Smart_Retirement

The world is changing. Look at our debt, our national and international politics, and the economics of all great nations around the world. It’s a crazy time filled with unprecedented problems. There is general insecurity about what the future brings. If there is any one thing we know is that we can’t fix these problems with old world solutions. That would be like trying to treat cancer with a combination of leeches and snake oil. We have to adapt and find alternative progressive solutions that factor in all the changes surrounding us and that help to insulate our money and our future from what may come!

There are three crucial dates that changed the face in the future of the American retirement system for ever:

(1) January 1, 2008

The first retirement system changing date was on January 1, 2008. It was on this date that the first Baby Boomer turned 62 years old and qualified to take Social Security distributions. Every day after that date an average of 10,000 baby boomers turned 62 and, as such they qualify for Social Security distributions.

(2) January 1, 2011

The second date to change the American retirement system was January 1, 2011. If you do the quick math you already figured out why this date matters. It’s because that’s the date that the first Baby Boomer turn 65 and not only qualify for full Social Security benefits, if they weren’t still working at a company that offered health insurance and they were retired they now had a new primary health care provider: Medicare!!! And guess what? Every day after that date we had an average of 10,000 Baby Boomers turning 65 and qualified for the same benefits. Imagine that! 10,000 new potential Social Security and Medicare recipients every single day.  A boomer will turn 65 every 8 seconds this year.

Never before have we had such a large, seemingly unending stream of people ready to tap into the American retirement and healthcare programs all at one time.

So what does this do to our country? Take a moment to review the above chart. I think it tells a very important story. Before we get into that, let’s start by stating that the belief is that taxes are going up – way up, in the long term. It’s important for you to know that. We may see low rates for a while which interestingly actually makes starting a smart plan now even more beneficial. But ultimately the debts must be paid and that means taxes are going to rise. That’s right! This is a belief, but it’s supported by facts. This graph represents the percentage of the US government debt to the entire gross domestic product (GDP of our country.

(3) June 15, 2016 age 70 ½

We’ve already talked about 2008 and 2011. Now let’s talk about the third date June 15, 2016. What happened on that date? The very first baby boomer hit age 70 ½ and was required to begin taking minimum distributions (RMD S) from certain retirement plans, including the traditional IRA and 401(K ) plans. Why does that matter?

Morning Star is a leading investment research firm in North America. They’re accurate, insightful, unbiased reports are used by countless planners, asset management firms, and others. In 2013 they publish this study of their finding on low yields and safe withdrawal rates for retirement plans. The authors of the study were notable and accomplished PhD’s with advanced degrees in economics and finance. They concluded that our ability to avoid running out of money in retirement was based on taking no more than 2.8% a year from our accounts.  Now just think about that: 2.8%. On $100,000 account a retiree would gross $2800 annual income. Quite a difference from the $3649 RMD (Required Minimum Distribution) the IRS is requiring to be taken out of these accounts annually.  In fact, it’s 30% more than the Morning Star’s expert consider safe if the goal is to be as certain as possible that you won’t run out of money in retirement.

So the government, suddenly saddled with a lot more retirees than they’re used to, makes this same discovery – but it’s even worse. Unlike business owners, the government never even put any money aside. The more people will call and say, these are the promises you made and want to collect on this. The more money our government has to either print or tax to get. Ultimately this results is higher taxation. This isn’t a problem that can be solved politically. This is an age demographic issue. Make no mistake about it, our population is aging.

Back in the 1950s there were 16 workers for everyone Social Security recipient. That allowed us to spread the responsibility to a wide number of workers so they didn’t really fill the pitch. The government could fulfill its promises. Today our population is aging and we are inching toward a 3 to 1 ratio. That means we’ve only got three workers for everyone Social Security recipient.  So the workers feel the pinch a heck of a lot more, but so far the government can still carry out promises.

How long will the government be to do that? Possibly for another 16 years or so.

So just who are and what are the Smart Retirement people doing to mitigate the imminent future increase in taxation on their hard earned retirement income? 

Let’s take a look at the heavy hitters:

The big boss of Merrill Lynch, would love to manage your retirement for you, was guaranteed $3.4 million a year in retirement.

Bank of America CEO Ken Lewis has $53 million in his TAX EXEMPT SMART RETIREMENT PLAN AND is guaranteed to get $3.486 million a year as an annual retirement benefit beginning at age 60. How do you think Bank of America plans on fulfilling the promise of those benefits?

