 KIPLINGER'S RETIREMENT REPORT AUGUST 2017
"If there are no bells and whistles, the cost compari- A special kind of deferred income annuity, the
son is relatively easy," says Mark Cortazzo, founder and qualified longevity annuity contract (QLAC), is only a
senior partner of Macro Consulting Group, in Parsip- few years old. It's designed to be bought inside an IRA
pany, N.J. "When you add guaranteed riders, the provi- or employer retirement plan, such as a 401(k), to pro-
sions of that guarantee are not easy to compare--the
vide income for old-old age. You can invest up to
devil is in the details." Like a car, if you load the annu- $125,000 or one-fourth of your total retirement
ity up, it's going to be a lot more expensive, he says.
account assets, whichever is less. The amount is
Cortazzo offers a service to help determine if an an- ignored when figur-
nuity owner should switch out or keep an existing vari- ing required mini-
able annuity. "There might be gold hiding in that contract," he says. For $299, his firm will review up to two contracts; for more details, go to .
Payout Phase Products When entering your retirement spending years, addi-
mum distributions that start at age 70?, and you can postpone payouts as late as age 85. Invest $100,000 in a QLAC at 65 and you
Qualified Longevity Annuity Contracts
Invest only limited retirement account assets.
Defer required distributions.
tional annuity products come into the picture to pro- get monthly payouts
vide guaranteed income. You can choose between an of about $2,300 start-
immediate annuity or a deferred income annuity.
ing at age 85, according to a recent estimate at Golden's
With immediate annuities, you turn over a lump sum website .
to the insurer, who agrees to give you guaranteed pay-
Of course, many people aren't fans of the idea of
outs over a certain
handing over a large lump sum to an insurer when the
Immediate Annuities
term, say 10 to 20
threat of an early death could shortchange them. After
years, or as long as you all, payouts generally stop when you die. But the mar-
Buy with a lump sum.
live. "Once you buy a ket has evolved to offer more flexibility, such as infla-
Payouts guaranteed for life
payout annuity, it's set tion adjustments or death benefits. For example, you
or certain term. Start income within
13 months.
for life," says Caucci. The guarantees won't change. Payouts start anytime within 13
could buy a rider that provides five years of income to you or your beneficiaries, or lets you or your heirs receive at least your full investment.
These features can make income annuities "more
months.
palatable and less scary," Sadowsky says. But there's a
A 72-year-old man in Washington, D.C., who invests cost: "When you take some risk off the table, the pay-
$100,000 will receive $672 in immediate lifetime
out will be reduced." The immediate annuity payout of
monthly income, according to a recent quote on Imme- that D.C. 72-year-old, for instance, would be cut to $579
. Interest rates affect payouts, so if a month if he opted for an heir to receive a lump sum
you think rates will rise, you might break up an imme- of any premium balance at his death.
diate annuity purchase to hedge your bets. Age affects
Even if you're an ardent fan of annuities, don't lock
payouts, too: The older you are when you buy, the big- up your entire portfolio. Generally, experts say no more
ger the payout you'll get, all else being equal.
than 30% of your net worth should be in annuities.
When shopping, look for the highest payouts by the
A smart strategy: Add up your guaranteed income
highest-rated insurers. The insurer's creditworthiness sources, including Social Security. Then add up your
is critical. "It's very important because you are plan- basic expenses, such as housing costs and food. If
ning to get income for 20 to 30 years,
there's a gap between your steady
and you want to make sure the insurer will be around," says Huang.
Shopping for a deferred income
Deferred Income Annuities
income and essential costs, buy an income annuity to fill it. "If all your other investments don't perform,
annuity, for which you pay a smaller
Buy with smaller lump sum
you've got those needs covered," says
lump sum now for bigger payouts to
for bigger future payouts.
Simms. And if your investments do
start years later, is similar. Look at
Start payouts years or even
well, you'll have the means for more
the payout amounts and the insurer's rating.
decades down the road.
fun things, such as traveling or spoiling the grandkids. K RACHEL L. SHEEDY
| AUGUST 2017 KIPLINGER'S RETIREMENT REPORT 5
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
- kiplinger s retirement report august 2017
- the basics for investing stocks s k c t s
- investment fundamentals an introduction to the basic
- kiplinger s retirement planning 2017
- mutual funds get religion with these 5 funds
- the morningstar mutual fund star ratings what investors
- 3 etfs to own in 2016
- jpmorgan smartretirement target date fund series report
Related searches
- kiplinger s best retirement dividend stocks
- kiplinger s 25
- kiplinger s 25 for income
- kiplinger s investing for income
- kiplinger s investing for income newsletter
- kiplinger s 25 best mutual funds
- kiplinger s retirement planning guide 2019
- kiplinger retirement report pdf
- kiplinger s top mutual funds
- kiplinger retirement report discount price
- kiplinger s investing for income reviews
- kiplinger s etf 20 list