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:
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.
To begin, annuities can be very complex with several different types of annuities available and each of those generally having a number of subgroups. To really assess what will happen to a specific annuity after death (or even to understand its features prior obtaining one), a qualified, fiduciary financial advisor should be consulted.
(The following is not individual advice nor an exhaustive list of annuities and their features but rather an oversimplification for the sake of education.)
Let's split annuities into two parts: Immediate and Deferred. (These terms refer to when the annuity starts paying you money).
Immediate: One of the most common Immediate annuities is a Single Premium Immediate Annuity. These allow you to exchange a lump sum for a guaranteed payment for certain period such as 5, 10, or 20 years, or a lifetime (the lifetime option can be on joint lives as well meaning that the last person to die of the two original people named keeps getting the same monthly check). People with a very low risk tolerance or who have a very long life expectancy often find these appealing. What is sometimes misunderstood however is that once elected, the lump sum is no longer your asset, but rather the insurance company's asset. In other words, you don't own your money anymore. You traded it for a paycheck. This makes these less desirable for people with shorter life expectancies and those desiring to leave money to heirs. Another drawback that is often understated is the fact that only a small part of the money coming in is investment income- the vast majority of it is just your money coming back to you.
Hypothetical Immediate Annuity: Pay $100,000 to ABC insurance company. They now own the $100,000. In turn, they send you $500 a month for the rest of your life. But until you've received checks for 16.6 years, you've made no money but just been receiving the original $100,000 in payments. Often these do have return of premium riders or other potential benefits you can add, but each rider usually decreases the monthly payout thus stretching out how long it takes to get your own money back to you. For most immediate annuities, when you die your estate gets nothing and payments cease (unless you were still within the guaranteed period i.e. 10 year certain and you die at year 8 then the estate would pick up payments for the next 2 years until the 10 years are complete).
Deferred: These annuities are often similar to traditional investments in that you are not generally giving the money to the insurance company but rather letting them invest it for you. In return, you can be guaranteed returns at a fixed rate, guaranteed a rate within a specified range, or given a varying rate based upon market performance. These can be cashed out when you're done with them or can be annuitized which means you switch the money into payment mode. Unlike the the majority of immediate annuities, in payment mode on most deferred annuities you are still owner of the money but the amount you "own" is decreased by each payment of your money you receive. It is possible however to add a lifetime income rider to these so that the annuity cannot stop payments to you while alive even if the account value reaches $0 but these are almost always subject to an additional cost. Hypothetical Example of Deferred Annuity: Put $100,000 into annuity, wait 10 years to draw. At that point you can take out $135,000 lump sum (with taxes due on all growth if bank money (N/A if IRA money)), start paychecks of desired amount every month until money is gone, or if the rider was elected for lifetime income $500 a month for the rest of your life. The disadvantage of these is that they generally have surrender periods which means even though the company does not own your money, they have a right to use it for a specified period (7, 10, 15 years are most common). If you decide you want it back in that specified period or if a financial need comes up that requires withdrawals above the allowed percentage (often 10%), then you can pay penalties in excess of 12%! This means that in the $100,000 example above, you could lose up to $12,000 to the insurance company if you decide to stop the investment during the surrender period. Ouch!!
At the annuity owners death, any remaining money in the actual account goes to named beneficiaries. (It should be noted that if you elect the lifetime income option on these types of annuities, they will often have two amounts listed on your statements: one is the actual money in the account and the other is how much they are basing your monthly payment on. The first is liquid; cash in your pocket money. The second is really just a theoretical number for calculating your payment and does not pass to beneficiaries as a lump sum (usually).).
Great question. Generally withdrawing early is frowned upon in financial circles- often because it is unwise for the client, sometimes because the manager is worried about assets under management. The underlying question is can I pay the taxman more right now so that I can pay the Bank less.
Let's look deeper at the numbers to determine what is right* for you (*this is hypothetical given I don't have all your financial information and is done in rough numbers for education purposes only).
If you withdraw $10,000 you will only take home roughly $7,500 after 15% tax and 10% penalty assuming you make ~$45,000 a year or less. If you need the full $10,000 and have it available in your IRA, then we would need to take $13,350 to get the $10,000 you need to payoff the card balances. Total cost = $3,350 taxes.
(Again, if you are making $97,000 or less that could be closer to $15,000 withdrawal with a $5,000 cost)
Pay $500 a month over the next 2 years to pay off the cards. Total cost = $1,709 interest
(However, if it takes you more than 3.8 years to pay off the loans then your total interest cost increases to $3,400!)