Stephenson at AT&T has $41 million in his TAX EXEMPT SMART RETIREMENT PLAN

Boeing CEO McNerney has $34 million in his TAX EXEMPT SMART RETIREMENT PLAN

Kent at Coca-Cola has $39 million in his TAX EXEMPT SMART RETIREMENT PLAN

Roberts at Comcast has $232 million in his TAX EXEMPT SMART RETIREMENT PLAN

Tillerson at Exxon’s has $43 million in his TAX EXEMPT SMART RETIREMENT PLAN

GE’s CEO has $52 million in his TAX EXEMPT SMART RETIREMENT PLAN

Marilyn Euston CEO at Lockheed Martin has $36 million in her TAX EXEMPT SMART RETIREMENT PLAN

Palmisano  at IBM has $28 million in his TAX EXEMPT SMART RETIREMENT plan however is the only one from Barry Dykes research who had a 401(k) plan as well.

The rest of them DID NOT Have 401(k)s!!!

They have their retirement income backed by the most secure tax exempt retirement plan available today!

And then there’s provisional income that put’s your social security in the cross hairs as well.  Is there a way to protect your retirement income from the impending tax hikes that appear to be coming down the stretch?  Yes, with proper planning!

Planning your dissent is more important than the climb!!!

I can’t imagine anyone looking forward to being stranded at the top of a mountain they just work so hard to climb. They knew in advance that they needed a plan to navigate their dissent before they even climbed that mountain. I also can’t imagine any retiree working hard to save and preserve money during their working years just so they can pay much of it out in taxes just a few years after retirement and be left stranded, relying primarily on Social Security to get them through their retirement years to  enjoy the life style they envisioned in retirement.

Most Americans couldn't tell you what their 401(k) fees are, or if they even have them. Thirty-seven percent believe their 401(k) has no fees at all, while another 36% either don't know their fees or don't know where to find them, according to a recent TD Ameritrade report.

The easy answer is that all 401(k) plans have fees. And there are two general categories: administrative (also known as "participation") fees and investment fees.

Ninety-five percent of 401(k) plans charge administrative fees, and these cover the costs of things such as record keeping, legal services, customer support and transaction processing.

In addition, all 401(k) plans charge investment fees (or at least I've never heard of one that doesn't). These are fees charged by the investment funds you choose and are typically listed as "expense ratios" in your plan's literature.

These fees are expressed as a percentage of assets, and the average 401(k) costs 1% of assets every year for all fees. In other words, the average 401(k) participant will pay $1,000 for every $100,000 in plan assets.

However, this can vary tremendously. Generally speaking, large-scale 401(k) plans are cheaper, while small business 401(k) plans tend to have the highest fees. All fees are clearly disclosed in your plan's literature, or you can ask your plan administrator for information on your fees.

A Quick Guide to Mutual Fund Expenses

You may be surprised at how expensive some mutual funds' expenses and fees are over the long run.

Mutual funds can be great investing options for people who want the high-growth potential of the stock market, but don't want to choose individual stocks to buy. However, the convenience of mutual funds isn't free -- there are several types of expenses investors may need to pay, and these fees can really eat away at your long-term performance.

The three main types of mutual fund expenses

When you invest in a mutual fund, there are three main expenses you may have to pay. Not all mutual funds have all three expenses, and you can find the details in a fund's prospectus.

front-end sales charge, also called a sales load, refers to money you pay upfront when you invest in a mutual fund. This is a form of commission paid to financial planners, brokers, or investment advisors. If you limit your search to "no load" funds, you can avoid this expense altogether.

back-end sales charge, or back-end load, refers to money you pay when you sell, or redeem, your shares of a mutual fund. This expense can be a flat fee, or can gradually decrease over time to incentivize investors to hold their investments. Like front-end sales charges, these are commissions paid to third parties, and are not a part of the fund's operating expenses.

An expense ratio is the fund's annual operating expenses, expressed as a percentage of assets. Unlike the sales charges, this cost applies to all mutual funds. This covers management fees as well as other expenses of running the mutual fund. For example, a 1% expense ratio means that for every $1,000 you have invested, you'll pay $10 in expenses per year.

You may see two expense ratios listed – gross and net. A fund's gross expense ratio refers to the total annual operating expenses, while the net expense ratio may be reflective of a temporary discount, and may therefore be lower. Simply put, the net expense ratio is what the fund's investors are paying now, while the gross expense ratio is what the fund's expenses could be in the future. As a long-term investor, it's a good idea to base your decisions off of the gross expense ratio – in other words, don't assume that the lower net expense ratio will last forever.

You might be surprised at how much these expenses can really cost

As an example, let's say that you have $10,000 to invest. The S&P 500 has historically averaged returns of about 9.5% per year, and $10,000 compounded at this rate for 30 years is $152,200.

Now, let's say that you invest in a mutual fund that does just as well as the overall market. That is, the fund's investments generate total returns of 9.5% per year on average. However, to invest in this particular fund, you'll need to pay a 3% front-end sales charge, as well as a 1% expense ratio on an ongoing basis.

