Frequently Asked Questions

When it comes to planning for retirement and protecting your hard-earned nest egg, you want — and deserve — both honesty and clarity. The stronger your grasp of the process, products and people involved, the better positioned you will be to make the right decisions about your future. Look here for straight answers to questions you’re likely to face as you sort through all your retirement planning options.

Working With an RHQ Financial Professional


What's the importance of a second opinion?

Why is it important to get an expert second opinion and investment advice on my financial and retirement planning?

Answer:

You do your research before committing to big-ticket items like buying a home or choosing a college. Decisions about your retirement should be no different, given what’s at stake.

You don’t know what you don’t know. So, when it comes to retirement planning, getting a second opinion from an expert can only help. A financial or insurance professional offers a fresh perspective and has the ability to identify areas where you’re on course, areas you may need to address and the right strategies and products to address them.

Whether you’re planning for retirement or already there, we encourage you to talk with a financial or insurance professional. If you haven’t done so yet, do your research, talk to friends and family for recommendations and take the time to confirm that whomever you meet with is qualified and has the experience and expertise to suit your specific needs and situation.

Even if you already have a financial or insurance professional, we encourage you to seek a second opinion from another professional. Because retirement is all about peace of mind.

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Do I have enough?

Do I have enough assets or average retirement savings to work with a financial or insurance professional?

Answer:

If you have a vision for where you want to go and what you want to achieve in life, there’s good reason to work with a professional who can help you get there, whether you’re wealthy or of more modest means. A comprehensive analysis and full review of your situation by a licensed financial or insurance professional can help you understand where you stand and the options you have to achieve your goals, right through retirement.

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Is my information safe?

I’m a little concerned about sharing my personal information with someone I barely know. How should I handle my first retirement planning meeting with an insurance or financial professional?

Answer:

A financial or insurance professional should always put your interests first. He or she should respect you and your privacy, and should always be honest in his or her dealings with you. These are things you should expect from your advisor.

Bring these expectations to your retirement planning meeting with a prospective advisor. Typically that initial meeting will occur at the advisor’s office, so he or she has access to the resources needed to highlight his or her capabilities and services, and so you have a chance to get a feel for the office environment and staff.

Working with an RHQ professional gives you the assurance that the person meets RHQ’s stringent standards, including a full personal and professional background check, along with rigorous continuing education requirements.

Our goal is give you access to the best financial and insurance professionals available anywhere.

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Retirement advice questions

When getting retirement advice, what questions can I ask to be sure I’m comfortable with an advisor’s qualifications, skills and approach?

Answer:

The initial meetings with an advisor can take a person out of their comfort zone. To be confident you’re going about the process the right way, it’s important to ask questions. Here are some worth posing:

  • How long have you been a financial or insurance professional?
  • Do you have a physical office?
  • In which areas of financial or insurance services do you personally focus?
  • How many do you employ on your team?
  • Are you a captive agent who works for a particular company, or are you an independent agent?
  • What is your retirement income planning philosophy?
  • Which financial licenses do you currently hold?
  • Do you consider yourself a fiduciary?
  • Have you ever been disciplined, sanctioned or fined by any regulatory body?
  • How are you compensated for the financial products you sell?

How are financial and insurance professionals compensated?

How are financial and insurance professionals compensated, and how much of that comes out of my retirement income?

Answer:

Financial and insurance professionals are compensated in a variety of ways. In that context, it’s important to understand the distinction between what’s coming out of your retirement income or current savings and what’s going into the advisor’s pocket.

In some cases, an advisor will directly charge clients for their services (in the form of fees, typically). In other cases, an advisor will be compensated not by the client but by the company from which the advisor purchases a product on behalf of the client. This is what’s called a commission. So, if you purchase an annuity through an advisor, for example, you’ll pay for the annuity, but you won’t pay the advisor. Instead the advisor is compensated directly by the annuity provider (the insurance company) via a commission.

Given that distinction, we recommend you pay attention to the overall out-of-pocket cost you incur for the products and services in which you invest, including what you pay an advisor directly as well as the costs embedded in the product.

Here’s a closer look at how it all works:

  • Commissioned products:
    • Insurance products, including fixed and variable annuities, provide a commission to the advisor or agent upon purchase.
    • Commissions also are common with the purchase of some mutual funds.
    • Commissions are generally dispensed one of two ways:
      • They’re paid to an advisor or agent by the insurance or financial company that issues the product. You won’t see the commission taken out of your premium. However, these types of products generally have a required holding period. If you choose to liquidate or “surrender” a life insurance policy or annuity during this period, you’ll likely be obligated to pay a fee.
      • An up-front commission is charged as a percentage of a transaction, such as the purchase of a mutual fund, and is taken from the transaction amount before it’s invested. For example, if you make a $10,000 purchase and the up-front commission amount is 2%, $9,800 will go into your account. The remaining $200 pays the commission up front.
  • Fee-based services
    • For asset-management services, some advisors charge a fee based on percentage of assets of the client’s portfolio. For example, if the client portfolio includes $300,000 and the annual fee charged by the advisor is 1.5%, the amount you compensate the advisor for that year is 1.5% of $300,000 — $4,500.
    • Instead of charging a fee on a percentage of assets, some advisors charge for their advice by the hour or as a flat fee for consultations. These advisors typically only offer advice; they don’t help with the purchase of investments or insurance products. You would either need to purchase those products on your own or with the assistance of another licensed securities professional.
    • Certain advisory practices roll the fee for financial planning into the annual asset-management fee. Others may tack on an added fee for financial planning, above their asset-management fee.
    • You should always be clear from the get-go if an advisor is fee-based and what they charge for specific services.

