Saturday, May 29, 2010

Frank Is Considering Secondary Annuities

I got an e-mail from Frank in Minnesota that touched on a topic I never really thought about. Dear George, I am researching information about the Secondary Annuity Market, but from a buyer's perspective. I am 66 years old, and ready to invest a healthy chunk of my assets into immediate lifetime annuities, for both me and my wife (age 64). Some of the assets are from IRA accounts, and some from our joint account. I've received some quotes and did spreadsheet projections to 2046 (her 100th birthday). She comes from a family that has old age genes. Her folks are still alive. Her grandparents lived into mid 90's. She has a good chance to reach the century mark. I, on the other hand, was not so blessed with the same genes. If I live to 70, I will have beat the Cardiologist's prediction by 5 years. Anyhow, while researching my investment options, I stumbled upon the Secondary Annuity Market. I was most interested in those secondary annuities that pay on a regular monthly basis, rather than lump sums. I found some examples of payouts and applied them to a spreadsheet, and found some interesting results. For example, the secondary payouts may be more generous than current annuity quotes. And, some of the payouts result in a greater income stream while she is in her 70's-80's, versus receiving consistent income until age 100. After doing some more research, I found that I could not use IRA monies for the Secondary Market. Also, I found an article about State Insurance Commissioners opinions that Insurance companies are not bound by payments to Secondary Annuity owners, and can choose to opt out (that is very troubling!!) of future payments. So, bottom line is ... what are the pros and cons of Secondary Annuities from a buyer’s perspective? Any helpful information? Thank you for your consideration. And here’s my reply … Hi Frank, I've seen these advertised on TV, with people screaming "I want my money now!" but have never really researched them. I can see how you could get a higher return since the desperate sellers what a lump sum instead of ongoing payments. But I believe the issue is: Who is behind the payments? I checked out your allegation that the issuer could back out of the deal. And sure enough, you’re right! In fact, on February 22, 2010, the Interstate Insurance Product Regulation Commission, composed of the insurance regulators from 35 states and Puerto Rico, voted in favor of a uniform provision that would allow insurance carriers to terminate at their discretion guaranteed living and death benefits in the event of a change in ownership or assignment. To me, that’s downright scary! Think safety here, Frank. And that's the concept behind immediate annuities. In other words, a steady stream of income you and your wife cannot outlive. They let you sleep at night. For the few extra bucks you'd get each month, it doesn’t seem as though the secondary market is worth the risk. Have you looked into immediate annuities with joint benefits? That way when one of you dies, the other continues to get an income. Also, considering the low interest rate environment we're in now, you might think about only putting a small portion of your money into an immediate annuity. Then a little more next year, and more the year after that.
With the ballooning debt the U.S. is facing, Treasuries and all interest rates are almost guaranteed to rise. And by buying the annuities along the way, your income should rise, too. Good luck! If you’re looking for a reliable income that you can’t outlive, immediate annuities could be the answer. Be sure to do your research, though. And double-check everything anyone tells you. Because, like Frank, you may discover some important points once you peel back the onion. Best wishes, George

Tuesday, May 25, 2010

Cars Could Become More Affordable in Costa Rica

Last week, I wrote how Costa Rican politicians were dipping into taxpayers’ pockets for a fat pay raise while at the same time their new president was in Europe trying to drum up some business. According to The Wall Street Journal, here’s a snippet of something President Chinchilla accomplished: The European Union and Costa Rica will remove non-tariff barriers for all industrial goods, and EU cars will receive tariff-free access for 10 years. The “car part” is a biggie for anyone considering retiring to Costa Rica ... Currently, tariffs can easily add over 50% to the cost of buying a new car in Costa Rica. That could tack an extra $10,000 on a $20,000 car! So the new deal could surely eliminate one of the concerns gringos who are on-the-fence about retiring to Costa Rica might have. Is that good for the country? More retiring gringos mean more dollars into the economy. On the other hand, more cars mean more congestion, more fuel consumption and more pollution. But that’s a hornet’s nest I’m not about to step into today. Best wishes, George

