Retirement Running Away?



I’m older, I haven’t saved enough, and I’m fearful that I won’t have enough income for my retirement needs.   If this sounds familiar, then read on and learn what you can do (and what not to do).

I have watched a lot of older people who trust their financial advisor get talked into buying an annuity. Why? They are told that it is the best thing for them because it is a tax-deferred option and will guarantee a certain income at retirement. One reason the financial advisors like to offer this product is because of the high annual commission rate the advisor will earn for the life of this investment (which can be, on average, 5%).

But why are you buying it and what are you looking for? If it is for the option to invest in a tax-deferred vehicle then think again. You can put together a well-diversified strategic growth account with an eye on the tax efficiency (i.e., it doesn’t have a big taxable capital gain distribution each year). You hold this to your retirement—over 10 years away—and you save the 5% in commission paid out to your return. And when you do begin liquidating, you can do so over time and pay the lower long-term capital gains tax rate. 

Also bear in mind that with the annuity, your family doesn’t benefit as well. The money left over at your death will go to your heirs. And they get better tax efficiency on the inherited money with an immediate step up in value. So, when they sell, the tax is not on what you paid for the investment but the growth in the investment from when they inherited it from you.

To summarize, while this may seems unorthodox, I would recommend the following:

1) Invest the absolute maximum in your 401K or other retirement plan, starting now.

2) If you are 50 or older and playing catch-up, you have a higher amount you are allowed to put away. Also try to pay off your home mortgage as quickly as possible; that way, you won't have your mortgage payment as an expense when you turn eligible to collect Social Security.

If you need help and would like a financial plan on how to get there, please contact us for a free assessment of your current situation.

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Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted. The contents of the blog are not to be copied, quoted, excerpted or distributed without express written permission of the firm. Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited. Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.