Massachusetts Estate Planning & Asset Protection Blog

For Seniors Who Are Betting on Getting to 80

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Thu, Aug 28, 2014

Betting on Getting to 80 | Massachusetts Elder Care Attorney

 

outliving, eldercare, savings, estate, nursing home 

For Those Who Are Concerned About Outliving Their Money

According to research for our book The Seniors and Boomers Guide to Health Care Reform and Avoiding Nursing Home Poverty, outliving one’s life savings is a top concern for many people. One possible solution to this is what the US Treasury is pushing many baby boomers to do: start writing checks to their insurance companies for products that won’t be a financial benefit for them until they’re 80. The Treasuries new rules on annuities known as longevity insurance could allow millions of Americans fresh options for their retirement accounts and 401(k) plans. This is according to Bloomberg Personal Finance.

The challenge: convincing savers to choose that option. The annuities thrill retirement experts and policy makers who see them as a way to ensure workers don’t end up impoverished in old age. Just about everyone else ignores the products, which make up less than 1 percent of all annuity sales.

It can be a great investment too. With $125,000, a 60-year-old man can buy a policy from New York Life that guarantees an income of almost $45,000 a year starting at age 80. The same $125,000 in a regular retirement account would need to grow at the unlikely rate of 11 percent a year from age 60 to 80 to provide that income, assuming 4 percent is withdrawn annually after age 80.

Planning for the Future

Since women live longer than men, their longevity policies are more expensive, and more valuable. Millions of widows in their 80s and 90s end up living on Social Security alone. A 60-year-old woman who puts $125,000 into one of these annuities could get an annual payout of $35,268. For women with a husband and no children, a longevity benefit is a comforting buffer against long-term care costs.

Dollars in longevity policies go farther for those who buy earlier than 60 or start the benefit later than 80. If the insurance becomes common in retirement plans, the cost of policies should fall. To maximize her payout, Carson decided against buying inflation protection and a provision that refunds all the money she put in if she dies early.

Indeed, the oft-repeated big risk with longevity insurance is that buyers could die before they collect. But that chance is what allows the policies to be so lucrative for the long-lived. Those who die early help pay for those who live into their 90s and later. And even if you die at 75, the guarantee of income at 80 means you can tap the rest of your nest egg earlier without worrying so much about running out of money.

How It Works

For longevity insurance to catch on, it needs to gain a foothold in retirement plans. The Treasury rules let workers devote as much as 25 percent of their 401(k) to the products, up to $125,000. That doesn't mean employers will offer the option or that workers will choose it though.

Employers face legal liability for their retirement plan options, making them cautious about relatively unproven products. Insurance companies may need to come up with new kinds of longevity annuities that are more transparent and are geared more towards women since they tend to live longer.

Adding to the resistance is a widespread assumption that Americans don't want to lock up their cash in insurance products. They'd rather get big eventual lump sum payouts, even if they have no idea how to turn that into an income that will support them in their old age.

What the Experts Think

If longevity insurance takes off, it will be a real victory for the experts who have been striving to change that mindset. This may also provide a solution for many boomers and seniors for whom outliving their life savings is a major concern. For more information about these and other concerns see the report from the Seniors and Boomers’ Guide to Health Care Reform and Avoiding Nursing home Poverty.

Seniors, boomers, guide, poverty, nursing home,

Everyone would love 401(k) plans to look more like traditional pensions or Social Security, so savers can put less focus on the balance in their account rather than on the income it will eventually produce. That's an outlook your 100-year-old self may well appreciate.

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which uses a unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Elder Law, annuity, Baby Boomers, family, elder care, assisted living, elder care journey, assets, care, Elder Law, senior, insurance, surviving spouse, family

The ABCs of Annuities

Posted by Wellesley Estate Planning Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Tue, Aug 09, 2011

It is essential that everyone understand annuities because they are an example of a retirement income device and are one of the most common methods for insuring a stable retirement income.

What is an annuity?

An annuity is a contract between you and usually an insurance company.  You make a lump-sum payment or a series of payments to an insurer, and the insurer agrees to give you regular payments, starting right away or at a later date.  Here are the ABCs of annuities:

1.  There are 2 types of annuities:  immediate and deferred.  With the immediate annuity, the insurer begins paying you immediately.  With the deferred annuity, you schedule a future date with the insurer to begin payments.

2.  There are 2 types of returns available:  fixed and variable.  The fixed guarantees a specific dollar amount for each payment; whereas the variable can change based on the investment returns of the insurer.

3.  There are also different time periods to choose from for the payouts:  single life, joint life, specific term, life with certain term.  The single life pays you for the remainder of your life only.  The joint life pays for whichever is longer - your life or the life of your beneficiaries.  Certain term pays you for a finite number of years.  Life with certain term pays you for the rest of your life or to your beneficiaries for the remainder of a specific number of years.

4.  Annuities are NOT FDIC insured but many states provide insurance up to $100,000. The Wharton School has an 11-page guide entitled "Investing Your Lump Sum at Retirement."  You can down load it here.  Please note that this paper was co-sponsored by New York Life Insurance Company; however, it is quite informative.

As you can see, annuities are understandable and can be very useful in retirement planning.  For more information on estate and retirement planning, watch Dennis Sullivan, Esq., CPA, LLM discuss this topic on the national talk show, "Ask The Experts."

To learn about this topic along with how to protect your home and assets from avoidable taxes, probate, and the increasing costs of nursing homes and medical care, call 800-964-4295 (24/7) or register online for one of our Trust, Estate & Asset Protection workshops.