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Will there be hard feelings if I don't choose to work with RHQ?

Will I hurt feelings if I choose not to do business with RHQ?

Answer:

Disappointed, perhaps. But our feelings won’t be hurt. We relish the chance to help people navigate retirement’s financial challenges. But we respect that choosing an retirement planning advisor is a highly personal decision. What’s more, we’ll always be here if you need us, ready to answer your questions or help in any way we can.

Thoughts about changes while preparing for retirement

What if my mind or needs changes while preparing for retirement?

Answer:

Circumstances and priorities change. You deserve an advisor who’s capable of managing your finances through those changes, who can adjust their financial and insurance planning tactics in step with your evolving needs. In fact, it’s wise for people and their advisors to regularly take stock of their financial standing and their retirement plan, and to adjust them as changing circumstances dictate. Bottom line: you want an advisor who’s willing and able to adjust on the fly.

Can I build my own retirement income strategy using annuities?

I’m a do-it-yourselfer with my own retirement plans. Can I build my own retirement income strategy using annuities, without the help of an advisor?

Answer:

The short answer is yes, you can. But the real question is, should you? A do-it-yourselfer might be able to cobble together a retirement income stream using mutual funds (inside and outside a retirement plan), Social Security and other tools, such as a single-premium immediate annuity, or SPIA, which unlike other annuity types, can be purchased directly from an insurance company or other provider.

But as an individual investor, the do-it-yourselfer might not know if their income plan will be adequate to provide a comfortable lifestyle throughout retirement. What’s more, the individual might not be aware of, or may not have access to, certain very useful tools and strategies to bolster their plan. For example, a licensed professional not only might have heard about a new annuity benefit that would be well-suited to your needs, that advisor might be able to purchase such a benefit on your behalf, whereas you might not have the ability to purchase it yourself (since many such products can be sold only via licensed advisors/agents).

Getting a Financial Analysis


What information do I need to provide?

What information do I need to provide to an retirement planning advisor to develop a financial analysis of my situation?

Answer:

The more information your advisor has to work with, the better equipped they’ll be to help design a retirement income strategy. So gather statements for all your holdings: real estate, retirement accounts, checking, savings and other bank accounts, CDs, insurance contracts (life insurance, annuities, etc.), investments in mutual funds, stocks, bonds, etc., and cash holdings.

With the help of our own powerful planning software, RHQ professionals take the information you provide, put it in the context of your retirement goals, financial objectives and situation, then tailor an analysis and recommendations specifically to you and your situation.

What will I receive with a financial analysis?

What does a typical financial analysis show about my retirement plans?

Answer:

A financial analysis gives an advisor a clear picture of what you have (your assets) and what you’ll need in order to live comfortably throughout retirement.

The financial and insurance professionals in the Retirement HQ network are all trained retirement income specialists. They look at all potential income sources, including Social Security, as well as spending patterns and other factors to show you options for meeting your retirement income needs and preserving your nest egg. What’s more, they also may be able to show you the fees you are currently paying on your investment assets, and to suggest more cost-efficient investment options where appropriate. If you’re interested in such an evaluation, please indicate that to the RHQ concierge team when scheduling an appointment.

How much time will this take?

I’m a busy person. How much time does investment planning advice take?

Answer:

On average, Americans spend more time each year planning vacations than they do reviewing their retirement income strategies. When it comes to big purchases like cars and homes, we’ll devote hours, even days, to researching the decision. Your retirement deserves that kind of attention too.

Good news for busy people (and these days, who isn’t?): As critical as retirement planning is, it isn’t particularly time-consuming. For example, a typical initial meeting with a financial or insurance professional should take only about an hour. That’s 60 minutes to assess where you stand financially and to create a retirement strategy based on that assessment — all at no cost to you. Sounds like a wise investment of your time.


Questions About Annuities


Where is the money in an asset such as an annuity held?

In retirement investing, where is the money in an asset such as an annuity held?

Answer:

Who holds your money depends on the type of asset you purchase. The entity that holds an asset like a life insurance or annuity contract, or shares in a mutual fund or an individual company, is known as the custodian. Most assets are held by one of three types of custodians:

  1. An insurance company: If you purchase an annuity or life insurance policy, your money is held by the insurance carrier that holds the contract — a company like Allianz, Jackson National, MetLife, Prudential, New York Life, American Equity, etc.
  2. Generally speaking, your money is in good hands when it’s in an insurance company’s custody. That said, we prefer to work with the most solid and stable companies in the insurance industry — those that are rated “A” or above for their financial strength and claims-paying ability. To see how a particular company rates, check out the Standard & Poor’s® web site at: standardandpoors.com.
  3. Broker-dealer/registered investment advisor (RIA): Custody of stocks, bonds and other assets that are purchased by an advisor on a client’s behalf via a broker-dealer or RIA — generally called a brokerage firm — is held by the broker-dealer or RIA (think Edward Jones, Fidelity, TD Ameritrade, Charles Schwab, etc.). What happens in the highly unlikely event the brokerage firm goes out of business? The Financial Industry Regulatory Authority (FINRA) offers a good explanation at finra.org.
  4. Mutual fund company: Mutual funds can be purchased through a broker-dealer or directly through the insurance/financial company that offers the fund. When directly purchasing shares of a mutual fund, the mutual fund company (such as Vanguard, T. Rowe Price, etc.) serves as custodian of your assets.

