As tax time approaches many of us will understandably look for ways in which we can give less to the government. What can you do to potentially lessen your future tax liability after you’ve taken the standard deductions and made your Individual Retirement Account (IRA), Keogh and 529 plan contributions? A lot.
Tax-advantaged investing is a gigantic field with many possibilities for investors of all age brackets and for those at every risk-tolerance level. For starters, consider the potential advantage of annuities. If you’ve ever worried about outliving your assets or the strength of the Social Security system, then it may be time to consider an annuity.
Annuities are designed to provide a regular income stream during your lifetime. This continues to make them a leading choice for many retirees and pre-retirees. They also offer other benefits, such as tax-deferred compounding on the account’s investments -- a potentially powerful savings advantage and an option for a guaranteed rate of return. Living benefits commonly provide a protected withdrawal value, daily opportunities to capture greater lifetime income and a “floor” to guard against loss. And while there are literally hundreds of annuities to choose from, any annuity is only as good as the financial strength of the company behind it.
Very often the biggest obstacle surrounding annuities is that they’re misunderstood. Are they perfect? No and neither is any other investment. Each has its own risks and expenses but annuities have helped countless individuals enjoy their retirement. While annuities are the only investment to offer income for life they also frequently come with lengthy surrender charges typically 7-9 years, the newer generation of contracts offer shorter and/or lower charges.
Variable Annuities (VAs) can be expensive. Costs typically run a bit under 3% inclusive of the living benefits. A VA’s living benefits can give you a guaranteed, annual lifetime income of 5-9%, usually with some sort of refund for a spouse or estate, while offering higher potential returns as they invest in stocks, as well as bonds and money market instruments.
Fixed annuities often invest in bonds, mortgages and other instruments where the return is highly regular. Many now view the income benefits and relative stability of fixed annuities very favorably. However, the fixed interest rates currently offered reflect the low interest rate environment of today. [subhead bold] Insurance – A Basic Building Block
Traditionally, insurance has been a leading choice for those looking to provide financial security for themselves and for those they care about. As people’s financial lives have become increasingly complex, insurance has evolved to meet many new challenges. In addition to providing financial security, its traditional purpose, insurance now often plays a role in trusts, estate planning and overall wealth management. In some cases, it is a key component in tax-reduction strategies. Today dual-income households, business partners and people who depend on others use insurance to help secure their long-term personal and financial interests.
Deciding which form(s) of insurance or investments are right for you is not a one-size-fits-all process. When getting serious about any investment it usually pays to work with an independent financial adviser. They can put the most efficient and transparent products to work for you and are not tied to any quotas or “product lists.” Be sure you work with a financial adviser who takes time to learn your long-term financial needs and goals, including risk tolerance and other factors such as age, health and marital status to name a few other factors before making recommendations.
As we stated at the top of this column, tax-advantaged investing is a wide field, in future editions we’ll discuss tax-managed mutual funds, bonds and other choices.
Leslie Strebel is an independent financial adviser and Certified Business Coach with The Strebel Planning Group in Ithaca (www.strebelcpa.com).
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Comprehensive financial plans for clients who wish to implement strategies for reaching goals in the areas of retirement, education, estate tax, income tax, risk management and investments. I also work extensively with business owners to create high quality and affordable employee benefits programs.
Jeannie Campanelli, Ed.D, CPCC, is deeply committed to sparking the hearts of people to experience an inner confidence - that sense of wholeness, aliveness, and serenity that comes from deeply knowing yourself, fully accepting the lightness and darkness of being human, and living freely by standing in your own truth.