Wouldn’t it be great to have a regular paycheck during retirement? An annuity is an investment tool that can provide you with this kind of regular income. Here’s what you need to know:

Annuities work much like an insurance policy – you pay in your specified premiums and the annuity will guarantee you a specified amount later on.

With an insurance policy of course, you must first suffer some sort of loss, but with an annuity, the only trigger is your retirement. You pay money into your annuity now – be it a lump sum or through monthly payments – and then upon retirement, you receive a regular payment from the insurance company or other financial institution that holds your annuity.

You can opt to receive payments on an annual, quarterly or even monthly basis and you can also structure the annuity to continue paying your spouse after you’ve passed away. In addition, if you die before you’ve collected the specified amount from your annuity, you can structure it so that it pays a lump sum to your beneficiaries, once again taking on the qualities of a life insurance policy.

Annuities can either be fixed return or variable return and this distinction will affect how much money you receive. A fixed return ensures that you receive a set amount each month, regardless of how your investments perform in the marketplace. A variable return on the other hand, will adjust your amount according to the growth or decline of your investment. That means that if your investment goes up, so does your monthly payment, but it can also go down as well if the market takes a turn for the worse.

Of course, your retirement plan should include other investing tools such as a 401k or IRA. To learn more about planning for retirement and coordinating your retirement with your estate plan, contact our office today.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

Asset allocation means distributing your investments through various types of financial instruments so that your risk is well-diversified. This concept is not as technical as it sounds and with a little professional guidance, you can build a strong and diverse investment portfolio.

The reason for diversifying is simple: investing money means risk. But if you investment in several financial instruments, you essentially reduce that risk since the chances of one failing can be covered by benefits from the others. For example, if you put all your money in technology stocks and that sector of the financial market suffers a depression, then your losses would be very high.

However, if you have a mix of technology and infrastructure stocks, as well as others, the slump in the tech stocks could be covered by the infrastructure and other stocks. Asset allocation is all about wise selection of investment options.

In addition to fluctuations within a given field or specialty, risk can also vary depending upon the type of investing tool you’re using. Stock for example, are typically riskier than bonds, so having a balanced spread between the two can help lower your risk as well.

You’ll also want to look at mutual funds and money market accounts – both good investing options for investors who want to see growth but also need to minimize risk.

You’ll also want to ensure that some of your investments are liquid, meaning you can access their value relatively easily and without paying large penalties for early withdrawal. This gives you an emergency fund if you need it while still earning a reasonable return on your money.

Of course, there’s no way to explain everything you need to know about investing in one article. Instead, you should seek the help of a qualified financial planner before deciding on any investment strategy.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

An IRA, or individual retirement account, is one of the most popular ways to save for retirement. An IRA can be created at a bank, a brokerage firm, or a mutual fund company. IRAs differ from pensions and 401(k) plans in that individuals, not employers, typically open them.

Tax Benefits

You can deduct the money you deposit into an IRA from your taxable income, thus reducing your tax burden. This tax shelter saves many investors a great deal each year, since this portion of their income is no longer taxable.

Another tax benefit to an IRA is that as the account matures, the money remains tax deferred. Your money will only be taxed when regular retirement distribution begins. You’ll never have to pay penalties or extra taxes, unless you take money out early. This tax sheltering applies to traditional IRAs. If you invest in a Roth IRA, you may be eligible for greater tax deductions.

Who Is Eligible?

Anyone who receives earned income and is under 70 can apply for an IRA. The only issue that arises is how much of your contribution is tax-deductible each year. If you or your spouse has other retirement accounts through work, your deductibility may be restricted in certain cases. Your tax deductibility may be phased out when you reach a certain modified adjusted gross income (MAGI): if you and your spouse make between $83,000 and $103,000 and file taxes jointly; if you are single and make between $52,000 and $62,000; or if you are married, filing separately, and make between $0 and $10,000. AGI (adjusted gross income) refers to your income after allowable deductions are made; MAGI refers to your total income after some of those deductions are added back on.

Is an IRA for you?

An IRA is a good option for you if you do not have other retirement plans through your employer, or if you want to supplement those plans. There is no such thing as over-planning for retirement.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

There are some similarities between annuities and CDs; both types of investments are considered secure, and both offer guaranteed returns that are based on interest rates. Annuities are offered through insurance companies, while CDs are available from banks.

If you are thinking of planning for retirement and are interested in safe investments, you can’t go wrong with CDs or annuities, though you should weigh the benefits of each before deciding which investment best suites your needs.

Rate of Return

Although on the surface CDs appear to offers many of the same advantages of annuities, the truth is that annuities do offer some major advantages, such as tax deferrals and higher returns. It is true that CDs offer you protection against bank failure because they are federally insured, but the insurance companies that offer annuities are also mandated to have safety measures in place to protect investors.

Even though both annuities and CDs are both based on interest rates, with CDs your returns will be low when the interest rates are low. On the other hand annuities have a minimum guaranteed rate of return. What this means is you will never get less of a return than the guaranteed minimum, even if interest rates are low.

Taxes On Your Return

When you invest in CDs you will not have the ability to withdraw any of your returns until the investment period is over, but you will still have to pay taxes on the money your CDs are earning. With annuities you also have to wait a specific amount of time before you can withdraw money, but the earnings on annuities are tax deferred so you will not pay any taxes until you withdraw money.

Another advantage to the annuity is that you can often withdraw about 10% on an annual basis, or you can even invest in annuities that allow monthly withdraws. Taking money from a CD isn’t an option.

If you are looking for safe investments both CDs and annuities are a sure thing, but it is clear that annuities can offer the same risk fee investments, along with several additional benefits.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

A 401K is an employment based retirement plan that allows you to contribute money from your paycheck directly into a retirement account. In order to have a 401K, you must either a) be self-employed or b) work for an employer who offers this benefit.