Another thing to keep in mind with respect to custodianship: When purchasing one of the aforementioned products, in most cases your check should be made out to the third-party custodian, not to the agent or financial advisor who executed the transaction on your behalf.

What are the tax ramifications of selling an asset like an annuity?

What are the tax ramifications of selling (liquidating) an asset like an annuity contract?

Answer:

When you sell securities or bonds or mutual funds, in many cases the gain — the amount your investment appreciated in value, if any — becomes taxable. The type and amount of tax liability generally depends upon the type of asset and the length of time you held it.

With some assets, such as stock investments, capital gains tax may apply; in other cases, such as with an insurance product like an annuity, ordinary income tax may apply. But when one annuity contract is exchanged for another in what’s called a “1035 exchange,” no taxes will apply if the transaction is properly executed.

How secure are insurance companies for my retirement?

My retirement plans depend on an insurance company being financially sound. How do I know they will stand behind the contract I purchased from them?

Answer:

Various independent agencies — Standard & Poor’s, Moody’s, A.M. Best and Fitch among them — analyze and rate insurance companies on their overall stability and strength, typically using letter grades, A+ being the highest. These ratings can be handy to consumers and their advisors as a factor to weigh when evaluating the potential purchase of an insurance product by providing insight into a company’s financial strength and ability to pay claims.

As independent advisors, the professionals at Retirement HQ often work with multiple insurance companies, so they have the ability to evaluate and comparison-shop for products from multiple insurance carriers. If purchasing a product from a highly rated company is a priority for a client, the advisor might then shop only for products from companies rated A or higher.

These are general guidelines, so be sure to consult a tax expert to discuss the tax ramifications of your retirement planning decisions.

What happens to my annuity contract when I die?

How will my contract for annuities be handled when I die?

Answer:

How the death benefit — the proceeds that go to a beneficiary when the holder of an insurance contract dies — is handled depends on the terms of the annuity contract and the administrative policies of the insurance company.

In many cases, the beneficiary or beneficiaries named by the contract owner will have choices to make. They may opt to assume ownership of the policy themselves (provided tax laws and contract terms allow it) rather than receive the death benefit. They may elect to take the full death benefit as a lump sum payment. Or they may choose to take the full benefit amount and roll it into the purchase of a new life insurance product.

In some cases, insurance products start paying out benefits before the contract-holder’s death (so-called “living benefits”).

When it comes to the death benefit and living benefits, the options the annuity buyer chooses should align with their financial goals. Given what’s at stake, it’s wise to discuss your best course of action with a licensed professional.

What’s the best to compare annuity rates?

What’s the best way to go about comparing annuity rates?

Answer:

One way to distinguish one annuity contract from the next is by comparing rates — rates of return, participation rate and potentially other rates that determine how the moving parts of a product function.

Rate information is readily accessible via a variety of sources online. Keep in mind that when shopping for annuities, benefits will vary among products, companies and even states. Equal rates may not provide equal value for your situation. Many times there is a trade-off between the amount of monthly or annual income and the options available in the contract. What’s more, how rates are structured and computed can be complex. All the more reason to consult a financial or insurance professional to help evaluate your options.

What’s the ideal age at which to purchase an annuity for maximum average retirement income?

What’s the ideal age at which to purchase an annuity for maximum average retirement income?

Answer:

Leading up to or during retirement, people turn to annuities to provide guaranteed* predictable income. That predictability evidently is appealing, as sales of fixed annuities increased 40% in 2014.

When is the right time to purchase an annuity? It depends on personal needs, priorities and circumstances. Some people choose to buy one earlier with the goal of giving assets inside the contract more time to increase in value before converting them into a retirement income stream.

Other people prefer to depend upon other non-annuity assets for growth before they reach retirement, then to use those assets to purchase a vehicle such as an annuity to provide income once they are retired. Again, with so many possibilities to navigate, input from an advisor can provide invaluable.

*Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.

How do I go about purchasing an annuity?

How do I go about purchasing an annuity?

Answer:

Some annuity products, such as fixed annuities, must be purchased through a licensed insurance professional. Others, like variable annuities, must be purchased through a licensed securities professional. The reasoning? These products can be complex, so it’s best to discuss them with an advisor before purchasing, to evaluate what’s most suitable to your situation.

How can I learn more about annuity fees?

How can I learn about the fees associated with an annuity contract?

Answer:

Not only should your insurance agent or advisor explain the fees associated with an annuity contract, it’s absolutely in your best interests to also read the fine print where those fees are described. That fine print typically resides in either a contract (for fixed annuities) or a prospectus (for variable annuities). Here’s where you’ll find info on important contractual details like:

  1. Mortality and Expense (M&E) fees
  2. Administration fees
  3. Subaccount fees
  4. Rider fees
  5. Contract fees
  6. Interest rate spread or cap

If you want an additional explanation beyond what you learn from your advisor and the materials that come with the product, simply call the insurance company and ask. You’ll typically find their customer service number on an account statement they’ve sent you. When you get a representative on the line, ask them to explain fees and costs.

