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Guaranteed Income - For Life
For most retirees these days, maximizing the amount of income they can safely take out of their portfolio is the most important financial objective. It's the one thing that makes everything else possible.
Being able to enjoy time with grandchildren, take time out to enjoy golf or travel, secure your nest egg against the need for long term care - it all hinges on your ability to convert your retirement nest egg to an income that will last you and your spouse a lifetime.
Some advisers rely on mutual funds and a tool called "Monte Carlo" analysis - they use a computer to calculate hundreds of scenarios - all based on backward-looking data, not forward projections - all to tell a soon-to-retire couple "based on what you've told me about your income needs and our best guess about your rate of return, I have good news! There's only a 20 percent chance you will run out of money before you both die."
That's not good enough.
No one would want to get on an airplane with only an 80 percent chance of a safe landing. But financial advisers who rely on non-guaranteed investments such as mutual funds, stocks and corporate bonds do just that every day.
Surely there's a better way to secure a guaranteed retirement income. Can regular people create their own pensions?
There is, and you can.
Lifetime Income Annuities
Lifetime Income Annuities, or LIA, exist to take a lump sum and convert it to a stream of income that you can never outlive - guaranteed. It's simply a contract with an insurance company: You contribute premium, and the insurance company converts it into a contract guaranteeing, in writing, a certain amount of income each month or each year, for as long as you, or you and one other individual (usually a spouse) shall live. Guaranteed.
Advantages of Lifetime Income Annuities
The security of a lifetime income annuity may give you the confidence to seek greater returns with other parts of your portfolio, knowing that no matter what, your basic monthly expenses are covered.
Lifetime income annuities also generally allow for a substantially greater steady monthly income than you can get from a bond or mutual fund portfolio alone, unless you spend down principal. This is because of a concept called mortality credits. Essentially, those who die sooner than average don't need their income anymore, so it goes to those who love longer than average. As a result, the lifetime income annuity is able to deliver a higher payout, on a guaranteed basis, than ordinary fixed annuities, CDs, money markets and income funds. In most cases, this payout is higher than that available from investment grade bonds, though individual bonds can vary widely in terms of coupon payments and risk properties.
Tax Deferral. Growth within annuities is tax-deferred. You only pay taxes on income you take out, attributable to growth. The portion attributable to the return of your own premiums is tax free. As a result, only part of your income from a lifetime income annuity is subject to income tax.
Lifetime income annuities also help get money out of your estate, potentially reducing estate tax liability.
In some jurisdictions, lifetime income annuities help provide asset protection benefits as well: Creditors may go after the income in a civil suit. They cannot generally touch your principal in a lifetime income annuity. You own a stream of income, rather than a lump sum. This makes it difficult for creditors to collect.
Disadvantages of Lifetime Income Annuities
Generally, a commitment to a lifetime income annuity is irrevocable. You should consider keeping enough cash or other reasonably liquid asset in reserve to react to a personal emergency. Some annuity contracts provide for one or two "accelerations" of several months' worth of income. But individual contracts vary widely on this feature.
When interest rates are low, annuitizing your assets essentially locks in a lower payout than you could possibly get by waiting until rates rise.
Any assets you contribute to a lifetime income annuity for yourself and/or your spouse are lost to future generations. If you die early, the insurance company keeps everything. However, most annuities provide a death benefit - your heirs will receive the full amount you paid in, minus any benefits paid to you.
All benefits in an annuity contract are subject to the claims-paying ability of the insurance company. If the insurance company becomes insolvent, your benefits could be interrupted or reduced.
If you are retired or in the stage of planning your retirement, the lifetime income annuity is one of the most important tools in your kit. Give careful thought to how much of your retirement income you want to guarantee. And give us a call 314-351-HALO (4256).
Tips for Consumers to Prevent Credit Card Fraud
Theft, which is the most common type of credit card fraud, happens in several different forms. It may involve a person manually rummaging through a dumpster for papers with sensitive information or a hacker stealing credit card numbers online. The hacking may not always be due to the negligence of the card holder.
In many cases, banks are targets for hackers. If a hacker finds a way through a bank or financial institution's security, cardholders across the country become victims. There are also schemes where people obtain personal information. For example, a company may offer a free vacation or other prize of considerable size. However, a person must join a paid club or set up a membership to qualify. The unscrupulous company then steals members' card information.
How To Combat Credit Card Fraud
The good news is that consumers who are targeted by fraudsters are not completely helpless. Many banks and credit card companies automatically freeze a person's account if suspicious activity is detected. This may be frustrating to cardholders who are on vacation and forgot to notify their credit card companies. However, suspicious purchases often come with a notification from the financial institution. To be sure to receive such notifications, make sure banks and credit card companies always have a current email address and phone number on file. There are several other helpful steps to take. The following are a few tips to put into practice immediately:
- Do not loan cards to friends or family members, and always make sure credit cards are kept in a safe place.
- Do not give out a credit card number or account number to any unknown person over the phone. Always research vendors before making purchases.
- Do not always assume online purchase platforms or sites are safe.
- Never use a site without first checking the encryption and security software it uses.
- Do not make purchases from links in unsolicited emails.
- Never make a purchase from a seller who will not provide an address and a phone number.
- Check the Better Business Bureau's site for the seller's name or information.
- Do not make credit card purchases from a site based on its professional appearance. Some of the most untrustworthy sites may look very professional.
- When dealing with foreign vendors, always be very cautious.
- If possible, use a credit card instead of using other forms of payment to make purchases. Credit card companies usually uphold disputes if something goes wrong.
