$$ave Money Tips

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CD's are good investments for those who are not concerned about outpacing inflation and are paying little or no income tax! However CD's are not for everybody. For those who pay 15% income tax or more, a CD may not be as beneficial because the amount of tax payed annually offsets a large portion of the growth.  After all, it is not the return on money, it's the return of money. 

Our Services - CD Alternatives

At Branch Financial Strategies, we make available investment vehicles that provide SAFETY while providing interest rates that are competitive with other investments that have risk involved. We offer the best FIXED RATE or FIXED INDEXED ANNUITIES available anywhere. We use only quality insurance companies with top ratings.  

A fixed rate annuity is kind of like a CD. It provides a fixed interest rate for a specified period of time. It offers a predictable and stable income stream, a low-risk option. A fixed indexed annuity provides the opportunity for higher returns based on performance of a specific market index, such as the S&P 500. Also, like most investments they have early surrender penalties. Some of the features and benefits of fixed rate annuities are:

Fixed Rate and Fixed Indexed Annuities...... Provide Safety from Risk to your Principal and Interest!

FIXED RATE or FIXED INDEXED ANNUITIES 

What Are They? Why would anyone want one? What are the features and drawbacks?

The two main reasons are because they offer SAFE, GUARANTEED, COMPETITIVE rates for growth and/or income and YOU PAY NO INCOME TAXES on your gains until you start taking withdrawals.

Safety of Principal

Competitive Rates

TAX-DEFERRED Accumulation

NO up front costs-100% of your money starts earning interest immediately.

Access to your money - generally you can withdraw 10% of the account value without incurring a penalty.

Guaranteed death benefits

Generally avoids probate

You control when you pay income taxes, when you decide to take some of the money out and therefore when you want to pay taxes on the gains. Any withdrawals will be taxed as ordinary income when withdrawn.

Opportunity to create an income you cannot outlive, and it's a proven fact people are living longer, therefore need more money in their later years.

Can be designated for ANY kind of money, including IRA's, 401-K rollovers, CD replacements, and much more. 

EXAMPLE: RETURN VS. YIELD

YIELD: The interest credited to an account 

RETURN:   The amount of yield kept in an account

FORMULA for finding actual return:  

YIELD minus INFLATION minus TAX  =  Actual Return of the amount invested.

CONSIDER THIS:  A CD yields $5,000 per year on a $100,000 account, equaling 5%  YIELD.  Inflation is 3%, which means, there is now a 2% Return, or $2,000.  The taxable income is 15%, which equates to the $2000 x .15 = $300.  After paying taxes, there is an Actual Return of $1700.

SPECIAL ARTICLE OF INTEREST:

Working In Retirement? Some of Your Social Security Benefits May Be Taxed

For most seniors, one of their retirement benefits is receiving income from Social Security.  Of course, many feel they would have a hard time living on Social Security benefits alone. It’s been widely documented that many Americans have not saved enough to fund their retirement. So, for many, continuing to work is part of their retirement plan.  Income from ongoing work, added to personal savings, qualified plan retirement benefits, and Social Security benefits, help meet retirement income needs. All well-and-good, butthere may be a slight problem. Social Security recipients tend to count on their benefits being tax-free. Working in retirement can change that – perhaps substantially. Once non-Social Security income reaches a threshold, Social Security benefits are taxed. What is the threshold amount? Add one-half of your Social Security income benefits to all your other income (adjusted growth income, non-taxable interest). Thresholds: If you file as an individual and your combined income is between $25,000 and $34,000, up to 50% of your Social Security benefits may be taxable. If your combined income is above $34,000, up to 85% of your benefits may be taxable.

$32,000 to $44,000 for married couples filing jointly; above $44,000 up to 85% is taxable.    

$25,000 and $34,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year (up to 50% of your Social Security benefits may be taxable, and above $34,000, up to 85% is taxable.)

Two points of clarification:  first, there is no age threshold where benefits are no longer potentially taxable; second, none of this means that you will be taxed at either a 50 percent or an 85 percent rate. Rather, up to 85 percent of your benefits may be taxable. The rate you pay is your normal tax rate (not 85 percent). You probably don’t want up to 85 percent of your Social Security benefits to be taxable, so what can you do? One obvious conclusion is to limit non-Social Security income. This may mean cutting back on earned income. However, you may also be able to adjust income levels by lowering unearned income amounts -- for example, money from investments.  Timing is (almost) everything. Of course, if your income needs are great enough, paying income taxes on Social Security benefits may be more than offset by earnings

from a good job. So, even though few people revel in the idea of paying more income taxes, doing so may be the best choice – if it means earning enough to have a more pleasant retirement.  

Here's What's Wrong With the 4% Rule

By Robert Bloink By William H. Byrnes

What You Need to Know

o The 4% rule seems like a simple solution for retirement spending, but there are pitfalls.

o The best approach is one that adjusts for actual market returns and real-life inflation rates.

o For investors who prefer a formulaic approach, a better alternative to the 4% rule is to use the IRS's; RMD table.

Clients save for retirement over the course of their working careers. While retirement income planning can be complicated given the variety of available options, it’s typically easy to advise clients about how much they should be saving. Most clients should be advised to contribute the maximum amount they can afford to tax-preferred retirement accounts. The advisory picture becomes much more complex when it comes time to start drawing from those accounts. Once required minimum distributions are satisfied, clients often wonder how much they can safely withdraw to minimize the risk of running out of money during retirement. The “4% rule” is an often-cited strategy. Most retirees who rely primarily on retirement accounts for income during retirement will have difficulty adhering strictly to the rule’s assumptions. Although many clients like the formulaic approach of the 4% rule, it’s critical that advisors explain the fine print — and the risks associated with adhering strictly to the 4% rule during retirement.

Understanding the 4% Rule

The premise behind the 4% rule is simple. During the first year of retirement, clients withdraw 4% of their retirement account balance. For 30 years thereafter, that withdrawal rate is then adjusted by the rate of inflation as measured by the Consumer Price Index.

William Bengen, a financial advisor, published a paper in 1994 outlining the benefits of the 4% rule. His results were based on a study of stock and bond returns over a 50- year period, from 1926 to 1976, and a portfolio that consisted of 60% stocks and 40% bonds. Basically, the portfolio he used was designed to track the S&P 500. The primary appeal of the 4% rule is that a client doesn’t have to engage in complex evaluations year after year during retirement. 

Potential Pitfalls

There are, of course, many pitfalls that clients should understand. First of all, the 4% rule is based on a 30-year retirement. Depending on the client’s age and life expectancy, a 30-year planning horizon may not be warranted. 

For more information:   

 www.aarp.org.  Enter the key words:  taxing, social security, benefits,

to display a list of resources.  Click on:  Online Tax Assistance

Frequently Asked Questions.

 www.irs.gov/pub/irs-pdf/p915.pdf.  IRS publication 915 explains

when Social Security benefits are taxed and how to report them.

 www.socialsecurity.gov/planners/taxes.htm.  To obtain IRS Form W-4V in order to request that federal taxes be withheld from your Social Security when you apply for benefits, or to change or stop your withholding.