Why does it seem like the rates of return offered with annuities change frequently?

It seems like the rates of return offered with annuities change frequently. What’s up with that?

Answer:

Annuity rates of return — the percentage the insurance company has agreed to pay the annuity owner as a result of the owner giving the company a sum of money (in the form of premium) — tend to fluctuate in step with interest rates. The rate of return on an annuity contract purchased today likely will be lower than on one purchased 10 years ago, largely because interest raes are lower today than they were 10 years ago. These calculation should be part of your retirement savings calculator.

Annuity interest rate FAQ

About the interest rates I see advertised with annuities

Answer:

Let’s start by defining some of the key features of annuity contracts:

  • Crediting Strategy
      • Annuities are insurance products. So, technically speaking, they do not earn “returns” in the same way investments do but earn “interest credits” instead. Interest credits are where some claims of 8%, 12%, 17% “returns” originate. When you buy certain types of annuities, you may have a choice among interest crediting mechanisms, from a simple guaranteed rate to a rate tied to a stock market index such as the S&P 500®, for example.
      • Index crediting strategies tend to come with limitations and conditions to protect the insurance company’s bottom line. Some may come with a “ceiling” on return — say 8%. There are also floors, caps, spreads, and a litany of other index crediting strategies. To further complicate matters, there are options as to when interest credits are calculated: point-to-point, monthly average, high water mark, and others.

    So, are returns of 17% in an annuity possible? Yes, but only if you choose the “right” interest crediting strategy, the right index, and the right calculation point. That’s not to say such an annuity is not an appropriate strategy for many retirees. In fact, studies show that people with guaranteed* income vehicles in their portfolio are happier in retirement. If you are purchasing an annuity, be sure you understand how the product works, how it fits into your individual strategy, and what expectations may be realistic.

  • Premium Bonus:
    • Some annuities offer a premium bonus that rewards the consumer for their initial premium purchase as an offset to the term (typically 5-15 years) their money will be committed in an annuity. Bonus amounts typically range from as little as 1% to as much as 10%. Keep in mind, though, that annuities with bonuses typically have higher early surrender penalties, may carry higher fees and charges, and may not pay the bonus in case of early withdrawal.
      Most annuities allow an annual “free withdrawal” (of up to 10% per contract year) that is free from penalties. Keep in mind that excess withdrawals and any withdrawal prior to age 59½ may significantly reduce the guaranteed withdrawal benefit amount and be subject to an additional 10% federal income tax penalty. Withdrawals can reduce the living benefit and death benefit of the contract.
  • Living Benefit (Income) Rider:
    • • Living benefit riders are optional features that can be purchased along with certain annuity contracts. Usually the buyer must elect such a benefit at the time of annuity purchase, and they’ll pay a fee for the guarantee. Essentially that guarantee assures the annuity owner will receive a minimum income from the contract at some point in the future. That income may last for a set period of time, or for a lifetime. Given the complexity of some of these riders, it makes sense to evaluate the options with the help of an insurance or financial professional.

*Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.

How do I calculate the future value of my fixed annuity when the interest is compounded continuously?

How do I calculate the future value of my fixed annuity when the interest is compounded continuously?

Answer:

Continuous compounding of interest is complex. There was a time when financial companies didn’t often offer it. Back in the days of paper ledgers and basic calculators, simply compounding interest on a daily or even monthly basis would have been impractical to manage. Annual simple interest credits were common due to their simplicity. One day a year, bankers compounded their interest. It was certainly a long day, but it made the calculation a bit simpler based on the technology they had available to them.

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Can you give an example of how a market-value adjustment works in a fixed annuity?

Can you give an example of how a market-value adjustment works in a fixed annuity?

Answer:

In a market-value adjustment annuity (MVA annuity), you assume the risk in the interest rate and, in exchange, the insurance company is able to offer you a slightly higher interest rate than it pays on non-MVA annuities.

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What does point-to-point mean in an indexed annuity?

What does point-to-point mean in an indexed annuity?

Answer:

Point-to-point is a crediting method. The crediting method is the way that interest is determined and applied to your annuity based on the terms of your contract. Because fixed-indexed annuities earn interest based on the performance of a specific index, point-to-point is the method of using points in time for that index as the basis of credited interest.

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Changing Financial Professionals or Advisors


Why might I receive different advice?

Why might the retirement income solutions I get from one financial or insurance professional differ from the advice I get from another?

Answer:

When it comes to financial advice, there may be more than one suitable way to solve a problem or address an issue. So keep in mind:

  • The type of advice you get will depend on the products a financial or insurance professional is licensed to sell, the tools they prefer to use and the areas in which they specialize. Some advisors focus on strategies built around insurance products. Others emphasize stocks, bonds and other investment vehicles. These days more financial professionals are “dually licensed” to offer both insurance and investment strategies.
  • A financial or insurance professional may be affiliated with a specific insurance or financial entity, which may narrow the range of products and strategies they can use with clients. For example, a “captive” or “closely-tied” agent of an insurance company may only offer products sanctioned by that company, while an independent professional may have the latitude to offer a broader array of products. An independent agent or representative is essentially a small business owner who operates their own agency or advisory firm, and who picks and chooses the products and companies with whom they do business.

