Is It Time to Consider Inflation-Protected Annuities?

The guaranteed payments that annuities offer can help protect investors from troubled times, providing the value of the annuity isn’t being whittled away by inflation.

Many economists are worried about inflation. The Consumer Price Index (CPI), a widely used gauge of consumer spending, decreased 0.3% in May 2012, and core inflation (which eliminates volatile food and energy costs) rose 0.2%. For the one-year period ending May 31, 2012, the CPI rose 1.7% and core inflation rose 2.3%. That places core inflation above the U.S. Federal Reserve Board’s target of 2%.

Inflation can be problematic for annuity owners. That’s because the annuity payouts are dependent on interest rate levels at the time the money is invested.

One way to address this problem is to invest in an annuity that adjusts for inflation. Some annuities raise payments based on changes to the CPI; others raise payments by a fixed percentage per year; and still others increase payments only if interest rates rise by more than a certain percentage by a certain date.

While this may be appealing to many investors, there are downsides to inflation-protected annuities. First, inflation protection can add to the cost of the annuity. Second, inflation-protected annuities may offer lower initial payouts. Third, annuities that increase payments when inflation rises often also reduce payments when inflation declines.

Investors may therefore want to consider other ways to address this problem. One option: Consider investing in several immediate payment annuities at several points in time; this allows you to potentially capture different interest rates. Another option: Invest part of your assets in an annuity and part in stocks and bonds.

Of course, deciding which approach makes the most sense for you depends on your individual financial situation and tolerance for risk; we can help you make the choice that’s right for you.

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances

Smarter Smart Phones Usher In Cashless Society

Sick of lugging around cash? Don’t worry. The cashless society is just around the corner.

Thanks to smart … and smarter … cell phones, the days of wallets, cash, even credit cards may soon be over. Already customers are flashing their phones to purchase lattes in some Starbucks locations or lumber at Home Depot.

A survey by Washington-based Pew Research Center asked 1,000 technologists and social scientists about the wallet’s fate in 2020. Two-thirds felt both cash and credit cards will have disappeared by then, to be replaced by smart devices. In fact, even now, smart phones hold all the information we need to transact business: payment methods and identification.

Naturally, companies are anxious to transition to the post-cash economy. Both Visa and MasterCard now offer wireless payment options, and the government of Canada is moving away from plastic, as it plans to stop issuing social insurance cards in March 2014.

Meanwhile, Square, Inc. (www.squareup.com) has found a way for small merchants, such as the local hot dog seller or a dog walker, to accept credit cards via a smart phone.

The downside, of course, is concern about privacy and security. The Pew survey found that one-third of respondents felt consumers would worry about the security of their transactions and the misuse of personal data, as advertisers will be able to fine-tune their pitches to customers already predisposed to buy. 

Fixed Annuities May Provide a Bigger Payout

With a fixed annuity, you make a payment to your insurance company and you then receive a “set” or “fixed” payout. While many investors like the idea of a guaranteed income stream, for others the “fixed” part seems just a little too rigid. But that’s not necessarily the case.

All annuities operate in essentially the same way: You sign a contract with an insurance company. You pay the insurance company, and the insurance company then makes payments to you at regular intervals either for a specified period of time or for your lifetime.

From there, annuities differ dramatically. Some annuities have variable payouts, meaning they’re dependent on the performance of a portfolio of assets. Some investors, particularly those nearing retirement and needing some stability, don’t like the sound of a variable payment. Instead they opt for a fixed annuity, which provides a set income.

A fixed annuity payout may seem meager when the stock market is rising and investors with variable annuities are receiving greater payouts. However, fixed annuities may not be as fixed as they sound. For example, some fixed annuities are now available with payments that rise to adjust for inflation. Other fixed annuities allow an investor’s heirs to continue to receive payments if the investor dies earlier than expected.

We can help you determine if a fixed annuity is right for you. If it is, we will also be able to advise you on the appropriate balance of income and flexibility for your financial circumstances.

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer.  The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances.

Gas Prices Rising? Don't Worry - Start Biking!

If there was a simple way to be happier, more active and save money all at once, would you do it? These days you can’t surf your favorite news site without encountering a study showing that those who have chosen bikes over cars are happier and healthier.

