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Variable Annuities and Your Retirement Strategy

Retirement savers are generally wise to take full advantage of the tax benefits that apply to employer-sponsored retirement plans and IRAs. However, because these tax-deferred plans are subject to strict annual contribution limits, many higher-income individuals may not be able to set aside enough money in them to pursue a comfortable retirement lifestyle.

Because a variable annuity is not subject to federal contribution limits, it enables investors to invest more after-tax dollars to supplement the income they could receive from other plans. Taxes on earnings are deferred until withdrawn.

Not only does a variable annuity offer a way to pursue investment gains, but it may offer an opportunity for the contract holder to purchase guarantees (for an additional cost) to help protect against the downside risks of investing in the markets. Examples may include the guarantee of minimum fixed income payments or a guarantee to withdraw a specific amount over a lifetime, regardless of account value. Of course, any guarantees are contingent on the claims-paying ability of the issuing insurance company.

If you are looking for a way to supplement your retirement income and defer taxes on

The Dynamics That Can Drive Inflation

In the first half of 2011, spikes in food and gasoline prices strained the budgets of many Americans and sparked fears of more persistent inflation.

Nonetheless, the Federal Reserve expected such price spikes to be temporary and forecasted the overall inflation rate to stay in the neighborhood of 2.5% in 2011, with the core consumer price index (which strips out food and energy) to grow in the range of 1.5% to 1.8%.1

The Fed focuses primarily on the core CPI — assuming it is a more accurate measure of long-term price movements — and aims to keep it near a target of 2% a year.

By that standard, consumers have experienced only moderate inflation over the last two decades. Many manufactured goods, such as clothing, computers, and many types of electronics, actually became much more affordable during this period.

Here’s a closer look at the reasons why some economists see the potential for higher prices in America’s future.

Emerging Economies

It’s possible that headline inflation, a broad measure that includes food and energy, may deserve more attention from policymakers going forward.

Understanding the Three New U.S. Trade Agreements

On October 12, in a demonstration of bipartisan cooperation, Congress passed three separate trade agreements — with South Korea, Colombia, and Panama. They are the first trade agreements in four years. In terms of potential impact, the trade pact with South Korea is the most significant since the North American Free Trade Agreement (NAFTA) with Mexico and Canada in 1994.1

Proponents believe the agreements could boost exports by $13 billion annually and support tens of thousands of American jobs.2 The U.S. Chamber of Commerce claims that the pacts will prevent the loss of 380,000 jobs.3 However, labor organizations caution that the deals might lead companies to move more jobs and factories overseas.4 To address this concern, separate legislation extended financial and retraining benefits for workers who lose their jobs to foreign competition.5

It’s too early to know the outcome, of course, but the agreements represent a positive effort to stimulate economic activity at a time of congressional gridlock, slow GDP growth, and high unemployment.

Is Your Business Ready for a Structure Change?

Three-fourths of CEOs running small and mid-size businesses reported in March 2011 that they were anticipating higher revenues in the year ahead, and nearly 60% expected rising profits. Among those who expressed confidence in their futures, 54% expected to hire more employees and 50% were planning to invest in their facilities.1

Growth is often accompanied by change. In fact, the U.S. Small Business Administration has found that increased employment and faster growth are factors that often lead businesses to change their legal form of organization.2

For business owners seeking to reduce their exposure to risk, a popular entity in recent years has been the limited liability company (LLC).3 Here are some additional benefits associated with LLCs.

Legal protection — An LLC offers many of the legal advantages of a corporation and may help shield the business owners’ personal assets from lawsuits brought against a firm’s products or employees. In theory, financial losses would be limited to the owners’ stake in the company, but exceptions may include any business debt they personally guarantee or misdeeds (such as fraud) they carry out.

Simplicity — In most states, an LLC is easier

Giving Strategies That Can Give Back

A recent survey in 136 countries suggests that spending money to help others may be a universal source of personal happiness.1 Americans seem to take this to heart, giving more than $290 billion to charity in 2010, even with the slow economy.2

When making a substantial donation to a specific charity, you might consider trust strategies that may allow you to give generously while potentially benefiting yourself and your heirs. A good first step is to understand the basics.

Charitable Remainder Trust (CRT)

In a CRT, you (the grantor) can donate money, securities, property, or other assets to the trust and designate an income beneficiary — even yourself — to receive payments of a specified amount for a set period or your lifetime (or the lifetime of your surviving spouse or designated beneficiary). Payments must be made at least once a year and may be fixed or variable depending on the type of CRT you use. Upon your death (or the death of your surviving spouse or designated beneficiary), the assets in the trust go to the charity.