Tuesday, May 18, 2010

Politicians Will Be Politicians

I love Costa Rica. The kick-back lifestyle. The scenic mountains. The hand-rolled cigars. The freshly-picked coffee. All much different than what I experience in South Florida and most other places I travel in the U.S. But it seems politicians will be politicians … no matter where they are. Get a load of this … Costa Rican legislators think they deserve a fat raise from the current $3,000 a month to $8,000 a month. That’s one heck of a pay boost! The final vote is expected any day. Interestingly, it’s going down while the new president is in Spain. Even our bums in Washington don’t have cojones that big. Good thing, too. Especially if they want a chance of keeping their jobs after denying seniors a Social Security pay hike … the first time in 35 years. Then again, our guys could teach the Ticos a thing or two about how to milk the taxpayers for six-figure salaries, free worldwide travel and a host of other perks. You can read the full story at InsideCostaRica.com. Pura vida! George

Thursday, May 13, 2010

Looking For Real Estate at a Discount?

The IRS, U.S. Immigration and Customs Enforcement, and the U.S. Secret Service have been busy. This has left Geithner and his posse from the Department of the Treasury with a bunch of real estate to sell. And that could translate into a bargain for you. Single-family homes, commercial buildings, vacant land, and multi-family residences are available throughout the U.S. and Puerto Rico. Most of it was seized due to smuggling, drug trafficking, money laundering, credit card fraud, food stamp fraud, mail fraud or other illegal activity. You can check them out by going to: http://www.treas.gov/auctions/treasury/rp/. And you can even sign up to be notified when something pops up in your area. So if you’re looking to pick up home to live in or an investment property at a discounted price, you might want to look into this. Caution: If you get serious enough to go to an auction, don’t let your emotions override common sense. I’ve been to a few tax sale auctions and have seen novice bidders get so caught up in the action that they end up over-paying because they didn’t have a grasp on the local pricing. Indeed, it pays to do your homework. Also unlike a lot of mortgage foreclosure actions, the feds will let you do an inspection prior to bidding. One more thing: All proceeds from the sales are deposited in the U.S. Treasury Asset Forfeiture Fund. This fund helps support continued law enforcement efforts and provide restitution to crime victims. So at least your money won’t go towards Obama’s Wealth Distribution Plan. Best wishes, George

Saturday, May 8, 2010

New Tax Regulation Makes Long-Term Care Insurance More Affordable

Boomers are often reluctant to buy long-term care insurance (LTCI) because it’s not exactly cheap … annual premiums for a decent plan can easily run $2,000. Plus they might not like the thought that if they don’t use the insurance, they’ve wasted their money. However, without some kind of coverage, a change in your health could wipe you out! But thanks to a new tax regulation, you might be able get a policy while still accumulating bucks for the future. It starts with a fixed, deferred annuity (FDA). Money you put into one of these annuities accumulates tax-free until you withdraw it. When you make a withdrawal, part it is considered a return of your original investment, thus comes out tax-free. The rest is considered earnings and taxed at your ordinary income tax rate. As you can see, then, FDAs can be a valuable way to put away money for retirement, much like an IRA. Now, back to LTCI … The Pension Protection Act of 2006 includes two provisions regarding FDAs and LTCI that took effect January 1, 2010: 1. Money you withdraw to pay LTCI premiums is distributed free of taxes, therefore your after-tax cost for the policy could be less. 2. Money you transfer directly from an annuity to pay for long-term care insurance is not taxable. Insurance companies were quick to jump on the second provision by introducing FDAs with a LTCI rider. Very simply here’s how they work: Suppose, for example, you put $50,000 into a FDA. And let’s assume it’s designed to pay you up to 300% in benefits. That means you’d have $150,000 in coverage from day one without paying LTCI premiums. And if you never have to use the benefit, your $50,000 continues to grow tax-deferred. Of course, this perk comes at a cost, which is a reduction in the interest rate you’ll receive on the amount you pay in. So be sure to ask your agent for the details. But at least now you have a basic idea of two more ways to protect your nest egg and leave something for your love ones. Best wishes, George P.S. For more information on all your long-term care options, be sure to read A Boomer’s Guide to Long-term Care.