Hi there and thank you for stopping by. Today I’m going to talk about annuities. This is part two of a two-part series of videos on annuities.
My name is Tina Anders and I am the Certified Financial Planner fee only fiduciary for my firm located here in Petaluma, California, Anders wealth management. I serve clientele primarily in Sonoma County and Marin County here in California.
So, annuities. Today I want to talk about some of the risks that you take when you invest in annuities and I’m not here to tell you to not invest in an annuity. I just want you to be informed about what kinds of risks you’re taking by doing so. One of the risks of investing in an annuity is a low rate of return. Okay? Annuities have low rates of return built into them. And over long periods generally will pay out less than a portfolio invested wisely in stocks and bonds. A balanced portfolio of stocks and bonds, which is designed for capital preservation.
Annuities allow for participation in stock market returns. And they have rates of returns which are significantly lower than investing directly in the stock market that the annuities are based on. This is a fundamental feature of the insurance company taking some of the upside of your returns in exchange for them taking on some of your risk by investing in the stock market.
Another risk of investing in annuity are the high costs associated with purchasing an annuity and I did talk about that in video one on annuities. There are four basic types of fees which I did talk about. While a fiduciary and a fee only Certified Financial Planner might have a total annual cost of between one and 2% of the invested balance and that includes mutual fund, company fees. An annuity might have a total annual cost of between 4 and 7% of the investment balance. That can really eat into your returns.
Another risk, lack of liquidity. I spoke very briefly about surrender charges in my first video on annuity. So, annuities don’t let you allow you to easily change investments once you begin the contract. Withdrawal fees, which are surrender charges, which I spoke about are significant and can last more than a decade in some cases.
Another risk of investing in an annuity is you may not get the tax advantages that you think you’re getting. A tax benefit that annuities offer is the ability to avoid taxes while the account is growing. Annuities don’t provide a tax deduction for contributions made to your retirement. Annuity income in retirement from account growth is taxed at ordinary income. So, until you max out your retirement contribution limits, in say IRAs and 401K’s and so forth. You’re probably going to be better off tax wise with an IRA or a 401K, even a Roth IRA. Insurance payouts for annuities in retirement are taxed the same as any other taxable account. With the return of your capital being tax free, that’s what you put into it, you’re just getting back without having to pay taxes again. And the growth that you get on the money that you put towards the contract, any growth, is taxed as ordinary income that can add up.
There’s another risk investing in annuities and that is inflation risk. So, one of the biggest concerns for retirees in retirement is inflation. Retirement income from most annuities isn’t adjusted for inflation. So, what seems like plenty of money at the beginning of your retirement will likely leave you in financial hardship toward your later retire many years unless you have an inflation adjustment writer with your annuity, which will reduce your monthly payment, but protect you against some inflation. And I recommend if you’re going to buy an annuity, you definitely look into that.
Another risk of an investment annuity is single company risk. What this means is all of the risk in an annuity contract is concentrated in one insurance company. So, while regulations make insurance companies less likely to go out of business than other industries, insurance companies can and do go out of business. Think about 2008. If the insurance company you choose goes out of business, your annuity income will likely be greatly reduced or eliminated altogether. So be careful if you do buy an annuity with whom you put your dollars.
So, in some, annuities can be quite helpful in some situations and in many situations. It behooves an investor to hold their assets in a properly allocated diversified wealth preservation portfolio with less costly, predictable strategies for an income stream. That was a mouthful! Worth listening again if you need to.
Thank you so much for stopping by. Again, my name is Tina Anders, Anders wealth management fee only Certified Financial Planner. If you have comments, questions, topics on which you would like me to provide a video please comment below and I will be sure to do my best to help out. Thanks for stopping by again and always I am in your corner
Hi there and thank you for stopping by today. I am going to talk about annuities in part one of two videos on annuities. My name is Tina Anders. I am the fee only Certified Financial Planner for my firm located here in Petaluma, California, serving primarily clientele in Sonoma, and Marin counties.
And I’m here again to talk to you about part one of two videos on annuities. Excuse me. So, what is an annuity? An annuity is a financial product that pays out a fixed stream of payments to an individual. And these financial products are primarily used as an income stream for retirees.
Annuities are contracts issued by insurance companies which invest dollars from individuals and they help individuals address the risk of outliving their savings, which is a very significant risk. So, while annuities can be beneficial in some specific circumstances, they are less than optimal investments. And most individuals are likely to benefit more from a well diversified portfolio of stocks and bonds in a portfolio that is for capital and wealth preservation.