How do I go about switching from one retirement investing professional to another?

How do I go about switching from one retirement investing professional to another?

Answer:

It’s your money, your retirement and your life, so if you’re not comfortable with your current advisor, you owe it to yourself to at least consider making a change.

The process of shifting advisors should be fairly straightforward, although the conversation around such a switch can be awkward. You can have that conversation one-on-one with the advisor whose services you no longer wish to engage. If the change in advisors entails a sale of securities, your outgoing advisor may need instructions from you as to how to go about liquidating those assets. Otherwise, you may be able to execute the sale or transfer of assets yourself by contacting the custodian of those assets directly.

Either way, expect the outgoing advisor to contact you in an attempt to keep your business. In that case, let them know you have decided to move your accounts to another advisor because you feel it’s in your best interests.

What happens if my independent agent leaves the business?

What happens if my independent agent leaves the business?

Answer:

Finding a financial or insurance professional who’s good at what they do, whom you trust and whom you’re comfortable working with can be a challenge. So what happens when you can no longer work with the person with whom you’ve confided and entrusted your financial future?

It’s important to remember that your assets are held by an insurance or investment company, not the insurance professional with whom you work. So those assets are unaffected by your agent’s departure.

With that in mind, if your agent dies unexpectedly or otherwise discontinues your relationship, generally you have the following options:

  1. Leave your products where they are. Many independent practices have multiple agents to serve you. If you choose this route, be sure to interview the prospective new agent to ensure a good fit. If you don’t think it’s a good match, ask to interview other professionals in the same office until you find the best match. This is your future and your money, so don’t settle for less than you deserve.
  2. Find another agent within the same company or network (but not at the same practice). Another option is to call the insurance or investment company that has custody of your assets and ask them to suggest an affiliated agent in their network. You may want to ask them for two or three agents for you to interview to find the best fit.

Some retirement planning financial advisors and insurance agents are members of a professional association or affiliated group, such as NAIFA (National Association of Insurance & Financial Advisors), NAPFA (National Association of Personal Financial Advisors, and AAIA (American Association of Independent Advisors). These types of organizations often offer searchable online listings of agents and advisors in your local area.

  1. Look elsewhere for a new financial or insurance professional. If your investments and insurance assets don’t need immediate attention, you should have time to cast a broader net for an advisor. Ask people you trust (and people whose financial and life situations are similar to yours) for referrals, then develop a list of questions and interview the prospective advisor or agent who was recommended to you.

What are the tax ramifications of having a new advisor handling my assets?

What are the tax ramifications of having a new advisor handling my assets?

Answer:

In most cases, simply moving an investment account from one location to another for a new advisor to manage won’t create a taxable event.

Social Security

Are there really ways for me to increase my Social Security and boost my retirement income, or is that claim more hype than reality?

Answer:

Having seen advertisements offering Social Security tips or strategies to maximize your Social Security income, you wonder, is this really possible? The answer: It depends.

Yes, certain strategies involving the management of Social Security benefits could translate into more money in the long run. However, the equation still includes factors out of your control, such as how long you and your spouse live, for example.

There are lots of moving parts and unknowns involved in managing Social Security benefits. And there’s plenty at stake in terms of tax consequences. So while it’s important for people to learn all they can about their Social Security options on their own, it’s worth augmenting that knowledge with expert advice. RHQ^ professionals are equipped with software tools to help you evaluate various Social Security filing scenarios and options, and more importantly, to show you how to strategically integrate Social Security planning into a broader retirement income plan.

*Retirement HQ is not affiliated with nor endorsed by any government agency, including the Social Security Administration.

Questions About Taxes and Tax Strategies


When do I pay taxes on a 401(k)?

When do I pay taxes on a 401(k)?

Answer:

As a general rule of thumb, you pay taxes on a 401(k) once you take money out of the account. Your employer will withhold 20% for taxes as well as an additional 10% penalty if you’re under the age of 59½ at the time of withdrawal. Taxes are due only on the amounts withdrawn from the account and this amount is taxed as ordinary income.

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What is a 401(k) profit-sharing plan?

What is a 401(k) profit-sharing plan?

Answer:

A 401(k) profit-sharing plan is simply a standard 401(k) with an additional profit-sharing option tacked on. The profit-sharing plan accepts something called discretionary employer contributions on behalf of the employee.

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Are stock market losses tax deductible?

Are stock market losses tax deductible?

Answer:

For the most part, you are permitted to write off up to $3,000 in stock losses from your ordinary income on your tax return, provided your losses exceed your stock market gains. (The amount is $1500 for those who are married but filing their taxes separately). When you suffer a loss in the stock market, this is known as a capital loss. However, you can only write off a loss if you sell the stock.

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Are Roth IRA earnings taxed?

Are Roth IRA earnings taxed?

Answer:

One of the things that make the Roth IRA an appealing option is that any interest or earnings within the account are not taxed. The account is funded with after-tax dollars, so not only do you not pay taxes when you earn the interest, you don’t pay taxes when you withdraw the funds either.