The New Economics Foundation, a British-based think tank, has reported that “studies comparing the experiences of commuting by bicycle and car report that cyclists find their mode of transport at least as flexible and convenient as those who use cars, with lower stress and greater feelings of freedom, relaxation and excitement.”

A survey of Portland, Oregon, businesses found that bicycling is the fastest-growing mode of transport for downtown employees’ work commutes, and Canadian researchers found that 66% of people who commute by walking or biking are very happy with their commute, compared to 25% of transit users and 32% of drivers.

But the benefits don’t stop there. By biking to work, you avoid being stressed out by gas prices and, of course, you’re “doing the right thing” environmentally. If you think bike commuting is right up your lane, here are some tips to help you start:

· Ride a bike specially designed for commuting.

· If there aren’t designated bike lanes, stay to the right as much as possible.

· Take the flattest route. Plan it out at www.mapmyride.com.

Summertime…and Outdoor Living is Easy

Summer is back, so what are you waiting for?  Whether it’s the best foods to grill, the comfiest furniture to lounge on or the perfect backyard setup, here’s to getting the most from summer 2012.

The Barbecue

One of today’s hottest trends is stuffed burgers. Create your own by forming patties around fillings like cheese, bacon, even chutney.

Try this restaurant trick at home. Add mesquite or hickory wood

chips to charcoal to add a subtle smoky flavor to meat.

Grilled pizza can become your new go-to dinner. Make or buy your

dough, add your favorite toppings and throw it on the barbecue.

Outdoor Living

As long as local regulations permit it, add a fire pit to your outdoor living space. There’s nothing better than inviting a few friends over on a Sunday evening for a nice, relaxing evening by the fire.     

Outdoor pillows look great on your wicker furniture or patio set. Better yet, they make great floor cushions. You can get them in fun, bright colors and materials specially designed for the outdoors.

They don’t call it an outdoor living room for nothing. Jazz up your backyard space with fun accents. Raid your living room for decorative planters and mirrors. Don’t forget bright linens and unbreakable tableware and glasses for the outdoor dining room.

Fund Your Retirement Dreams Through Annuities

When it comes to funding your retirement dreams, it’s important to look at all available investment options and then structure a portfolio that provides regular income for as long as you’ll need it. Annuities could be a good option, but how do you know how much to allocate to annuities as compared with other investments?

As you know, creating a portfolio usually involves allocating assets to a mix of stocks (so your assets can keep pace with inflation) and bonds (so you’ll have a steady income stream). You’ll probably also want to have some cash on hand, and you may want to consider an investment in annuities.

To decide how much to allocate to an annuity, you could consider it a part of your bond allocation. That’s because allocating some of your nest egg to an immediate annuity creates a stream of income you can’t outlive, helping you overcome “longevity risk” – the risk that you’ll run out of money before you die.

Ask yourself what you think the stock market will do, and decide what your tolerance is for investment risk. Also consider whether you’re likely to burn through your assets earlier than you’d planned.

A significant allocation to an immediate annuity might be a good option under the following conditions:

·         When the stock market appears to be peaking or in the      

            early stages of a decline

·         When your tolerance for investment risk is low

·         When there’s a high probability you’ll exhaust your assets

           earlier than you wish.

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer.  The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances.

Buy Diapers and Soap… With Your Smart Phone

Their goal is nothing less than reshaping the retail industry. And with the growing popularity of smart phones and other mobile computing devices, tech-savvy retailers may wind up doing just that.

Whereas previous generations thought of shopping as requiring a trip to the local mall, buyers in recent years have become increasingly comfortable making their purchases online: letting their “fingers do the walking” via keystrokes on a computer. But now, e-commerce innovators – such as the online drugstore Well.ca – are taking that idea one step further.

By strategically locating so called pop-up stores in key commuter hubs, retailers are finding new ways to bring goods to shoppers. Using their smart phones, busy commuters simply scan the quick response (QR) codes (those black-and-white square patterns you’re seeing everywhere these days) on images of products, such as brand-name diapers or detergent, to place their orders. Purchases are delivered to their homes as early as the following day.

