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Take the Madness Out of Your Retirement Planning

3/22/2019

 
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March Madness is here again. Do you have the winning bracket? The truth is it’s virtually impossible to fill out a perfect one. According to a Duke University professor, the odds of picking all 32 games correctly are 1 in 2.4 trillion.1 Even predicting the Final Four can be difficult: In last year’s Capital One Bracket Challenge, only 54 entries had the Final Four teams correct.2
 
The NCAA Tournament expanded from 32 teams to 64 in 1985. Ever since, it’s been wildly unpredictable. In fact, the very next year after expansion (1986) was one of the wildest on record. Six teams seeded seventh or higher (meaning worse), including a No. 14 seed, made it to the Sweet 16.3
 
The 2018 tournament was also one of the most unpredictable on record. It featured the first-ever win by a 16 seed over a 1 seed, along with six teams seeded seventh or higher making it to the Sweet 16. An 11 seed, Loyola Chicago, made it all the way to the Final Four.3
 
The NCAA Tournament’s unpredictability is one of the reasons the event is so entertaining. You never know when an underdog will knock off a college basketball powerhouse.

Unpredictability isn’t always a good thing, though. It’s certainly not helpful when it comes to your retirement planning. A successful retirement strategy is based on certainty, so you can make informed choices about your investments and your spending.

Fortunately, there are tools you can use to inject more predictability into your retirement. One is an annuity. Below are a few ways an annuity can help you take back control of your retirement strategy and eliminate unpredictability:

Downside Protection 

The 2018 NCAA Tournament was wild, but maybe not as wild as the performance of the financial markets last year. The S&P 500 finished the year down nearly 7 percent, largely because of an epic fourth-quarter meltdown. In fact, 2018 was the first year on record in which the index finished negative after being positive through the first three quarters.4
 
Some deferred annuities allow you to achieve growth without exposing yourself to the volatility of the market. For example, a fixed deferred annuity pays a set interest rate over a defined period of time. Your principal is guaranteed*, and you have no exposure to market risk.
 
You could also opt for a fixed indexed annuity. In this type of policy, your interest rate is tied to the performance of a market index, like the S&P 500. The better the index performs, the higher your potential interest rate, up to a maximum. If the index performs poorly, you may receive little or no interest.

Even if the market declines, however, as it did in 2018, you still won’t lose money. Your principal is guaranteed*, and your contract will never decline because of market performance. A fixed indexed annuity could help you take advantage of market potential without the risk exposure.

Guaranteed* Income 
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As you approach retirement, you may become more averse to risk and more sensitive to market downturns. After all, you’ve worked hard to accumulate retirement assets, and you’ll need those funds to generate income in retirement. The last thing you want to see is your savings decline in the final years of your career.
 
You may not be able to prevent a market downturn, but you can use an annuity to protect your future retirement income. Many fixed indexed annuities offer optional riders known as guaranteed* withdrawal benefits.

Under a guaranteed* withdrawal benefit, or guaranteed* minimum income benefit, you’re allowed to withdraw up to a certain percentage of your contract value each year. As long as your withdrawal stays within the stated amount, it’s guaranteed* for life, no matter how your annuity performs or how long you live. You can generate predictable, reliable income regardless of market performance.
 
Ready to take the unpredictability out of your retirement strategy? Let’s talk about it. Contact us today at First Fidelity Group. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
 
1https://ftw.usatoday.com/2015/03/duke-math-professor-says-odds-of-a-perfect-bracket-are-one-in-2-4-trillion
2https://www.ncaa.com/news/basketball-men/bracketiq/2018-03-26/54-ncaa-brackets-correctly-predicted-final-four
3https://www.ncaa.com/news/basketball-men/bracketiq/2018-03-19/incredibly-2018-sweet-16-not-most-unpredictable-ncaa
4https://www.cnbc.com/2018/12/31/the-sp-500-will-make-history-when-it-ends-the-year-with-a-loss.html
 
 
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
 
18570 - 2019/2/22

Can Cash Value Life Insurance Reduce Your Tax Burden?