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Are Roth IRA contributions tax deductible?

Are Roth IRA contributions tax deductible?

Answer:

While Roth IRA withdrawals are pretty tax-friendly, contributions aren’t quite as tax-friendly. Unlike a traditional IRA account, you can’t write off contributions to a Roth IRA. Why then, would someone use one for retirement planning? Because the Roth IRA’s advantages are found when you withdraw the money.

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Can I withdraw money from my retirement annuity, and what fees might I face for doing so?

Can I withdraw money from my retirement annuity, and what fees might I face for doing so?

Answer:

You are able to withdraw money from a retirement annuity, though there will be a number of fees and taxes associated with it. The first fee is federal income tax. If you withdraw money from a tax-deferred annuity and you’re under the age of 59½, you’ll face regular income taxes for the money withdrawn, as well as an additional 10% for early withdrawal penalties. But that will not be the only financial hit that your account will take.

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Can I make ongoing contributions to a fixed annuity after buying one with an initial lump sum?

Can I make ongoing contributions to a fixed annuity after buying one with an initial lump sum?

Answer:

The tricky part about making ongoing contributions to a fixed annuity is that when you sign up for an annuity, you have a contract that lays out your accumulation period based on the amount of premium paid, as well as a guaranteed future payment amount when the annuity is finally annuitized. How you pay this premium is covered in your contract, so payments outside of those premium payments may simply be returned as overpayments.

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How does commission-based financial planning affect how I pay for retirement advising services?

How does commission-based financial planning affect how I pay for retirement advising services?

Answer:

When you use commission-based financial planning services, it means you won’t pay fees to the advisors themselves. Instead, the financial advisor receives a commission based on the products that you purchase. So for example, if you went to a commission-based financial advisor and purchased an annuity that advisor recommended, the financial advisor would receive a commission based on that sale from the annuity company.

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What types of fees should I expect in my retirement account?

What types of fees should I expect in my retirement account?

Answer:

The types of fees you can expect from a retirement fund will depend on the type of account that holds the retirement funds, as well as the underlying financial products or investments that make up that account. So you might have an IRA with a mutual fund inside of it. There could be one fee charged for managing that IRA, while another fee is charged for managing the underlying mutual fund.

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Questions About Retirement


What is the full retirement age to collect Social Security benefits?

What is the full retirement age to collect Social Security benefits?

Answer:

Your full retirement age will depend on your date of birth. The absolute earliest you could start receiving any Social Security benefits is at age 62, with the age for full benefits running from 65 to 67, depending on which year you were born.

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Should I purchase an annuity before I retire or after?

Should I purchase an annuity before I retire or after?

Answer:

When to purchase an annuity will depend on what kind of annuity you’re buying. An immediate annuity makes payments right away, so buying one after you retire is the obvious option. But a deferred annuity that requires you to wait through an accumulation period before receiving payments involves a bit more investigation before deciding when to buy.

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Can retirees contribute to an IRA?

Can retirees contribute to an IRA?

Answer:

Generally speaking, if you’re 100% retired and no longer working at all, a retiree can’t contribute to an IRA. However, if you are working, you might be able to contribute to a traditional IRA, but there are limitations. The first is once you reach age 70½, you can no longer make direct contributions to the account.

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How much do I need to save for retirement if I want to retire early?

How much do I need to save for retirement if I want to retire early?

Answer:

How much you need to save for retirement if you want to retire at the earliest possible age will depend on your standard of living and if you plan on keeping that standard up in the future. Early retirement isn’t easy and will require an aggressive strategy. But with proper planning, it can be done.

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Which is better for my retirement plan: a 401(k), IRA, or Roth IRA?

Which is better for my retirement plan: a 401(k), IRA, or Roth IRA?

Answer:

When it comes to choosing a retirement account, there’s no one account that’s “best.” Instead, these accounts can be used to balance each other by offering the things that other plans lack.

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How long should I plan to live in retirement?

How long should I plan to live in retirement?

Answer:

The average life expectancy in the United States is about 78 years old, but that’s by no means the age you should plan to live to in retirement unless you’re planning a very late retirement. Some experts recommend planning until 90, some to 100, and a few even recommend 110 for younger retirement planners.
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Will full retirement age increase and should I be planning for that in my retirement account?

Will full retirement age increase and should I be planning for that in my retirement account?

Answer:

Full retirement age, for the purpose of collecting Social Security benefits, has increased in the past so it’s definitely possible that it will increase again in the future. However, whether you need to adjust your retirement plans for it depends on how close you are to retirement age now. As it stands now, the age at which you can receive full benefits will change depending on when you were born. Of course, what full retirement age looks like can change at the government’s discretion, but here are the current full retirement ages based on your year of birth.
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Would using my retirement savings to pay off debts be a suitable option?

Would using my retirement savings to pay off debts be a suitable option?

Answer:

When it comes to using retirement savings to help pay off debts, there are a few things you need to consider before you cash out. It will depend on your mix of debt and how well you’re currently managing it, and how you withdraw the funds from your account.
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How much risk is acceptable in a retirement account?

How much risk is acceptable in a retirement account?

