by Glenn J. Downing, MBA, CFP®

A lot of thought goes into planning for the retirement years.  Typically, people like to have the mortgages on their primary residences paid off, to go into retirement clean and with no debt.  This often begs the question; Do I have to keep paying on this life policy? 

To answer the question, I’ll ask you to think back on why you bought the policy in the first place.  Is someone still depending upon you for a living?  If so, and you dropped dead today, would there be sufficient financial resources without the policy?  If not, then you still need it.  If so, then here are six good options. 

You Can Cash the Policy In

In this case you simply turn it back to the insurance company, which cuts you a check for the policy’s cash value.  If the cash value exceeds your basis in the policy, then you have a taxable gain.  Your basis is the sum of all the premiums you’ve paid in.  The...

By Glenn J. Downing, MBA, CFP®

This is a big topic and a big part of financial planning for retirement.  The statistic is that by age 75, 75% of us will have needed some long-term care.  So the question is, how can I prepare for this risk financially? 

A principle of risk management is to insure risks of low frequency and high severity.  We insure our homes against hurricanes, and our cars against collisions.  We insure our lives against premature death, and our incomes against disability.  So it makes sense to insure our retirement assets against a financially devastating long term illness.  The point is not to spend all the accumulated assets on the first spouse to become sick, leaving the surviving spouse impoverished. 

Long Term Care Policies

The insurance industry introduced long-term care policies roughly a generation ago.  Policy benefits were triggered by needing substantial help and assistance in performing 2 of 6 ADLs...

By Glenn J. Downing, MBA, CFP®

What is the best tax bargain out there? 

Is it the 529 college savings plan?  Let’s see.  That is funding with after tax dollars, but the funds grow without taxation and come out without taxation when used for qualified higher education expenses.  That’s a double tax advantage.

How about the Roth IRA?  Same thing as the 529.  A double tax advantage. 

How about a Traditional IRA?  Here I deduct on the way in and have growth without taxation.  The tax bill comes when I distribute.  So this is another double tax advantage. 

Is there a triple tax advantage out there?

Yes!  There is one to my knowledge, and that is the Health Savings Account. 

The HSA is used in conjunction with a high deductible health insurance plan (HDHP).  This is one which, per IRS regulations, has a deductible of at least $1400 for an individual or twice that for family coverage. ...

by Glenn J. Downing, MBA, CFP®

As I noted in Part I, an annuity is a complex financial animal.  It can be used as a tool to accumulate funds on a tax-advantaged basis.  It can also be used efficiently to distribute funds in later years, which is my focus here in Part II.   

A Stream of Payments I Cannot Outlive

This is the very definition of the word annuity.  If I want that stream of payments, I can either purchase it from the annuity company, or I can annuitize an annuity contract I already have.  In either case I make an irrevocable choice to turn over control of my principal to the annuity company in exchange for this stream of payments. 

Annuitize the Contract

What’s the Risk? 

That I annuitize a lot of money, get hit by a bus, and the annuity company keeps the remainder.  That is called the single life option, which yields the highest payout.  To mitigate against this risk, I chose a payout option:

• Joint and...

Glenn J. Downing, MBA, CFP®

An annuity is a complex financial animal.  It can be used as a tool to accumulate funds on a tax-advantaged basis.  It can also be used efficiently to distribute funds in later years.  Here in Part I I’m focusing on the accumulation phase.  In Part II I’ll cover distribution and tax issues.

An annuity, in its strictest sense, is a stream of payments that one cannot outlive.  The term annuity is often used synonymously with the word pension.  A stream of payments describes a distribution of principal, however.  How do I get the annuity in the first place?

Purchase it

You can purchase this stream of income just as you’d purchase a new suit or a car.  It pays to shop around, because different annuity companies (i.e. life insurance companies; they are one and the same) use different mortality tables and interest rate assumptions which affect the payments they offer to you.  

Accumulate...

