Lock It Up and Throw Away the Key – Understanding Fixed Annuities

The world of insurance and financial product sales is a large confusing one. First, you have the myriad of different products that already exist. Annuities, Whole Life Insurance, Indexed Annuities, Long-Term Care, Variable Life Insurance, Individual Health Insurance, Accidental Death & Dismemberment, etcetera, etcetera. Each comes with their own text book of explanations, definitions and specific rules. Then you have the tax implications of buying and using these products for yourself. Finally, you know you pay something to the broker that sold them to you, but you’re not entirely sure how much that “something” is.

There are a lot of financial products to be discussed, but since the baby boomers are the largest generation and are nearing retirement, and fixed annuities are often products aimed at retirees, I thought I’d give a quick overview of what they are and how they work. This is not comprehensive; but if you’ve been approached about buying a fixed annuity, or if you’re considering it, please take a minute to read the following. It might just save you a big realization of regret later on.

Fixed Annuities come in a number of different shapes and sizes. There are single premium, installment, joint life, period certain, and a whole host of other types. There are also a bunch of riders and add-ons that you can get too. Just about every major financial or insurance company in the country has its own suite of fixed annuities.

Despite these details, all fixed annuities essentially work the same way. There are four basic components to think of in a fixed annuity: how they are funded, how they work, how they are taxed and how they are cancelled.

How They are Funded

Fixed annuities are normally funded in one large lump-sum payment, but can also be funded in installments over a relatively short period of time. This payment could be old 401k money, a large chunk from your savings account, the balance in your Roth IRA or even the cash value from an old whole life insurance policy via a Section 1035 exchange. There are really no limits on the type or kind of assets that can be used to purchase an annuity, and the broker usually doesn’t care what those assets were previously used for or how they are taxed. They are paid a commission on the sale of the product.

How They Function

The term “annuity” is derived from the idea of annuitization, which

Why Offer a 401(K) Plan – Retirement Planning for Your Business

A 401(k) plan is more than just an employee benefit, but an economic security tool for your business. When employees are equipped with the tools they need to retire in comfort they in turn have disposable income and are far more likely to not only spend it in the local economy, but also be happier in their workplace without the added stress of thinking about retirement and thus be more productive.

Recent polls have found that in over 70% of small companies, employees were not offered a 401(k) plan. Why such a low number? There are perceptions that the plans are hard to administer and costly to start. Some companies may not feel that they, or their employees, would see a large benefit because those who are offered would not want to participate in such a plan.

Why offer a retirement plan? Here are a few reasons for businesses to consider.
Some of the most obvious reasons to offer a 401(k) plan is to not only retain employees, but also attract talent. A 2012 MetLife study has found that retirement benefits are a significant factor in employee loyalty after their salary, and other perks such as health care coverage. With the job market tight for highly skilled workers, have a retirement planning in place is a great way to lure new talent to your company. Small companies should work to provide similar benefits as those offered by larger companies if they want to see their business grow. Retention of employees and keeping a low turnover rate can not only avoid the extra cost of training new workers, but help establish a culture of trust and foster relationships with customers and clients.

Another great benefit of 401(k) plans is that owners can also participate. The plans can also be setup for companies that are essentially sole proprietorships, which is favored among startups and entrepreneurs. Commonly, a business owner can put away more money in a 401(k) than an IRA. Small businesses can also get a credit for the first few years, which can help to make up the difference of establishing the plan and administration costs.

Setting up a 401(k) plan is not difficult, and taking the time to be proactive in increasing participation among employees should be considered. The long-term benefits of employee retention and productivity are a few of the most common reasons to offer a plan. Part of the problem of the

Finances And Stress – How Are You Feeling

Let’s face it- finances can be very stressful. The APA (American Psychological Association) reports that American worry most about the economy, their job, and having enough money set aside in savings. A job loss, car breakdown, or overall change in financial status can really have an impact on our emotions and can be the cause of many sleepless nights and stressful days due to worrying.

The good news is that stress that comes from worrying about money can actually be turned into something positive if dealt with in the right way. This is done by channeling our emotions in the right way and taking practical steps in the ways we deal with our finances. When a financial crisis arises, how you deal with it will have a huge impact on how it makes you feel and the amount of stress it causes you.

