Anthony Capital, LLC
Whether your question is about social security draw age, balancing risk and return in an investment, tax planning, or which strategy you should use to cover long term care needs, your chance for success improves dramatically with accurate information. Matthew believes his role is to guide clients through these trade offs using various tools, experience, and his training as a certified Retirement Management Analyst which centers every decision on improving retirement outcomes using math and science.
Matthew has become an expert in optimizing the financial lives of public and private sector employees. Several years ago, recognizing a huge need for benefits education and basic financial planning, he teamed up with The Society for Financial Awareness to offer workshops, seminars, and private consultations with a goal toward education. This collaboration has given thousands of public and private sector employees access to fiduciary advice while requiring no minimum investment amount. This educational approach that focuses on the best interest of the person has created millions in dollars of value for the attendees and their families.
He is a well know presenter in San Antonio and surrounding areas having taught hundreds of seminars touching on subjects ranging from debt solutions, investing, Social Security, pensions, insurance, and other financial topics.
Being the 8th of 11 children- Matthew has real life experience in financial planning as he put himself through college, graduating from Brigham Young University with no debt and money in the bank. He speaks fluent Thai and enjoys traveling whenever occasion permits. His personal life centers around being a father to 3 boys and husband to a beautiful and creative wife.
Brigham Young University
Assets Under Management:
You're doing a fantastic job of looking at the multi-faceted aspects of RMDs. Your question is also a great one because not only does it show how complicated these can be but how imminent they loom not just for you, but for all retirees with money in tax deferred accounts.
There are several approaches that would work but I'll start with that one which seems most applicable to you (this is for informational purposes only though).
That strategy would look like this: Take your RMD and have the provider send 100% of it to the IRS. Using this as a tax payment offset, then take a portion of the remaining funds equal to the tax payment just made (be aware of tax bracket thresholds) and convert some of the remaining funds to a Roth IRA. Repeat this each year until all monies are Roth IRA.
The advantages of this plan: Roth IRAs are not subject to RMD rules.
You do not experience any difference in your income or taxes on that normal income as this is largely an insulated transaction- meaning your cash flow in retirement is unaffected.
You can leave this Roth as a tax free gift to your son and granddaughter that can continue to give them lifetime tax free growth as well!
As for which accounts, I would need to examine your situation and contractual obligations closely before increasing the specificity but if you look at the 10% free withdrawals as an optional cash account, that might provide more liquidity to maneuver this strategy, especially since you mentioned you don't think you'll keep them beyond the surrender period.
I hope this helps.
In your situation, that was not a bad solution at all. It gave you a guaranteed return on what would otherwise have been a cash/ money market fund returning little to nothing. More importantly however, it was only one part of a much larger plan.
But let's take a more specific look at your main question "should annuities be used as temporary investments?"
What is a person's timeline? "several years ago" you had more than 2-5 years until retirement, which makes the 4 year commitment less daunting. For some people reading this, that could/ should be a deal breaker. Annuities will generally tie up money for a specified time with only 10% being liquid usually- any money withdrawn in excess of 10% is penalized with 5-12% penalties. So for people with a need to access money within 5 years, any annuity longer than 5 years is inappropriate.
What is your risk tolerance and does your overall portfolio reflect that risk level? In your situation, you are not risk averse which would usually make anything but a variable annuity likely inappropriate. However, you wisely recognize a need for some sort of "cash equivalent" holding to hedge against a broad market decline. Hopefully, you've limited your annuity holdings to a portion of your total investments otherwise your gains will be very disappointing. For other more risk averse investors however, fixed, indexed, and even immediate annuities can be a great option for risk management assuming they are used appropriately and are not overly allocated in terms of overall portfolio percentage.
Lastly, type of annuity and details of the specific contract matter. In your case, you actually did well because you worked with an Investment Advisor, not just a straight insurance guy. While there is nothing wrong with straight insurance guys, they tend to see the solution to every problem as (SURPRISE!) more insurance. This seems like a small and unrelated note but it really is everything- most investors are not steeped in the investment world and I've even seen lawyers confused by the various contract terms in annuity contracts. Because Investment advisors act in a fiduciary capacity and are therefore legally liable for advice they give, they are at large far more interested in the details that really matter to the investor within annuity contracts. For example: in your situation, the 4% you secured in contract is very competitive even today with the rising interest rates. And because they have access to nearly limitless investment options, Investment Advisors generally will be more hesitant to lock in sub-3% rates. Add to this the requirement that they have transparent fees, and you can be assured that not only are you getting competitive rates but that costs and fees will not be popping up to rob you of the smaller returns you do receive on the cash portion of your portfolio.
Going forward, I cannot say that annuities are the best option. Or even treasury notes for that matter. Instead, I'd recommend you continue to consult your investment Advisor each time you begin looking at cash-equivalent options because "if it ain't broke, don't fix it".
If you've lived in the house 2 out of the last 5 years, $250,000 over what you paid is tax free. If the house is in the name of you and a spouse and you've both lived there, $250,000 per person ($500,000) over the original price you paid will be tax free to you.
So depending on how much it's appreciated, you could be gaining some money without paying any tax!
Congratulations! That is really awesome.
Your question is one that many high net worth clients are struggling with and is certainly part of the reason that Bitcoin jumped so much this year- people were looking for alternatives to stocks and bonds.
While I don't heavily advocate for crypto-currencies, the idea of seeking investments that are not directly tied to the "market" is a sound idea though given the high valuations. Considering your sizable investable assets you have the advantage of being able to access private funds and other non-public ventures. Examples include real estate funds, oil and gas funds, and partnerships in private businesses, as well as even less traditional funds like buying legal settlements and making small business loans. These can provide significant returns but they also can provide much greater diversification from the various business cycles that plague the traditional markets. Experience and due diligence is highly important with these investments however.
Obviously, your goal should be to find someone who is competent and who you can trust. My opinion is that you will be best served by someone who works in wealth management and has alternative investment expertise. Wealth management is different from investing/ insurance guys, and even differ from financial planners in that they work solely with high net worth individuals to integrate all financial aspects, whether that is taxes, interest, or asset valuations, etc, into a comprehensive picture that provides the most value to you.
That said, while I'd love to help you, your situation is outside of my wheelhouse. Depending on your goals, I'd refer you to one of two people- Dave Anthony is more wealth builiding and uses alternatives, or Kirk Cassidy for charitable and retirement planning. They are both top 3 for most brilliant, creative,and innovative managers out of the thousands I've met. And perhaps even more importantly, they are straight shooting and squeeky clean.
This depends largely on your pension plan. But that said, generally if you took a survivor's benefit when you retired and your first spouse later passed, then you could potentially continue that spousal survivor benefit.
If you were not married at the time you retired, then you will need to contact your benefits department and ask them if it is still an option to add a survivor's benefit to your pension- But be prepared to have your pension cut while you're alive to fund this option. Sometimes, it can be less expensive to just buy a Guaranteed Universal Life Insurance policy but it never hurts to ask.
When you hear back from them, if you still have questions don't hesitate to contact me.