- Contact a credit card company immediately if there is any suspicious activity.
- Always ensure online transactions are made through a secure site. Make sure the URL bar says "https" instead of "http."
Even the best measures may not prevent an identity thief from obtaining a credit card number or from obtaining the actual card. There are programs for monitoring credit, which are useful tools for learning when a thief obtains and misuses sensitive information. To learn more about this topic, discuss concerns with an agent at 314-351-HALO (4256).
Home Vacation Rentals and Insurance Gaps
Airbnb estimated that over 1 million people would celebrate the beginning of 2016 in an Airbnb rental. Many people are using the popular option of renting out a room in a home or renting out an entire apartment directly from an owner during a getaway. However, gaps in insurance policies can spell disaster for guests and homeowners who use these sites.
While sites such as Airbnb provide generous host liability insurance limits, they do not provide coverage for many of the losses suffered by guests. However, there are exclusions for what is covered for homeowners. In addition to this, many personal home insurance policies of the owners who rent their spaces out do not cover guests' personal property losses.
Both homeowners and traveling renters should educate themselves about insurance issues related to home sharing and what options are available. Some options are available from sites such as Airbnb. Since the typical property and casualty insurance policies do not offer ample coverage in the event of incidents leading to property damage or injuries in these situations, experts recommend following these important rules:
1. Review host protection insurance. When signing up through a third-party site to offer a vacation rental, be sure to read the host liability insurance specifications. Some sites offer generous amounts up to $1 million. However, it is important to be fully aware of the exclusions.
2. Home-sharing hosts are not clearly defined in insurance policies. Home sharing is still a gray area in insurance policies. How often the home is rented, how many people are staying in the home and whether the homeowner is home during the guest's stay are just a few aspects that can affect coverage and exclusions. Discuss any plans with an agent before accepting guests.
3. Keep the insurer updated. If something happens when a renter is visiting and the insurer does not know that the home is being rented out, there could be major issues with coverage. Insurers want and need to know about the home, who is living in it, or how it is being used changes.
4. Insurers may deny coverage by citing business use of a home. When a home is rented out frequently, it could be considered a business. A home insurance policy does not cover regular business activities taking place in the home. Talk to an agent to discuss renting basics, renting frequency and what will happen if a guest is injured based on a current policy.
5. How much of the home is used can affect coverage. If one room is rented out occasionally while the owner is at home, this may be acceptable. However, people who rent their entire homes out frequently may be classified as running a business and may not be covered.
6. An endorsement may be needed. If the insurer will not cover a home based on the frequency of renting, ask if alternative options or endorsements are available.
7. Consider a landlord policy. When a home is rented out frequently, it may be wise to purchase a separate landlord policy. This will cover liability and legal fees. It also covers lost income due to structure damage.
8. Guests should read their insurance policies and user agreements. Guests who choose to use sites such as Airbnb should read through the fine print carefully. The sites often include clauses that give the company the right to file claims with the guest's insurer if he or she causes damage to the rental property. In addition to this, it is important to read a personal insurance policy. Be aware of policy limits and what is covered and excluded. If any items are damaged or stolen during a stay, they are typically covered by a home or renter's insurance policy.
This issue is another example of why it is important to read the fine print on everything. Knowing what to expect ahead of time and how to handle any unforeseen losses is the best way to enjoy a vacation and keep peace of mind. For more information, discuss concerns with an agent at 314-351-HALO (4656).
How Women in Business Can Protect Themselves and Their Companies
In the past several decades, women have made great strides in the world of business. To protect their hard-earned merit and capital, the Insurance Information Institute recommends having adequate business insurance.
In the 1960s and 1970s, women only owned about 5 percent of the country's small businesses, but that number has jumped to nearly 35 percent today.
Women generate about $1.5 trillion in revenue from their businesses today. From 1997 through 2015, the number of businesses owned by women grew by nearly 75 percent. To honor Women's History Month, experts recommend business insurance to prevent major losses in the event of a lawsuit or catastrophe. The following strategies are helpful for keeping any business protected.
Evaluate current risks. Business owners must think about how much property they own, how many employees they have, what the business does and what major risks are associated with each aspect. A good explanation of these areas of the business will help an insurance professional build a solid coverage plan.
Find a good insurance professional. It is wise to work with the same insurance company and the same agent whenever possible. Building a good professional relationship is helpful, and having an agent who knows the business and understands its unique needs is an asset. Never choose an insurer based on prices alone. The best insurers know how to identify every type of risk and address it. Having a good agent can mean the difference between suffering a major loss during a catastrophe and being able to reopen the company's doors soon after a catastrophe.
Prioritize budget needs. Not all companies can afford a large monthly premium. When this is the case, it is better to choose an insurance policy with a higher deductible and a lower monthly premium. Some businesses with high risks may need to restructure their budget to allow for a higher monthly premium if the business has many significant insurance risks and cannot afford a high deductible. Discuss budget concerns with an agent to determine the best option.
Review coverage regularly. It is important to review coverage at least every year. If the business added more inventory, upgraded equipment or made any other significant changes, the changes should be reported to an agent. This is especially true when branching out into foreign purchases, sales and business relationships. Keeping the policy updated ensures adequate compensation for all losses in the event of a theft or catastrophe.
Every business owner should also be protected individually. For the sake of survivors, it is important to have life insurance. Disability insurance is also a must in the event of a disability that would hinder the business owner from performing necessary functions or keeping the business going. To learn more about business insurance options, discuss concerns with an agent at 314-351-HALO (4256).