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Secure Act and 401(k) provisions

6/24/2019

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There has been a lot of talk about 401(k) since the House passed the Secure Act. It will still need to be voted on by the Senate and passed to the president but there are many large companies that are lobbying for it’s approval. I think this is a perfect time to review one of the bill’s most controversial provisions allowing more annuities in 401(k) plans. No one can argue that many Americans are aware of the word “annuity” and are quick to judge so let’s have a quick review of the history of annuities.
The annuity concept has been traced back to the Roman Empire. In return for their service, soldiers and their beneficiaries would receive annual payments for life known as “annuas,” the basis for the word annuity.
In the 17th century, these contracts were structured in the form of a “tontine” by feudal lords. Investors would contribute to a large pool of cash and receive annual payments for life. Upon death the payments ended and the remainder was redistributed among the group. If you were lucky enough to outlive everyone else in this arrangement you received the balance of the pool.

Today
Despite their simple structure in the beginning, annuities have become increasingly sophisticated over time. When you invest in something, typically you assume all the risk. Since annuities are not investments, but are contracts with an insurance carrier, they allow you to transfer investment risk to the carrier. The risk you assume is that annuity payouts are subject to the claims-paying ability of the insurance company. (The only exception might be “variable annuities,” which are linked to a market index and rise—and fall—in value with the index.)
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Recent innovations like fixed indexed annuities allow for growth in relation to an index, but the owner is protected from loss of principal if the index falls. With people living much longer and pensions quickly becoming a thing of the past, annuities can help provide income throughout retirement without the fear of running out of money. If you are considering the purchase of an annuity, it’s important to speak with a financial professional who understands them, and can explain the fine print of an annuity contract.

These investments are not for everyone and in the event that you employer has decided to open this option to you it’s best to discuss it with an Insurance Professional. Let me know if there is any way I can help you get clarity.


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Retirement Checklist

6/17/2019

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I highly encourage everyone to get a plan together yet many people still have trouble following through with the steps. I am going to reveal the steps you need to take leading up to your retirement date and you might be shocked to know that you need to start 10 years before you’d like to retire.

10-year plans:
  1. Calculate the streams of income such as Social Security timing, pension benefits, and required minimum distribution from your IRA. See if there are benefits to taking it later and if you can bridge the gap to reduce your taxes in the meantime.
  2. Create your budget and see where shortfall or excess are from the budget. Most people who have excess may be subject to higher taxation and increased premium​s​ on Medicare​​​ benefits​. If you have a shortfall how can we create an income stream?
  3. Ensure legal documents are updated especially durable power of attorney or any beneficiary statements. This is planning for a worst-case scenario and creating a long term care plan as well.
5 years plan:
  1. Evaluate the benefits of your contributions to pre-tax vs after tax/Roth. You may want to stop contributing and start moving to an after-tax or ROTH. Adjust your investment strategies at this point and have a financial professional discuss your risk tolerance.
  2. Depreciation schedule, I have attached one that is a bit older but gets the job done. When you plan for the unexpected we can smooth out an income stream and not be worried about Murphy's law whatever can go wrong will go wrong.
  3. If you are looking to buy another property or refinance this is a great time because financing options in retirement become more difficult.
1-year plan:
  1. Sign up for Medicare 3 months before you turn 65. If you are not eligible to look at healthcare plans or see if your work provides COBRA.
  2. Stop all contributions to 401k and roll it over to a self-directed IRA if you can. The contributions that would have gone in there will not be deposited into a high yield savings account as your emergency fund.
  3. Find your purpose. Retirees who have been forced to retire or succumb to the pressures of the job have a hard time transitioning their time and have lower life expectancies.
A plan can start at any age I know you will look forward to seeing the “Checklist from your 30’s to 60’s” that I will post next month.



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Family Retirement LLC is a registered investment advisor in the State of Washington. Family Retirement LLC may not transact business in states where we are not appropriately registered, excluded, or exempted from registration. Individual responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.
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