These may sound like small percentages, but these small fees result in a 30-year investment value of $109,200. In other words, the front-end sales charge and expense ratio reduced your investment gains by $43,000.

With that in mind, here's a calculator to use while you're shopping around for mutual funds that can help you understand the long-term impact of the fees.

It may surprise you how sales charges, management fees and lost opportunity cost can erode the total return on your mutual fund. Use this calculator to estimate the impact these charges may have on the growth of your investment.

Is an Iul better than a 401k?  401(k) or IUL - Which is Better?

Since indexed universal life insurance (IUL) is often mentioned as an alternative to a401K, IRA, or other qualified plan, let's look into the basics of IUL vs401K. ... First,IUL provides a life insurance benefit, which can be substantial depending on how it is structured.

Since indexed universal life insurance (IUL) is often mentioned as an alternative to a 401K, IRA, or other qualified plan, let's look into the basics of IUL vs. 401K.

Feedback from clients show that the biggest advantage IUL has over 401Ks and IRAs is that you can have reason to hope for double digit gains, but still sleep at night, knowing that the investment component of IUL will never incur a loss! The prospects for higher returns are enhanced by the use of leverage - not available with a 401(k), IRA, or other types of qualified plans. Also, even if you put some or all of the money into the policy's Fixed Account, many of these policies currently pay interest at above 4% - much higher than the banks. Using the Early Cash Value Rider, available with some carriers, the client may also be able to have access to 90% or even 100% of his cash the first year. No more waiting around for years the achieve a high level of liquidity, thus lessening the need to keep his liquid assets in banks. This effect is also highly useful with alternative and supplemental plans called 409A or SERPs.

IUL is a bit like a Roth IRA, but with important differences. First, IUL provides a life insurance benefit, which can be substantial depending on how it is structured. Some carriers offer a Waiver of Specified Premium Rider that can make your retirement plan self-completing in the event you cannot work due to disability. Imagine asking your 401K provider to make your contributions for you if you can't work!

Have you ever reached the end of the year, only to find that you haven't been able to fund your 401K to the maximum allowable? Even worse, have you been in a position to put in extra the following year? Any qualified plan, including a 401K, do not allow catch-up contributions for past years. IUL, on the other hand, is only limited as to cumulative contributions. If you under-fund in one year, in most cases you can play catch-up anytime in the future. In the real world, this feature may turn out to be one of the most critical advantages IUL has over a 401K, an IRA, a Simple IRA, or a SEP.

IUL has virtually no restrictions on the amount one may contribute or when one can distribute funds. A person usually accesses funds from IUL through policy loans. While many people are apprehensive about adopting a pattern of borrowing, the leverage made possible via IUL is generally considered an acceptable risk once understood.

But what about the "bottom line"? Which approach can result in more retirement income for an individual after income taxes are taken into consideration? The surprising answer may be "IUL". The newest uncapped index strategies sometime back-test at returns approaching 10% - pretty impressive when you also know you will never get an index return of less than zero thanks to hedging.

With 401Ks, the higher yields are only achieved by investing in stocks, ETFs, or mutual funds. All of these are unprotected against investment loss. Remember 2008? There was no place to hide! If you owned the S&P in your 401K, you lost over 30% in one year.

The biggest contributing factor to the potentially stronger performance of IUL has to do with  leverage.

Also, the government only lets you get two out of three potential income tax breaks:

1 ) Tax-deductible contributions;

2 ) Tax-deferred accumulation of earnings;

3 ) Tax-free distributions.

IRA's, 401K's,  Roth IRA's, and IUL all get 2 out of 3. See CPA Ed Slott's video>

While contributions to IUL and Roths are not deductible, the investment buildup has the same tax deferral as for a qualified plan. And unlike a non-Roth qualified plan, IUL retirement distributions (via loans) are not not taxable. Roth distributions are only tax-free if taken after age 59 1/2 with certain exceptions, and participation in a Roth has significant contribution limits and other restrictions.

However, the 401(k) or traditional IRA get a deduction now, while some of the Roth or IUL tax advantages come later. Therefore, it is important to run the numbers for given contributions, durations, changes in tax rates now vs. during retirement, and of course, investment return assumptions.

Another way of looking at this is to consider a farmer in one state being told there was to be a 10% tax on the value of seed. Another farmer in a neighboring state is taxed 10% on the value of all harvested grain. If you were a farmer, which state would you rather live in? The "seed" money for IUL is taxed now, but the harvest at retirement may be able to be taken tax-free. On the other hand, the 401K, IRA, or other qualified plan may not be taxed now before assets grow, but the "harvest" at retirement is taxed at ordinary income rates. Of course, it's not that simple. Having more seed to plant can result in a larger harvest. It also depends upon the elapsed time before the harvest. And what if the tax on the harvest were at a different rate than the tax on seed?