By Glenn J. Downing, MBA, CFP®

Q:  I’m in financial trouble.  Should I take out a 401k withdrawal?

This is a tough question, and the answer is generally, Not unless you truly need it.  A direct withdrawal from a 401(K) before age 59 ½ is a last-resort option, with a big taxable event. 

I want to distinguish clearly between 401K loans and 401K withdrawals.  In this piece I’m discussing withdrawals. You can read about loans here. 

Tax Advantaged Savings

Think about what happens in the 401(K).  The IRS “lets” you defer salary into your account without taxation. Your employer may make matching or discretionary contributions to the account on your behalf, which he deducts from his income.  Lots of tax advantages here, and the IRS wants you to keep the funds invested for their purpose:  funding your retirement.  Consequently, if you need to put your hands on some fast cash, the IRS doesn’t...

By Glenn J. Downing, MBA, CFP®

Q:  I have a lot of high interest credit card debt.  Should I take out a 401k loan?

This is a question we come across not uncommonly.  There is a lot to like about doing this, but a big potential tax trap as well. 

I want to distinguish clearly between 401K loans and 401K withdrawals.  In this piece I’m discussion the loans; you can read about withdrawals here.

What are the Rules?

First of all, your 401k plan has to have loan provisions in place.  No loan provisions, no loan.  An employer can always go to his third-party administrator to have the plan documents amended if he would like to make loans available to the employees. 

The loaned amount can be 50% of the vested account balance up to $50,000.  A special rule allows participants with smaller balances to borrow up to $10,000 without the percentage restriction.  Under the CARES Act (2020), this amount is temporarily increased to...

By Glenn J. Downing, MBA, CFP®

The SIMPLE IRA is the Savings Incentive Match Plan for Employees. The SIMPLE allows for both employer contributions and employee deferrals. The plan is deal for employers who want to contribute something – but not a lot – to employee retirement accounts.

The is the second in a two-part series about retirement plans for the small business.  The first was about the SEP IRA.  

Who Is Covered Under the SIMPLE?

The SIMPLE is for an employer with fewer than 100 employees who earned less than $5000 in the previous year. The employer cannot have any other retirement plan – only the SIMPLE. Any employee who earned $5000 in any of the previous two years and expects to do so in the current year is eligible to participate. The plan must be established before October 1st for the current year. After Oct. 1st it will become effective for the following year.

Employer Contributions

A big part of retirement plan design has to do with...

by Jonathan G. Cameron, CFP®

Young professionals are expected to accomplish a lot early in life. You’re beginning to make real money. Time to get sound financial advice to establish a good foundation from someone you trust. The problem is most financial advisors focus primarily on retirement planning. When working with young professionals, I believe this is a mistake. 

Where do I start? 

With young professionals, we start the financial planning conversation with:

• Debt payoff
• Saving for a home down payment
• Building an emergency fund
• Wealth building (including retirement)

In addition, actively maintaining a budget is essential to establishing a strong financial foundation.

Most financial advisors do not spend time working with clients on the first three financial points. Why? It is likely because there isn’t a product associated with these financial needs. In other words, there is no incentive to talk about debt, home purchase, or emergency fund.

by Jonathan G. Cameron, CFP®

1. Create a budget.

If this sounds too obvious, I’ll say it again for reinforcement – are you maintaining a budget? Seriously. Miami is one of the flashiest cities in the world. If you don’t have a budget I’ll put it another way — Estas loco? It has been proven that our propensity to spend money in Miami is directly proportional to our physical proximity to Brickell/Downtown Miami and South Beach. A budget is by far the best way to keep track of your money. If you have a budget, you’re already way ahead.

2. Want to build up your credit score fast?

Pay your bills on time. In other words, “Do what you say you’re going to do, Miami.” Your payment history comprises 35% of your credit score. By contrast, your length of credit history accounts for only 15% of your overall score.

3. Time is your biggest asset.

Spend extra time with the people you care for most in life. This is easier said than done...