In summary, the rough numbers seem to suggest that you'd be better off cutting money out of some other part of your budget to set up an accelerated payment plan rather than take the withdrawal.
Simply put, yes you can invest in hedge funds assuming you meet the funds criteria for membership.
Those requirements usually follow the SEC minimum rule: you must have $1,000,000 net worth (assets- debts= net worth) OR have made over $250,000 for the last 2 years and will make at least that much this year as well ($300,000 for married couples). Those requirements are set to assure that the investor is an "accredited investor" and therefore should have the accumen to understand and the assets to risk on the advanced and aggressive nature of Hedge fund investments. Of course, individual Hedge funds can have much higher minimum net worth or investment requirements. Technically Hedge funds are allowed have up to 35 non-accredited investors enter the fund- that is over the lifetime limit of the fund. But again, people with less than $1,000,000 have much more conservative investment needs and cannot afford to risk as much. So to keep it simple, they will usually just stick to the million requirement.
For those investors who get cut out by the minimum requirements, some hedge funds will have investment funds that operate on a "similar" framework to their Hedge fund but that is available to retail investors. They do not duplicate the results of the Hedge fund but are usually positioned to mimic it's investments. These have appeal for those who want to play with the big boys but don't quite have the cash yet.
Perhaps instead of CAN you, we should look at SHOULD you. For the ultra high net worth, Hedge funds can offer access to the complex types of investments that they need to grow and protect their wealth. But if you have $1,500,000 - $5,000,000, though you certainly have the option to get into various Hedge funds and probably have even been to a dinner or event sponsored by a fund, consider this before you dive in. Warren Buffett runs Berkshire Hathaway. Not a hedge fund but with shares costing $293,000 a piece at today's rate, it definitely appeals to an exclusive crowd. He made a bad investment in 1993 (Dexter Shoes) and lost $433,000,000 of the funds money. That's $5,000,000,000 in today's dollars. He was frustrated and angry with himself for the poor decision and it hurt his track record and cost investors in his fund a bit of money. But it doesn't seem to have been catastrophic for any of them. How many investors could handle that? Even a pool of investors worth an average of $3,000,000 a piece would struggle to stomach that kind of loss.
In summary, Hedge funds are an investment option for those with the money or connections. But it would be ignorant to do something just because you can. A more balanced approach would be to create an overall plan or strategy based around your income needs, expected lifestyle, and final legacy you wish to leave. From there, the investment tools you utilize will not be just because you can or even just throwing crud at the wall, but rather part of a more organized whole- because in holistic financial planning "the whole is greater than the sum of the parts."
No, I wouldn't advise you to simply withdraw all money and pay off your mortgage. Withdrawing some money and paying off part of it could be an option depending on other considerations. If you're married and how long you may continue working are highest on the list but here are some other things you might weigh before making a final decision. There are alot of factors that actually could and should go into this decision.
Among them are:
1. Option of refinancing. 5.25% is not normally bad but at today's rates you could likely secure a lower interest rate. Given that your total savings, liquid assets are less than $250,000, we might want to hold onto those for retirement and potential healthcare costs. Refinancing down to a 20 year note could get you rates lower by ~1.5% without having to empty your coffers.
2. Expected returns in the portfolio and expected risk to achieve those returns. The 5.25% is a guaranteed cost- you will pay it. If you are making 7% on your investments, some people might say to not pay off the mortgage and keep the 1.75% difference but that depends on if the 7% is guaranteed- probably not, but is probably rather variable which means the sure thing might be better.
3. Tax status of funding. Simply put, where you draw the principal payment from depends on your tax situation. For higher income years (or if you have a significant pension, inheritance, etc) it might be advisable to pay down your mortgage using the savings and stock account, but not the 401(k) so you do not bump your tax rate. If however, this is a low year of income and you foresee higher years in the future (i.e. social security beginning, pension begins, spouse begins getting SS or pension payments, etc) then maybe accessing the 401(k) could be the ideal solution this year.
4. Have you considered a reverse mortgage? That could be a way of eliminating the payment while still being able to continue living there. There are some conditions like you must continue living there, you're still responsible for repairs, etc. but it can be a very good option.
The best decision in your case would probably involve combining some of these ideas here. For example: maybe you take the stock account and liquidate to make a lump sum payment and then do a HECM reverse mortgage to establish a credit line with increasing value for future retirement income. Without specific information I wouldn't say absolutely that's what to do- but now you have some of the things that you need to consider.