Tags: asset protection, annuity, Retirement, cash

When Can You Withdraw from Your IRA Early Without Tax Penalties?

Posted by Dennis Sullivan & Associates on Fri, Apr 29, 2011

There are a number of good reasons that you might be eying your IRA as it sits there with years to go before you turn age 59-1/2. You could see it as potential, as rescue capital, or if you’re in a really good place you could see it as the start of an early retirement. Of course, there are a few good reasons for leaving it alone – heavy tax hits and penalties – however, sometimes it's a good idea tofor withdrawing from your IRA early and penalty free.

The general wisdom is to leave your IRA alone until age 59-1/2 or else pay a 10 percent penalty on withdrawals. But there are allowances for penalty-free distribution in the case of serious financial hardship, higher educational expenses, or the cost of a first home. What is far less known is the 72(t) exception for Substantially Equal Periodic Payments (SEPP). Essentially, the IRS regulations allow annuitization of your IRA, so you can receive distributions straight from your IRA by taking them as a series of “substantially equal periodic payments.” The payments, once initiated, act much like required minimum distributions in that you must take out an amount determined by your life expectancy (or the joint life expectancy of you and your beneficiary) and at regular intervals, at least annually. Once initiated, you must take these distributions for 5 years or until age 59-1/2. You can then reorganize your distribution pattern or hold off entirely until the actual required minimum distributions set in at age 70-1/2.

The process, as you would imagine, is fairly complicated and that probably accounts for its relative under-use. To see it in action you can consult information from the IRS’s FAQ. It is tricky, and perhaps a little risky, but it is at least an interesting tactic to bring to light, and may be a practical solution to your early-retirement plans.

For more information on this and other retirement planning options, attend one of our free workshops or download our free guide on The 7 Biggest Concerns for Estate and Retirement Planning.

           

Tags: retirement plans, IRA, annuity, Retirement, IRS

Retirement products: rising costs, fewer providers

Posted by Dennis Sullivan & Associates on Fri, Jan 28, 2011

Financial and insurance products have long been key retirement planning components – helping savers mitigate retirement risks and provide retirement income. According to a recent issue of MarketWatch, however, those types of products are getting harder to find as some of the major companies back out of the market.

Genworth last week said it will stop selling variable annuities and MetLife decided late last year to stop selling long-term care insurance policies.

Why? These are all business decisions based on current economics. But in the case of long-term care insurance, it seems some of the bigger providers got their pricing wrong. Many simply guessed wrong about how fast costs would rise and how many people would let their policies lapse.

If you can find an appropriate policy for yourself and/or your loved ones, long-term care insurance is still recommended by most experts.

“The fact that pricing is a concern suggests that you may want to purchase long-term-care insurance while you are young (when premiums are low) and in good health and while there are still choices available in the marketplace,” says Christine S. Fahlund, a vice president and senior financial planner at T. Rowe Price Investment Services Inc. “It is very difficult to self-insurance for long-term care, since your expenses could potentially be catastrophic if you or your spouse needs care around the clock for more than one or two years.”

As for the variable-annuity market, experts say that Genworth is leaving the business because it never truly penetrated the market deep enough to develop the kind of scale required to offer these products profitably.

Experts still suggest you continue to consider and buy variable annuities if such products are right for you. But do carefully consider the company that stands behind your product.

You can learn more about long-term care insurance and retirement planning on our website. And, as always, if you are considering the purchase of a retirement product – such as insurance or an annuity – don’t hesitate to ask us for an objective review to untangle the weeds of the market and help achieve your goals.

If you'd like to learn more, we offer a free consumer guide to Medicaid, Nursing Home & Asset Protection Planning, to see how you can protect your home and life savings from the rising cost of nursing home care. 

Financial and insurance products have long been key retirement planning components – helping savers mitigate retirement risks and provide retirement income. According to a recent issue of MarketWatch, however, those types of products are getting harder to find as some of the major companies back out of the market.

Genworth last week said it will stop selling variable annuities and MetLife decided late last year to stop selling long-term care insurance policies.

Why? These are all business decisions based on current economics. But in the case of long-term care insurance, it seems some of the bigger providers got their pricing wrong. Many simply guessed wrong about how fast costs would rise and how many people would let their policies lapse.

If you can find an appropriate policy for yourself and/or your loved ones, long-term care insurance is still recommended by most experts.

“The fact that pricing is a concern suggests that you may want to purchase long-term-care insurance while you are young (when premiums are low) and in good health and while there are still choices available in the marketplace,” says Christine S. Fahlund, a vice president and senior financial planner at T. Rowe Price Investment Services Inc. “It is very difficult to self-insurance for long-term care, since your expenses could potentially be catastrophic if you or your spouse needs care around the clock for more than one or two years.”

As for the variable-annuity market, experts say that Genworth is leaving the business because it never truly penetrated the market deep enough to develop the kind of scale required to offer these products profitably.

Experts still suggest you continue to consider and buy variable annuities if such products are right for you. But do carefully consider the company that stands behind your product.

You can learn more about long-term care insurance and retirement planning on our website. And, as always, if you are considering the purchase of a retirement product – such as insurance or an annuity – don’t hesitate to ask us for an objective review to untangle the weeds of the market and help achieve your goals.

Tags: Estate Planning, asset protection, long term care, annuity, life insurance, Retirement

Sign-Up Below To Receive Your Free Report

Follow Me

Browse by Tag



Follow DennisBSullivan on Twitter