Advise Finance, LLC
Certified Financial Planner
Rose was born and raised in China, but educated in the US. Consequently, she enjoys the best of both worlds. She aims to incorporate that philosophy into her practice and provides her clients with the same privilege. Rose was the first American Certified Financial Planner(tm) practitioner who ever won the annual international financial plan competition twice (2014 & 2016), sponsored by the Global PlanPlus Award. Additionally, Rose has been frequently interviewed and quoted by major financial media sources, such as The Wall Street Journal, Kiplinger, Forbes, US World News, Reuters, CNBC, Chicago Tribune, and InvestmentNews. You can see a clip of her interview with the local TV, WBIR, about teaching kids of financial literacy.
Besides having the general knowledge of financial planning, Rose has two other distinctive designations: 1) RICP®--Retirement Income Certified Professional, which gives her the expertise to help retirees during the retirement in issues such as safe income withdrawal, Social Security and Medicare planning, long-term care, etc, and 2) CDFA®--Certified Divorce Financial Analyst, which allows her to assist attorneys and clients to achieve the best possible equitable settlement and at the same time to avoid typical financial and tax pitfalls. Rose Swanger is passionate about promoting financial literacy. Her personal goal is to help Americans get their financial houses in order, one community at a time.
BS, Medical Technology, Georgia State University
MBA, Financial Planning, California Lutheran University
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Advise Finance, LLC
Since you specifically asked for the disadvantage of annuities, I will share what I see from a professional vantage point.
1. Inflexibility- Once the money is invested in an annuity for whatever the reason (tax, retirement income, etc.), it mostly likely will stay in the annuity. Rarely the annuitants take it out and reinvest in a taxable account for too many risks, a harsh surrender charge, a hefty tax (an early penalty tax prior to 59 ½ , unfavorable tax treatment-ordinary income tax instead of the favorable capital gain tax rate), losing existing accumulated benefits (especially for deferred income annuities or annuities that offer lifetime income benefits riders), etc.
2. Fees- Annuities cost, a lot more than a traditional investment strategy that uses low cost broad index funds. However, it may provide a lifetime income for a retiree that no traditional portfolios can offer. For that reason, retirees may transfer the investment risk and fees to an insurance company in exchange for the peace of mind.
3. Inflation protection- Even though some newer policies have added the inflation-riders with a cost, most annuities are sold as a bare minimum, which ironically provides a higher benefit than the ones having the riders. Without inflation protection, your future benefit will have the less purchasing power.
Hope the three unfavorable opinions have started you on the right research for learning an annuity. Best!
Who doesn’t want to keep more and give less in tax dollars? If you have a 401(k) at work, the first thing I would do is to max out your 401(k) contribution. Next, if you have an IRA, contribute the maximum to your IRA. Generally speaking, a Roth IRA is a much better option than the traditional IRA because tax-free withdrawals during retirement won’t affect your income that is subject to tax and increase your Medicare Part B and D premiums. Depending on your income, you may or may not need the two-step conversion to Roth. Then, if you have a high-deductible health insurance plan, max out your HSA so you can take a deduction for the 2016 tax return as the deadline for 2016 contribution is April 15, 2017.
Last but not least, if you consistently receive a sizeable bonus, an annuity may be another way to defer your tax.
Before you do anything, I would talk to a trusted CFP® to tailor your investments based on your goals and circumstances. Best!
Have you heard the phrase “Don’t let the tax tail wag the dog?” It’s good to proactively plan for investments with tax sensitivity, but try not to make the decision based on tax alone. In this case, the current President may lower the tax, but what about the next one? Recall, we just had a president who increased the tax rate during his 8-year presidency.
So, to better protect yourself, I would do both—max out pre-tax and after-tax retirement saving vehicles. If you’re working, you might want to make a full contribution to your 401(k)/403(b) account to lower your annual tax liability. At the same time, make a Roth contribution for the future.
Did you know your future withdrawal from any pre-tax saving vehicles may cause your Social Security benefits to be taxed? Thus, if you have any traditional 401(k)/403(b)s or IRAs, you may defer the tax now, but they will “explode” when the RMD (required minimum distribution) time comes. That’s why many people jokingly refer to those pre-tax savings vehicles as “tax bombs.” Therefore, it’s better to prepare and give yourself many options with the saving bucket to tap and generate the least amount of tax. Best!
Education and retirement planning seem to be at odds in the list of saving priorities for many parents, but it does not have to be. You may be surprised that you might be able to do both.
As a parent, I’m in the same shoe you are. I have three boys: one is in the college, and two are approaching college. As much as I love my kids and value the college experience for them, I’m keenly aware that there is no retirement loan for me when I need the most in the future. Furthermore, in contrast to my remaining working years (two or three more decades if I’m in a good health), my kids have five or six decades ahead of them. Time is on their side, thus they can afford to borrow the loan. That’s the down payment for their career path.
So, how do we approach both? In setting up many retirement plans (401(k), SIMPLE IRA, SEP IRA) for some small business owners, the constant feedback I got from the participants was “I didn’t even notice my paycheck gets smaller.” Not only they save for their future, but they obtain the free matching money from their employers along the way. Thus, first thing you may want to consider is to max out your work sponsored retirement plans. For 2017, it’s $18K for 401(k) participants who are younger than 50, $12,500 for SIMPLE, and $54K for SEP. In a two-income earner household, if both spouses can max out their salary deferrals, that’s $36K pre-tax savings already.
Secondly, when you max out your IRA, whether Roth or Traditional, that’s another $11,000 in savings. In doing those two things alone—maxing out 401(k)s and IRAs—you already save $47K per year. Given two decades of growth, at a 5% return, you’re looking at $1,554,099 nest egg in the future. Or, using 25 years with a 5% return, the annual $47K saving could have grown to $2,243,174.
Now, if you still have some extra cash after maxing out your retirement savings, please do consider saving for college. Remember that any bit helps as kids may get scholarships, grants, or earnings from work through their own effort. The goal is to give them help without jeopardizing your retirement. Best!
Get ready for plenty ramen noodles ahead. Jokes aside, I admire your thinking and planning ahead. Advancing for further education helps boost income, but the initial hurdle to overcome a big student loan is intimidating. So, here are some suggestions to consider after working with many resident/fellow physicians:
1) Continue your Roth contribution every year and use low-cost broad index funds. Try to have only a couple of funds if you have a limited amount as over-diversification does not help the return.
2) Have a budget to know your expense and keep an eye on your credit score. Having a high credit score will help you refinance later with the private lenders. Believe it or not, your high GPA in finance is your advantage in negotiating a lower interest rate from those private lenders who want your business.
3) As soon as you’re eligible for an employer’s sponsored retirement plan, sign it up and fully fund it. It will help your tax. Best to you!