3/7/2019

 
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Tax time is almost here. If you’re like millions of Americans, you’ve already filed your return. Perhaps you got a nice refund. However, it’s also possible that you owed taxes, maybe even more than you’d anticipated.
 
If you’re in sticker shock over how much you paid in taxes last year, now is a good time to review your financial strategy, especially with regard to taxes. If you’re approaching retirement, it’s even more important to develop and implement a tax strategy. Taxes are one of the biggest expenses you may face in retirement. Without a plan in place, taxes could reduce your income and diminish your ability to fund your lifestyle.
 
Fortunately, there are tools you can implement to reduce your taxes both today and in retirement. One of the most effective is life insurance. Yes, life insurance is primarily a protection tool for your loved ones after you pass away. However, it can also be used to achieve other financial goals, including tax-efficient growth and retirement income. Below are a few ways you could use life insurance to reduce your tax bill:
​
Tax-Deferred Growth 

If you have an IRA or 401(k), you’re probably familiar with tax deferral. In these types of qualified accounts, your assets have growth potential. However, you don’t pay taxes on growth as long as the funds stay inside the account. All taxes are deferred until you take withdrawals at a later date.
 
Tax deferral is a valuable retirement savings tool. If you’re not paying taxes on growth each year, your assets can compound over time. In fact, they may grow at a faster rate than they would in a taxable counterpart.
 
Permanent life insurance policies have a cash value account. When you pay a premium, a portion goes toward the cost of the insurance, and the remainder goes into the cash value account. Your cash value can grow over time, depending on the terms of the policy.
 
For example, whole life policies pay annual dividends. In a universal life policy, you’ll likely receive annual interest. Variable universal life policies allow you to strategize in financial markets, so you have growth potential but also risk exposure. There are also fixed indexed universal life policies that offer downside protection and interest rates based on the performance of financial indexes such as the S&P 500. Your choice of policy should be based on your specific needs and goals.
 
No matter which type of policy you choose, one thing is the same: Growth inside the policy is tax-deferred. That means you can use your life insurance policy as an additional source of tax-deferred growth above and beyond what you get via your other qualified accounts. That could be especially helpful if you’re already maximizing your contributions to your 401(k) and IRA.

Tax-Efficient Distributions 
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In a 401(k) and a traditional IRA, your growth is tax-deferred, but that doesn’t mean it’s tax-free. Your distributions from these accounts are taxed as income. That means you may achieve tax-efficient growth, but you could also be creating a future tax liability in retirement.
 
Life insurance offers a couple of ways to take tax-free distributions from your policy. One is through a withdrawal. Life insurance policies follow a “first in, first out”—or FIFO—tax structure. The first dollars that go into your policy are your premiums, which are usually made with after-tax dollars. When you take a withdrawal, your premiums are the first dollars to come out. Since you’ve already paid taxes on those dollars, the withdrawal is tax-free.
 
Once you withdraw all your premiums and start withdrawing growth, your distributions could be taxable. However, you can work with a financial professional to carefully schedule and plan your distributions over time so you don’t deplete your tax-free premium distributions.
 
You can also take a loan from your life insurance policy. All loan distributions are tax-free. The catch is that you have to repay the distributed amount. The repayments are usually made as an add-on to premium payments.

If you surrender the policy before repaying the loan, the outstanding balance could become a taxable distribution. If you pass away and haven’t repaid the loan, the balance may be deducted from the death benefit.
 
You may not be able to use life insurance distributions to fund your entire retirement. You could, however, use life insurance as a source of supplemental tax-efficient income. That could help you reduce the amount you need to withdraw from taxable sources like your 401(k) or IRA, which in turn could reduce your overall tax exposure.
 
Ready to take control of your tax strategy? Let’s talk about it. Contact us today at First Fidelity Group. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
 
18570 - 2019/2/22

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First Fidelity Group, Inc. 
7041 Canal Blvd.
Suite # 133
New Orleans, LA  70124

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Licensed Insurance Professional. Respond and learn how financial products, including insurance and annuities can positively impact your retirement. This material has been provided by a licensed insurance professional for informational and educational purposes only and is not endorsed or affiliated with the Social Security Administration or any government agency. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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