Despite how they’re often sold, annuities are insurance contracts and not investments. An annuity transfers a portion of the risk of investing from the client to the insurance company and the insurance company charges annual fees, sometimes upwards of 5 to 7% from the account balance in order to take on the investment risk.
So, annuities have four basic fees within the contract.
They have an investment management charge, which is much like what a mutual fund company charges to manage the investments.
They have an administrative charge that covers the insurance company’s operating expenses and profit.
They have a mortality and expense risk charge to pay for the life insurance built into the annuity, as well as other risks to the insurance company.
And finally, they have what’s called a surrender charge, which is a fee to encourage you to keep the annuity contract for a period of time without having to surrender any of your account balance. And the period is usually up to about 10 years. So, this the surrender charge is there to allow the insurance company to make enough money to pay for the salespersons commissions, oftentimes. If you want to pull your money out before the surrender charge period, you will have to give up some of your account balance in order to pull your money out.
So, when does it make sense to own an annuity? Well, if you have maxed out your tax advantaged retirement plans, your Roth IRA, your traditional IRA, your health savings accounts, your 529 College Savings Accounts, your 401k or 403B or other employer sponsored retirement plan, then it may make sense to then take additional funds that you have to invest and put them into an annuity contract so that you have another income stream in retirement.
Another reason it might be good to have an annuity. If you’re dealing with a lot of stress because of the volatility of the market, and I would include the COVID related volatility, then it might be helpful to take a portion of your portfolio and put it in an annuity contract so that you can rely on an income stream down the road, thereby removing some of your stress. Because financial peace of mind is of the utmost importance.
Another reason to own an annuity is if you need to provide for basic living expenses. Now, Social Security is designed to do that but if Social Security isn’t going to be enough, it might behoove you to place a portion of your portfolio in an annuity contract in order to help provide for basic living expenses in retirement.
If you have comments, questions, topics on which you would like me to provide a video, please comment below and I will be sure to do my best to help out. Thanks for stopping by again and always I am in your corner
Hi there, and thanks for stopping by. My name is Tina Anders and I am the Certified Financial Planner for my firm located here in Petaluma, California, Anders Wealth Management. I am filming at home because of COVID. So, bear with me. I am going to talk to you today about a strategy that can increase your portfolio returns over the long term. And is just quite frankly a smart tax strategy to use with your portfolio. It’s called tax loss harvesting – should be considered at least once a year.
Tax loss harvesting is a way for you to potentially be able to pay fewer taxes and increase your long term returns by selling off losing investments. And in this volatile market of spring and summer of 2020 It’s a good idea to look at this strategy.
In its simplest form tax loss harvesting is about minimizing capital gains taxes on your investment portfolio. It’s a strategy in which certain investment assets are sold at a loss. In order to reduce your tax liability at the end of the year. You can use tax loss harvesting to offset capital gains that result from selling securities at a profit.
You can also use tax loss harvesting to offset up to $3,000 in non-investment income. Tax loss harvesting only applies to taxable investment accounts. Tax deferred or tax-free retirement accounts like IRAs, Roth IRAs, 401k’s, 403b, etc. Those aren’t subject to capital gains taxes; don’t have to worry about.
So, this is how it works. Let’s say you have $10,000 in capital gains on certain stocks and funds in a taxable investment account, a trust account, individual account, joint account, etc. In order to minimize the tax liability from those gains, you sell other assets that will generate a loss. So, if those losses total $5,000 in your gains total $10,000, it’ll cut your capital gains, and therefore your capital gains tax in half, that’s by 50%. That’s a lot of tax money in your pocket. So, here’s the deal, though, when you want to sell assets that have dropped in value from your initial contribution or your initial investment. The IRS has what’s called a wash-sale rule. And this rule requires that a loss on a sale will not be permitted on your taxes, if the same, or substantially identical security or fond is purchased within 30 days of the transaction. That’s 30 days before the transaction, or 30 days after the transaction, excuse me. So, one way to get around it is to make sure that you wait at least 31 days, either before or after the sale of security to buy it back.
Another way to avoid the wash-sale rule is to purchase a similar but not identical investment to the one that sold. Check with your financial planner about this because some funds are so similar that the IRS may find that they are substantially identical. It’s important to understand that the primary purpose of tax loss harvesting is to defer income taxes. That’s the process of delaying the payment of taxes many years into the future. So, it’s believed to have a significant positive impact on investment returns over the long run. One study showed that regular tax loss harvesting could increase long term average annual investment returns by 1.55%. And that’s a lot.