Answer:

When it comes to using retirement savings to help pay off debts, there are a few things you need to consider before you cash out. It will depend on your mix of debt and how well you’re currently managing it, and how you withdraw the funds from your account.
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Do deferred annuities make sense for late retirement planning?

Do deferred annuities make sense for late retirement planning?

Answer:

Depending on the terms of your deferred annuity, these insurance contracts can often make sense in the case of late retirement planning. Annuities are meant to supplement retirement income, so they can give your income stream a much-needed boost, especially if you’re planning on using them in your late retirement years.
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When will the Federal Reserve interest rate go up, and how will that impact my retirement savings?

When will the Federal Reserve interest rate go up, and how will that impact my retirement savings?

Answer:

Asking, “When will the Federal Reserve interest rate go up?” is a bit like asking, “When will it rain?” We can make predictions based on the data and historical performance, as well as the general economic climate, but the only people who know for sure when the Federal Reserve will raise the interest rate are those at the Federal Reserve.
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Questions About Stocks and Bonds


How do bonds generate income for investors?

How do bonds generate income for investors?

Answer:

To understand how bonds make money, you need to understand what a bond really is. All bonds, whether they are corporate or governmental, are simply loans that investors make to an entity. In exchange for these loans, that entity pays you back at a fixed interest rate.

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Questions About Stock Market and Investments


What is the difference between stocks and bonds?

What is the difference between stocks and bonds?

Answer:

While stocks and bonds are often talked about in conjunction with each other, they’re actually pretty different. It’s those differences that make stocks and bonds sometimes complement each other, which is why people sometimes refer to them as parts of an overall financial strategy.

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What are index funds and how do they work?

What are index funds and how do they work?

Answer:

Index funds are a type of mutual fund that are tied to the performance of a specific index, such as the S&P 500. This is a way of managing a mutual fund that allows for market-wide exposure with lower operating expenses. Using the index is often considered a passive form of fund management in that the underlying portfolio mirrors the results of the overall index.

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Can I owe money on a stock that I’ve purchased from a company that crashes or goes bankrupt?

Can I owe money on a stock that I’ve purchased from a company that crashes or goes bankrupt?

Answer:

If you’ve simply bought a stock for cash and the company you bought it from crashes or goes bankrupt, you won’t owe money. You may lose part or all of the money you put into it, but you’re not actually going to have to pay money to anyone. This is because you own an equity share of a corporation. When a corporation goes bankrupt, only that corporation’s assets can be liquidated for that bankruptcy. So the creditors to the corporation can’t go after your personal assets to cover a debt from that corporation.

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How do I assess a stock's level of risk and potential return?

How do I assess a stock’s level of risk and potential return?

Answer:

If you’re trying to invest in stock on your own, then you’re going to need to know how to evaluate a stock’s potential return and risk level before you lay out big bucks to buy into a company that might not deliver. While the term “buy low, sell high” might make it sound like a piece of cake, it’s not nearly as simple as that. After all, it’s possible to buy low and then never see a return because the company behind it fails.

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What method is best for building a stock portfolio for beginners?

What method is best for building a stock portfolio for beginners?

Answer:

The first step to creating a stock portfolio for a beginner is assessing your own comfort level with risk. The stock market is pretty volatile, and some might find that the ebbs and flows of a high-risk portfolio are too emotionally stressful to handle. Portfolios can run the range from conservative to extremely aggressive. Creating your own is a matter of looking at your personal preferences as well as your goal with the portfolio. If you’re older and are using the portfolio as part of your retirement planning, then generally, it’s best to err on the side of caution and go with a less aggressive strategy that invests in more stable stocks or bonds.

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How likely is the stock market to crash, and how can I help protect my retirement portfolio?

How likely is the stock market to crash, and how can I help protect my retirement portfolio?

Answer:

There is really no surefire way to predict a stock market crash. If you simply search for news on “stock market crash,” you’ll likely find a wide range of varying opinions — some saying the stock market is as strong as it’s ever been and others saying that the stock market is bound to crash any day now.

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What is a bear market, and how will that impact my retirement savings?

What is a bear market, and how will that impact my retirement savings?

Answer:

Chances are, in the course of your investing life, you’ve heard the term “bear market” before. A bear market refers to a specific trend in the stock market that occurs when prices are falling. During a bear market, falling prices will lead to pessimism in the stock market. That pessimism will cause people to sell off stocks, which will drive prices down further.

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What is a bull market, and how will that impact my retirement savings?

What is a bull market, and how will that impact my retirement savings?

Answer:

While a bear market indicates a pessimistic outlook for the stock market, a bull market is the exact opposite. Investors are feeling good about stocks, and that is driving them to buy more stocks. Due to increased demand for stocks, the price goes up for everyone.

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What does it mean when a company gives you stock options, and how do they work?

What does it mean when a company gives you stock options, and how do they work?

Answer:

Stock options aren’t stocks themselves. Instead, they are contracts. Usually, with a stock option, you pay a certain amount upfront for the option to purchase a set amount of stocks for a set price later on. If the price of the stock goes up, it’s a great deal for you because you get to buy it at the lower price and see an immediate return. If the stock price goes down, you’re not required to make the purchase, but you’ll likely lose the money you put down for the option.

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Is options trading a good idea for late retirement planning?