Shopping by smart phone while on the go may be a relatively new notion for many, but the appeal of such a system is obvious. With the ease of pressing a button on their pocket-sized device, time-pressed commuters can cross off items on their to-do lists that otherwise would have required a far more time-consuming trip to the local store.

And with PC World reporting earlier this year that smart phones “are already more popular than PCs,” such e-commerce innovations are sure to be around for a long time.

You Can Defer Taxes by Purchasing an Annuity

A major benefit of choosing an annuity as a retirement savings vehicle is tax deferral, which is simply the means by which the payment of taxes on certain assets can be delayed until some future date. Here’s why tax deferral can be beneficial.

Tax-deferred assets, such as investments in annuities, grow untaxed, meaning that interest earned on the investments in the annuity appreciates until they are withdrawn.

That’s called compounding. Compounding is the process by which the money you make from an investment can be reinvested to make even more money. As a hypothetical example, let’s say you have invested $10,000 and it earns interest of 10% per year. In the first year, you will earn $1,000 in interest. But in the second year, you will earn $1,100 in interest. Why? Because not only does your initial investment of $10,000 accrue interest, but so does the additional $1,000 you earned in the first year.

Because your investment isn’t reduced by income taxes every year, you experience potentially higher overall returns in your annuity’s accumulation phase.

It’s also important to note that through tax deferral you may receive a lower tax rate upon withdrawal. Since you probably will not withdraw the assets you’re accumulating in your annuity until later in life (when you may be in a lower tax bracket), you also may minimize the taxes you have to pay when you withdraw your investment.

Your advisor can help you determine if an annuity is a good tax-deferred investment vehicle for you.

The legal and tax information contained in this article is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax counsel for advice and information concerning your particular circumstances. Neither we nor our representatives may give legal or tax advice.

When Does a More Expensive Home Cost Less?

While it may seem counterintuitive, it’s true; purchasing a more expensive home in an urban neighborhood could actually wind up costing you less than a home with a smaller price tag in the suburbs.

In more ways than one.

That’s largely because of the high cost of transportation. When shopping for a home, many people who choose to live far from the core and commute to city jobs often neglect to factor in transportation costs.

The ever-increasing price of gas is not the only consideration. Regular maintenance, higher car insurance rates due to the longer drive, simple wear and tear, and vehicle replacement costs all need to be considered when calculating the cost of living far from where you work.

Given that suburban living also typically requires the use of a vehicle for everything from taking the kids to school to quick trips to the grocery store, you could also be looking at adding a second vehicle.

Whereas city dwellers – who benefit from better transit options and from being within walking distance of  many amenities – may get by with one car or none at all.

Something else to consider if you’re weighing the pros and cons of urban versus suburban living: according to research, health benefits – such as lower rates of obesity, hypertension and diabetes – are associated with the increased physical activity (primarily walking) that comes with being a city dweller. And that could translate into both lower medical costs and a longer, healthier life, which we’d all agree are priceless.

Are You a Procrastinator? Find Out How to Change

There are more distractions today than ever before, thanks to the influence of the Internet. Facebook, Twitter and Pinterest are among the online time wasters that lure us from the task at hand. But here’s the disconnect: even as the opportunities for procrastination grow, so does the demand for fast, creative, motivated workers.

So why do we procrastinate? Some experts, like Joseph Ferrari, associate professor of psychology at Chicago’s DePaul University, believe we procrastinate because we were overregulated as children or because we feel anxious about a task. But virtually all authorities on the subject agree that procrastinators are made, not born. Procrastination is a learned behavior that can be changed.

Making a to-do list can be a great first step in managing procrastination. Cross each item off as you complete it.

Knowing what your biggest distractions are can help you avoid them. If you check email every five minutes, try to reduce it to a few times an hour. If you feel compelled to read and reply to every text message you receive, put your phone out of reach.

Look at your work environment. Get rid of clutter, hang or post items that inspire you, and find a spot to keep your to-do list in plain sight. If you find yourself procrastinating regularly, you might want to consider talking to a therapist. Professional advice can help you determine what’s at the root of your procrastination and eliminate it.