Because a 401K is provided by your employer, it can be easy to set up. In addition to completing the basic paperwork, you must also choose what percentage of your paycheck you would like to contribute to your plan. This amount is deducted from your paycheck on a pre-tax basis and you can contribute up to the IRS maximum allowed limit. As of 2010, that limit is $16,500 per year.

There are many benefits to a tax deferred 401K. First, tax deferred means you do not pay taxes on the money right away. In fact you do not pay any taxes on your retirement savings until you begin making withdrawals. This makes your taxable income lower while you’re contributing because your contributions are not calculated as part of your taxable income.

Many employers also offer matching programs, meaning that they will match your contributions up to a certain percentage. Typically, these contributions are structured on a vesting scale, so you won’t actually take full ownership of the extra money until you’ve been employed for several years. But if you’re planning to stay with your employer for a while, this is a fantastic way to quickly grow your retirement savings.

This also makes a 401k a great option for low income employees who may be restricted from other retirement plans based on earnings.

So how do you use your 401K to enhance your retirement? If you wish to see growth in your 401K plan, you must invest it. Younger employees often focus on long-term stock investments while employees who are closer to retirement age may prefer investment options such as bonds.

When you have reached retirement age, you can begin to make withdraws from your 401K. If you wish to withdraw early you must pay early distribution penalties. After you reach 70 1/2 years, regular withdraws become mandatory. The IRS determines your minimum withdrawal amount. This amount will be based upon your age and your life expectancy.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

Savings is an important part of your future. Fortunately, there are a number of ways to stash some cash.

Savings Accounts

Do you have a savings account already? Most people do. In fact, many banks now offer savings accounts linked to checking accounts. With a savings account, you can easily move funds from your checking account into your savings. When needed, savings funds are easily withdrawn at an ATM or via online transfer.

Savings accounts are great for short term savings such as for a family vacation, but they often provide little or no earnings. The interest rate on most savings accounts is very low, often 1 to 4%. If you have a low interest rate your money may actually be losing value if the rate of inflation is greater than the rate of interest earnings.

Money Market

If you are looking for a savings option that earns more interest than a savings account while still affording you some accessibility, consider a money market account. Higher money market interest rates allow you more earnings.

There are, however, limitations on money market accounts. Your minimum balance requirement is usually higher than a savings account. You may also be limited to a specific number of withdrawals each month. You can open a money market account at the same bank where you have your checking and savings, or you can go through an investment company.

Certificates of Deposit

A CD, or certificate of deposit is another savings option. This type of account is time sensitive. You must leave the money in the account for the specified amount of time. This time limit may be anywhere from a few months to a few years. Longer time periods mean more interest earnings.

One downside to a CD is that funds are not easily accessible. You will have to pay a penalty for early withdraw. This may negate your interest earnings.

Savings Bonds

Savings bond are issued and guaranteed by the federal government. Like a CD, they have a time limit. This allows your bond to mature for 20-30 years to its full earnings potential. You can, however, withdraw some money early if you don’t mind losing some interest earnings.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

Regardless of the type of life insurance policy you may have, you have the right to choose who you want to benefit from the policy’s proceeds. Known as the beneficiaries, you also have the right to change this designation at any time, but to do so, you’ll need to make the change on the policy itself – amendments to your Will or trust can’t alter the policy document.

Common reasons for updating life insurance beneficiaries include:

• A birth or adoption
• A death in the family
• Divorce
• Marriage
• Name changes
• Address and telephone number changes

Changing basic information, such as your name or address is fairly simple.Simply contact your agent or life insurance company and ask for the appropriate forms to make the change. Some companies may even allow you request this type of change online.

If you need to update the beneficiaries, you’ll need all the pertinent information, including the beneficiary’s name, address, contact number, social security number and your relationship with him/her.

The form will need to be signed and witnessed – in most cases, this will have to be done in front of a notary.

Be sure to keep a copy for yourself and file it along with the original policy. Also be sure to follow up with the insurance company to be sure that the form was received and the changes are made. You should receive an amended policy once the changes are completed.

If your original beneficiaries were aware they were named on your policy, you’ll need to notify them of any changes to avoid family disputes later on.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

It’s never too early to start saving for tomorrow and fortunately, there are a number of ways to do this. Here’s some tips to help you build a strong financial future.

Learn to Live Beneath Your Means

The first step to having enough money to invest or save is to learn to live beneath your means. This means not maxing out credit cards and finding a balance between buying things you want and buying things you need.

Find a Financial Planner

Before you invest a single penny, you should consult a financial planner. This person will be skilled at helping a new investor understand the wide array of investment opportunities available. He or she can help you build a diversified portfolio that balances risk with return.

Open a High Yield Money Market Account

A high-yield gives you a much higher return on your savings balance without sacrificing liquidity. That means that you can get to your money when you need to without penalty but still enjoy an interest rate bigger than the standard savings account rate of a half percent.

Learn About Investing

The idea that we’re willing to invest thousands of dollars into IRAs and 401ks without understanding the terminology or the complexities of our investments is a scary proposition. But it’s also a very common one. Most people sign up for their employer-sponsored 401k, choose the package investing plan and never give it another thought. You need to know the difference between stocks and bonds. You should understand the fees that are associated with a mutual fund. Knowing some investing basics will help you make smarter investing decisions.

Make Saving a Priority

We’d all like to save money but all too often, saving gets pushed aside for other priorities. And hey… life happens – what can you do? But you should treat savings just like you do any other obligation. Make it a priority every month, even if you have to reduce the amounts to make ends meet.

Just remember that the more you save, the more security you create for you and yours.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.