So here’s an example. If you were to invest $100,000 at 7%, and you waited 20 years did no tax loss harvesting, you would end up with about 386, almost $387,000. That’s pretty good, right? But if you were to invest the same amount, but you did regular tax loss harvesting, you would end up after 20 years, instead of $387,000, you would end up with $516,000 plus or minus a few dollars. So that’s a difference of almost $129,000 over a 20-year period. That’s just from tax loss harvesting.
So, tax loss harvesting is well worth adding to your investment strategy. If you need help with that, reach out. Again. I would love for you to contact to me. Go to my website anderswealth.com. Go to the contact page fill out as much or as little as you want. At the bottom of the contact page there’s a text box, fill out questions, concerns, topics you would like for me to discuss in a video. I’ll be happy to accommodate. I will respond to you. Thanks again for stopping by. I’m in your corner.
Hi there and thank you for stopping by today. Today I am going to talk about how I help my clients. And my name is Tina Anders. I am the Certified Financial Planner for my firm Anders Wealth Management located in Petaluma, California serving primarily Sonoma and Marin counties.
Talking about how I help my clients, first of all, I asked a lot of questions. And then I listen, and I listen some more. My primary goal with my client meetings is to get to know what’s important to my clients. What has their attention and how I can serve them well? And out of these conversations will come valuable information from which I can begin my financial planning process.
Some areas of concern for clients, not to exclude other topics, but some primary areas are retirement projections, portfolio analysis, social security analysis, insurance review. For instance, do you have life insurance, and do you have enough? Do you have long-term care insurance? Do you have disability insurance and umbrella insurance If you have homeowners and auto? Do you have earthquake? Of course, if you live in California, definitely something to think about. Also, we will look at affording health care in retirement.
Another topic of concern would be, how to prepare for retirement income that can change over time and of course, many other topics of concern. I am able and happy to address. Two of the most common questions that I’m asked are, “Can I afford to retire comfortably when I want to? And if I can’t, what changes can I make between now and my intended, excuse me, retirement date in order to do so?” I’m happy to help facilitate peace of mind in that area of concern.
Another very common question I’m asked is, “Since I am already retired, how can I structure my assets to last as long as I want them to, perhaps the end of my life or beyond, if I have heirs or favorite charities, to which I would like to bequeath some assets?” I structure client portfolios in a conservative manner yet allowing for the growth opportunities in the markets. As a result, my clients have portfolios that withstood the recession of 2008 quite well, and their portfolios are withstanding the COVID market volatility also quite well.
I don’t trade frequently. My aim is to preserve client assets, capital preservation, preservation of wealth. It’s of the utmost priority for me that my clients have financial peace of mind, and it’s given me great pleasure to be able to help facilitate that since I opened my firm in 2007.
I love what I do. I love helping my clients. I love analyzing client financial situations to see where I can facilitate improvement. I am a fee only Certified Financial Planner. In other words, the only thing I sell is my advice. I don’t sell products of any kind. I accept no kickbacks or commissions for anything that I recommend to my clients. In fact, I’ve taken a fiduciary oath to advise and my client’s best interests. So, that’s what you’ll get from me.
Please reach out to me by commenting below if you’d like a video on a particular topic or if you have a question that I can help with. And thank you for stopping by, I do appreciate it and I am in your corner always. Thank you again.
Hi there and thank you for stopping by today. Welcome to part four of questions to ask a potential financial planner. My name is Tina Anders. I am the owner and founder and certified financial planner for Anders Wealth Management located in Petaluma, California serving Sonoma and Marin Counties in the greater area.
Here’s one question that you can ask a potential financial planner. “How do you minimize risk while maximizing returns and limiting taxes regarding limiting taxes?” You’re looking for somebody who’s going to talk to you a little bit about tax loss harvesting, which is another one of my videos. Tax loss harvesting is a way for you to minimize taxation on your portfolio. Go ahead and look at that video if you’d like to, I won’t go into detail here.
But also minimizing risk and maximizing returns. You want someone who’s going to provide you peace of mind, in your financial life. There’s got to be a way for that person to minimize your risk and maximize your returns. And it has to do with, again, I’m going to mention sales loads, expense ratios, mutual fund or exchange traded fund managers, things like that. You want someone who’s going to look into that, minimize your risk, but maximize your returns by choosing the appropriate investment portfolio allocations and targets for you.