Is options trading a good idea for late retirement planning?

Answer:

The general idea when it comes to retirement savings is to start early and grow conservatively. For some of us, though, that’s just not possible. Maybe most of your funds were tied up when you were younger and trying to raise a family, or maybe you just didn’t have the income you needed to create a good plan. Late retirement planning is a bit more complicated, which is why you might consider alternatives to help create a fund for your future.

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Questions About Retirement Lifestyle


Can retirees contribute to an IRA?

Can retirees contribute to an IRA?

Answer:

Generally speaking, if you’re 100% retired and no longer working at all, a retiree can’t contribute to an IRA. However, if you are working, you might be able to contribute to a traditional IRA, but there are limitations. The first is once you reach age 70½, you can no longer make direct contributions to the account.

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What happens if I deplete my retirement account before I die and what retirement drawdown strategies can I use to avoid this?

What happens if I deplete my retirement account before I die and what retirement drawdown strategies can I use to avoid this?

Answer:

If you deplete your retirement account before you die, you could be in a very tough position because you’ll be dependent on Social Security benefits, and may even have to return to work if your Social Security isn’t enough to support you.

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When do I have to take required minimum distributions (RMD) from my IRA?

When do I have to take required minimum distributions (RMD) from my IRA?

Answer:

The most basic answer to the question of when you must take RMDs from just about any qualified retirement account is by the following April after you turn age 70½ and by December 31 every year after that.
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How much risk is acceptable in a retirement account?

How much risk is acceptable in a retirement account?

Answer:

There used to be this old rule of thumb where you’d subtract your age from 100 and use the difference as the percentage of higher-risk items you should have in your retirement account. So if you were 60, for example, then you would want 40% of your retirement account funding to be made up of high-risk funds. But that formula isn’t appropriate for everyone, especially in today’s low interest rate environment.
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Questions About Building Your Portfolio


How can I use mutual funds in retirement investing?

How can I use mutual funds in retirement investing?

Answer:

Mutual funds get their name not from what they’re invested in but from the large pool of investors within the fund. A mutual fund is simply a group fund, using the investments of thousands of investors, to create an extremely diverse portfolio. The investments may be in stocks, bonds, real estate, treasury bills, and more. The fund works by pooling your money together with other investors so that you can leverage diversity. This way, you can ensure that you’re not losing your money to one bad investment, and poor investments can be made up for with other investment gains.

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What is a bank CD account and how does it work for retirement planning?

What is a Bank CD account and how does it work for retirement planning?

Answer:

A CD is short for the term “certificate of deposit.” There are two different types of CDs, a bank CD and a brokerage CD. A key difference between brokered CDs and the ones you buy from banks is that brokered CDs trade like bonds if you need to sell before maturity. If interest rates in the marketplace have fallen, you may receive a higher price than you paid for the CD. But if interest rates rise, you are likely to receive less than you paid.

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Is a money market account a savings account or a retirement account?

Is a money market account a savings account or a retirement account?

Answer:

A money market account is a savings account, though it can be leveraged in retirement planning. In a way, a money market account is like a hybrid of a checking account and a savings account. You get the higher interest of a savings account with a limited ability to write checks on the account.

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What investments pay dividends, and are these investments good for retirement planning?

What investments pay dividends, and are these investments good for retirement planning?

Answer:

Mainly, when you’re talking about something paying dividends, it’s usually related to stock or any other investment that’s stock-based, like mutual funds or exchange traded funds (ETF). What happens is, in some cases, when a company makes a profit, it will decide to disburse those profits to its shareholders. Dividends can be a benefit in pre-retirement and post-retirement because they allow you to increase your savings while also creating a pool of tax-free or low-tax earnings.

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Questions About Income Strategies


What funds can I use to purchase an annuity, and am I permitted to use funds from multiple accounts?

What funds can I use to purchase an annuity, and am I permitted to use funds from multiple accounts?

Answer:

When purchasing an annuity, you can either do so within a qualified or a non-qualified retirement account, but you can’t use funds from both types of accounts to purchase an annuity. For example, you might choose to roll some of your 401(k) or IRA funds into a qualified deferred annuity. This means you’re using pre-tax funds to purchase that annuity. When you start receiving payments from the annuity, you’ll have to pay taxes on the withdrawals. This tax would be paid at your ordinary income rate, unless the withdrawals are taken prior to age 59 ½, in which case, you would also be subject to an additional 10% federal tax penalty.

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Is a deferred annuity the same as a pension?

Is a deferred annuity the same as a pension?

Answer:

The only thing that a deferred annuity and a pension have in common is that their payments both pay out a fixed amount based on a pre-agreed schedule. That’s where their similarities begin and end.

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Questions About Health and Personal Wellness

What happens to my pension if I die before retirement age?

What happens to my pension if I die before retirement age?

Answer:

Like with most retirement funds, if you die before receiving a pension, it will usually be passed on to your beneficiary. This will happen as long as your account is vested, and you’ve designated the correct beneficiary in your paperwork.

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Real People. Real Stories.

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theresa
Theresa
Retired Since 2010
From New Jersey

george
George & Karen
Retired Since 2012
From Arizona

elaine
Portor & Elaine
Retired Since 2010
From California

darlene
Darlene
Retired Since 2015
From Kansas