Although the annual trust income is usually taxable, you may qualify for an income tax deduction based on the estimated present value of the remainder

To Roll or Not to Roll: It’s Your Choice

It used to be common for employers to encourage (or require) departing employees to withdraw their money from the company’s retirement plan.1 Like most employee benefits, an employer-sponsored retirement plan is typically an expense for the employer.

Now that the baby-boom generation has started reaching retirement age (at the rate of about 10,000 per day), some employers are encouraging departing employees to leave their retirement savings in the company plan.2–3 These employers are finding that the loss of large employee accounts can diminish their leverage when negotiating with plan administrators, possibly making their retirement plans less attractive to current and prospective workers.4

If and when you leave your current job, either to retire or to take a new position, understanding the options for your retirement savings may help you make decisions that serve your interests and not those of a former employer.

Stay Versus Roll

Employees are under no obligation to leave money invested in a former employer’s retirement plan but are free to roll it over to a traditional IRA.

How Can You Insure Your Future?

Long ago, people realized that there is strength in numbers. For hundreds of years, we have been joining forces against all kinds of calamities — including financial troubles.

The concept of insurance is simply that if enough of us can pool our money to form a large enough fund, then together we can handle practically any financial disaster. Our motivation for contributing to this fund is our own eligibility to draw from it in the event of a disaster. One for all and all for one, so to speak.

An early example of the concept comes from the Code of Hammurabi, Babylonian laws dating back to 1700 B.C., which contain a credit insurance provision. For a little higher interest, the ancients could exempt themselves from repayment of loans in the event of personal misfortune. A citizen of the Roman Empire could buy life insurance through the Collegia Tenuiorum for slaves and wage earners, or the Collegia for members of the military. The funds provided old-age pensions, disability insurance, and burial costs. In spite of some complications and occasional bureaucratic snarls, the system has worked remarkably well through the ages.

Today, virtually all heads of families should carry life

What Is a Reverse Mortgage?

 Many Americans facing retirement would love to increase their monthly income.

Faced with fixed pensions, rising medical expenses, limited Social Security benefits, and longer life spans, an increasing number of people are actually being forced to lower their standards of living when they retire.

As you approach retirement, one of your major assets is likely to be your house. By the time the average person retires, his or her home is usually worth significantly more than he or she paid for it.

Now there are techniques that will enable you to use your property to finance your lifestyle without the emotional trauma of having to sell your home.

Reverse mortgages effectively allow you to annuitize your house. All borrowers must be at least 62 years of age for most reverse mortgages. You may decide to receive a fixed monthly payment for the rest of your life. This is tax-free because it comes in the form of a loan. You don’t even have the worry of repaying the money. It is only due upon the death of the surviving spouse with the sale of your property.

Owners generally must occupy the home as their principal residence (where they live the majority of the year).

The monthly payment

What if I withdraw my money early?

What Happens If I Withdraw Money from My Tax-Deferred Investments Before Age 59½?

Withdrawing funds from a tax-deferred retirement account before the age of 59½ generally triggers a 10% federal income tax penalty; all distributions are subject to ordinary income tax. However, there are certain situations in which you are allowed to make early withdrawals from a retirement account and avoid the tax penalty.

IRAs and employer-sponsored retirement plans have different exceptions, although the regulations are similar.


  • The death of the IRA owner. Upon your death, your designated beneficiaries may begin taking distributions from your account.
  • Disability. Under certain conditions, you may begin to withdraw funds if you are disabled.
  • Unreimbursed medical expenses. You can withdraw the amount you paid for unreimbursed medical expenses in excess of 7.5% of your adjusted gross income for the year of the distribution.
  • Medical insurance. If you lost your job or are receiving unemployment benefits, you may withdraw money to pay for health insurance.
  • Part of a substantially equal periodic payment (SEPP) plan.

529 Lesson Plan: High Scores for 529 College Savings Program

Looking for a tax-advantaged college savings plan that has no age restrictions and no income phaseout limits— and one you can use to pay for more than just tuition?

Consider the 529 college savings plan, an increasingly popular way to save for higher-education expenses, which have more than tripled over the past two decades — with annual costs (for tuition and fees, and room and board) of almost $37,000 per year for the average private four-year college.1 Named after the section of the tax code that authorized them, 529 plans (also known as qualified tuition plans) are now offered in almost every state.

Most people have heard about the original form of 529, the state-operated prepaid tuition plan, which allows you to purchase units of future tuition at today's rates, with the plan assuming the responsibility of investing the funds to keep pace with inflation. Many state governments guarantee that the cost of an equal number of units of education in the sponsoring state will be covered, regardless of investment performance or the rate of tuition increase. Of course, each state plan has a different mix of rules and restrictions.