Another question and this is really important. “How do you focus on capital preservation and income?” And another way of asking that question would be, how aggressive are you going to be with my portfolio? The answer you’re looking for is, yes, we focus on capital preservation and income because that is in your best interest over the long term. I focus on capital preservation income from my clients so that not only are they comfortable now, but what they’re doing now is going to have a significant, hopefully positive impact, on their future financial life. Capital preservation and income are very important, as are minimizing risk and maximizing returns as well as limiting taxes.
The last question that I’m going to leave you with today is that you would want to ask a potential financial advisor is, “do you take a conservative approach to investing”? Because… that’s important for me as a potential client, so that I can live comfortably now. But also if I want to leave a legacy in my future. The answer is obviously Yes you want someone who’s going to take a conservative approach to investing to provide you a comfortable lifestyle now, and if you want to leave a legacy for the future. And there are ways to do that, and if you’d like to know more, feel free to comment below. I would love to hear from you.
That is it for today. Thanks again for stopping by. I appreciate you listening in. Comment below with any questions, comments, or if you have any topics you would like me to discuss in the future, I will try to put a video out for you. Thanks again. I am in your corner.
Hi there and thank you for stopping by today. Welcome to part three of questions to ask a potential financial planner (view part one by clicking here). My name is Tina Anders. I am the owner and founder and certified financial planner for Anders Wealth Management located in Petaluma, California serving Sonoma and Marin counties, and the greater area.
Here’s one question that you can ask a potential financial planner. Are you accountable to your clients and how so? In other words, do you say what you’re going to do? And do you do what you’ve said, you’re going to do? The answer obviously, should be yes. How I’m accountable to my clients, I talk about what I’m going to do, and I follow through. I asked my clients to do things they follow through. I’m accountable for following up. I’m accountable for checking in. I’m accountable when there are COVID-19 situations at hand. I check in with clients. I am accountable, I will do, and I do what I say I’m going to do.
Another question you might ask is, how do you work in my best interest? Have you taken a fiduciary oath to work in my best interest as a potential client? The answer, of course, should be yes. A fiduciary oath is critical, because that indicates to you that the financial advisor that you’re interviewing actually is not going to be selling you products at the expense of your financial success. That they have your best interest in mind. Critical, definitely asked that question.
Another question that you might ask is, for how long have you been investing? And do you provide expert investment management? The answer is yes to expert investment management by looking at funds for instance, diversification about funds, sales loads, expense ratios, returns, fund management. There are things that an investment manager for your portfolio needs to be looking at to make sure you are positioned properly and diversify. But also, expert Investment Management means positioning you in a way that’s going to work for you over the long term, and also is going to work for you for your peace of mind. It also doesn’t mean aggressive, it means successful. So, for how long have you been investing? You might ask? I’ve been investing personally since 1983. Successfully, not aggressively, successfully, and really, really enjoy it.
Another question that you might ask is have you built your firm on integrity and trust because not only was it going to be good for business, but also the right thing to do? And that’s kind of, kind of an obvious answer you’re looking for, which is, of course, yes. How do we do that we build relationship over time. There’s no rush. When you’re ready, we proceed to the next step, integrity. I have integrity with my clients. I have integrity with the people I deal with. I am also trustworthy. That’s important. You’re going to get a feel for somebody, when you walk in the door and you sit down and start asking these kinds of questions. Is this something that I feel like I can trust? Does this person seem to have integrity? So, it’s going to be a personal, subjective feeling on your part? It’s always the right thing to do to build a business on integrity and trust. Always the right thing to do, whether it’s good for business or not. And it always is.
Another question you might consider is are you passionate and unwavering with the work that you do with your clients. What I mean is, do you care about your clients? Or do you close the file at the end of the day? And you don’t talk to them for a year? And then you open their file again? Do you care? Are you unwavering in your care? Are you checking in, at least with their portfolio? If not with them a few times a year? Passionate and unwavering also means are you interested in the industry? And what’s going on in the industry that could affect your clients? Are you staying abreast of the material and I touched on that earlier regarding being a certified financial planner? If your Certified Financial Planner, you’re mandated within the certification rules to be getting at least 30 units of continuing education over the two-year period, every two year period. But passion unwavering? Yeah, that would include staying up to date on what’s going in the industry so that you can be as helpful to your clients as they hope that you will be.
Tune into part four for questions to ask a potential financial planner. Thanks again for stopping by. I appreciate you listening in. Comment below with any questions, comments, or if you have any topics you would like me to discuss in the future, I will try to put a video out for you. Thanks again. I am in your corner.