In the case of a lost job, it’s important to not get discouraged. That may sound easy but be hard for many people but the bottom line is, it’s not going to help you to be negative about your circumstances. Instead, reach out to the people in your life in an effort to get some emotional and possible financial support. Talking about your feelings will help alleviate the stress you feel and give you a more positive outlook on your situation.

Sit down and look at your budget, crunch the numbers, and figure out where you can cut monthly costs until you find a new job. Track your expenses for at least a month and decide where you need to make cuts and changes to your budget. Be honest with yourself and your family about which expenses are “wants” and which are “needs”.

If and when your car breaks down, consider your options for getting it fixed. Do you have a “rainy day” fund? How about an emergency credit card? If those aren’t an option, perhaps you can ask a friend or family member to help out until you can get back on your feet. If you do get help from someone close to you, be sure to draw up a contract and include interest that you will pay them as part of your loan agreement. Include when you will pay them back as well.

In the process of figuring out how you will pay for the repairs, give yourself time to process the situation. Car breakdowns can be very discouraging, especially

Understanding What Cash Flow Is All About

Why It is Important

Knowing what cash flow is and why is it important to understand how it affects a given budget is something that can get confusing. Specifically, when there are periods of unabated spending. When a business unit or an individual begins to create a budget, one of the first things scrutinized is where the money is coming from and secondly how and where their money is spent. Knowing the inflow of cash and the outflow of cash are what makes up the road map, as it were, for seeing the big picture of the financial health of a given situation.

Some may equate spending, cash outflow, to an automobile moving forward at a certain speed, thus accelerating in a direction that can deplete the financial resources faster than expected. Therefore, using this same analogy, if the driver of the vehicle was to apply steady pressure to the brakes of the automobile the velocity of cash outflow would slow to an acceptable level. Not a bad way to look at things, and we all are aware of need to have a visual representation of our financial resources including how and why these resources diminish over time.

Controlling Cash Flow is all about Setting Goals

No one in their right mind ever wants to run low on money or get behind on bills. In the same instance, we all enjoy spending money on things we want. There is nothing wrong with controlled indulgence. The important factor is however, knowing when we can purchase that new set of dishes or take on a new car payment while not over extending or going outside of our budgets. This is where setting financial goals become paramount in creating a lifestyle we can enjoy. In the realm of business, it is all about the ‘bottom line’ or ‘profit.’ Businesses that spend more than they make will never show a positive cash flow. This means that there should be a balance between the profits and expenditures a business has.

More to the point a positive cash flow is where there is a higher amount of cash coming into the company than leaving the business through spending on its liabilities. This same principle is applicable to a family or even an individual. This is a point of view not everybody understands. When we are young we get a job and we enjoy spending our hard earned money for fun and

Why Are NSF Fees So High

No business can stay in business if it cannot make a profit. If you started a business, would you continue to provide your service or products if you had to pay the expenses of the business from your own pocket? Of course not! So, when we discuss banking, we need to understand first that banks are businesses, and the purpose of a business is to make a profit.

The service that banks provide is to keep your money safe while it is in their care. Checking and savings accounts are known in banking as DDA’s, Demand Deposit Accounts. This means that when you put money into your account, you have the right to get it out of the account. But, understand, you can only get out what you put in.

Electronic banking (debit cards and ACH transations) greatly increased the opportunities for NSF fees, because people became used to using the “float”, or “kiting” checks. Under the old, manual system of banking, the float might be as much as 7 – 10 days for out of town checks. If a check was mailed to pay a bill, it took 2 – 3 days for the payment to arrive. Then, the business had to deposit the check into their account at their bank, which meant that it was probably deposited the next day after it arrived. Then, if your account was with a different bank, your check had to be sent to your bank, and it was probably deducted the next day. So, it was easily possible to have 3 – 5 days before the check was paid out of your account. Most people knew this, and they counted on the timing so they could wait a couple of days before depositing money into their account.

However, bankers made a strong argument to Congress that the check should be counted as a previous day transaction because it was processed by the recipient a day or more before it was deducted from the payor’s account. This resulted in the Federal law known as Check 21. It gave banks the right to process checks which had been presented for payment on a prior day as prior day transactions FIRST, before processing deposits and checks presented on the day of processing. This greatly increased the possibility of NSF fees for people who counted on the “float”.

Remember, checking and savings accounts are demand DEPOSIT accounts. No customer is