Wednesday, September 24, 2014

How to Choose an Annuity for Retirement Income

How can you guarantee that you will not run out of your retirement savings before you die?  One idea that is recommended by many financial advisers is to put a portion of your savings into an annuity.  Doing this can insure that you will always have at least some reliable income in addition to your Social Security benefits.  While not everyone will want an annuity because their assets are permanently tied up, others appreciate the secure income flow that annuities can create with a higher return than you would receive from bank interest.

In a "Money" magazine article, "The One Retirement Move You Must Get Right," the author discusses how to transition from saving for retirement to receiving a lifetime income from your savings.  As part of this article, the author demonstrates how you can lock-in a lifetime income with an annuity.  While they do not recommend doing this with all the proceeds of your 401(k) or IRA, they do see it as one part of a well-designed investment plan.  Which type of annuity is right for you ... a variable annuity or an immediate annuity?

Variable Annuities

Investment advisers who work for insurance companies are likely to advise you to purchase a variable annuity.  These investment products combine an income with the potential for your investments to continue to grow.  Approximately 75% of the annuities that are sold in the United States are variable annuities, primarily because the potential for asset growth sounds so appealing.

The downside of variable annuities is that the guaranteed income is lower and you may pay an extra 2% or more (6% vs. 4%) in up-front commissions as well as management fees of 2% or more per year of assets under management.  If you still decide that this is the best type of annuity for you, try to find one that only charges 1.5% a year for the assets under management.  If you pay 2.5% or more, you are unlikely to have enough asset appreciation to make the lower earnings worthwhile.

Fixed or Immediate Annuities

"Money" magazine suggests that most people will do better with a simple fixed or immediate annuity.  With this type of annuity, you pay a lump sum up front and receive a guaranteed lifetime income.   One advantage is that the commissions are usually 4% or less, compared with 6% for a variable annuity.  In addition, you do not pay the 2% annual management fee.  You can compare the commissions and estimated earnings for various fixed annuities at a website called

Rather than relying on the potential of appreciation in a variable annuity, with a fixed annuity you can put a portion of your retirement savings into the annuity and then invest the remainder of your savings in a low-cost mutual fund or exchange traded fund.  Research has shown that people tend to do better with this combination than they do when they put everything into a variable annuity.

Whichever type of annuity you choose, you will not want to rely solely on annuities for all of your retirement planning.  The more diverse your portfolio and the types of retirement tools you are using, the fewer problems you will have during a stock market decline, such as the one that began in 2007.

You may also want to read these other posts that were based on the Money magazine article:

Should You Rollover Your 401(k) Into an IRA?
How to Choose a Good Investment Adviser


"The One Retirement Move You Must Get Right," Money Magazine, July 2014, page 44.

If you are planning your retirement, you may want to use the tabs at the top of this page.  They contain links to hundreds of articles about financial planning, where to retire, medical issues and family relationships.

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Wednesday, September 17, 2014

How to Choose a Good Investment Adviser

In last week's blog post, I discussed "Should You Rollover Your 401(k) into an IRA?"  In making up your mind how to invest your 401(k) or IRA savings, many retirees will want to enlist the aid of a good investment adviser.  However,  with 300,000 financial advisers in the United States, how do you know if you are choosing someone reputable and who will give you the best advice?

In addition to getting the best investment advice, you also want to make sure you follow IRS tax guidelines so that you do not needlessly pay taxes on the proceeds.

Some advisers will push you to make decisions that are in their best interest, not necessarily yours.  For example, they may push you out of a 401(k) with a Fortune 500 company into an IRA, simply because they can charge you higher fees once your money is in an IRA.  While there are times when you may be better off in an IRA, you do not want to make the change simply because your adviser wants to earn higher fees.

How Can You Choose the Best Investment Adviser for You?

*  Ask the adviser you are interviewing a lot of questions.  For example, if they want to switch your plan so they can invest your savings in certain types of stocks or bonds, ask why that can't be done in your current plan.  Make sure you get satisfactory answers to all your questions.  Go home and think about what they said. You may want to interview another adviser, as well, to see if they give you similar advice.

*  Find out how the adviser is paid.  If he works for a brokerage firm, bank or insurance agency, it is likely that he is being paid primarily from commissions on the products that he sells you.  If he is a registered investment adviser, he is likely to be paid an annual percentage of the assets under management.  Some advisers charge a one-time up-front fee in the range of $800 to $1500 and, in return, they do not get commissions on products and they do not receive an annual fee on your assets that are under their management.  Some advisers are paid in several different ways.  You want to make sure you fully understand how the adviser you choose will be paid.

*  Try to determine the biases of the the investment manager you are considering.  Are they trying to steer you towards certain products because the commissions are larger for them?  Are they trying to switch you out of a perfectly good 401(k) into an IRA because they can then charge an annual fee for managing your assets?  Are they opposed to certain types of financial vehicles, like annuities or exchange traded funds, even though you are interested in including them in your portfolio?  Is their comfort level with risk similar to your own?

*  Make sure you understand what commissions you will be charged, up-front and in the future.  How do the fees and commissions compare to the return that you can expect on your money?  There is no point in paying a money manager so much that you barely get any return on your assets.

*  Ask the adviser about all the services they provide.  There could be a benefit to choosing an adviser who can help you with tax and estate planning, for example.  You also need to talk to them about the types of investments they prefer and make sure that their style is compatible with yours.  Are they more or less aggressive than you are?  You should also ask for their Form ADV Part II Brochure which will describe their services, fees and investment strategies.

*  Finally, but perhaps most importantly, DO A BACKGROUND CHECK. Countless people have been cheated by advisers who have a checkered past.  The first thing you should do is enter their name into FINRA Broker-Check at  This will give you information on any "disclosure events" such as disputes with customers and, more seriously, felony convictions.  You may also want to do a Google search on their name to see if there are any other red-flags that you will want to know about.  If they are a principal in a small firm, do a Better Business Bureau check and a Google check on the name of the firm to make certain that people have been satisfied with the services they provide.  You literally cannot be too careful.

While following this advice will not guarantee that you are getting the best advice possible, it will help lesson the chances that you will run into problems.


"The One Retirement Move You Must Get Right," Money Magazine, July 2014, page 44.

You may also want to read:

"Should You Rollover Your 401(k) into an IRA?

If you are planning to retire soon, you will also want to check out the tabs at the top of this article.  They contain links to hundreds of additional articles on financial planning, where to retire, medical concerns and family relationships.

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Thursday, September 11, 2014

Should You Rollover Your 40l(k) into an IRA?

In the July, 2014 issue of "Money" magazine, there was an article about "the one retirement move you must get right."  What they were talking about is how you should handle the money in your company 401(k) when you decide to retire and in the years prior to retirement.  If you make the right decisions, your money will ideally last the rest of your life; if you go wrong, you could run out of funds just at the point when you are the most vulnerable.

Can You Totally Rely on the Advice of Your Current 40l(k) Provider?

It may seem natural to simply follow the advice of your 401(k) provider and allow them to handle an IRA rollover for you.  In fact, that is what approximately half of all retires do.  This works out well for the providers because rollovers are very lucrative for financial advisers, brokers, insurance agents and fund companies.  Handling an IRA is twice as profitable as running a 401(k).  As a result, your 401(k) provider has a huge incentive to encourage you to let them transfer your funds into an IRA.  However, converting to an IRA is not always the best idea for the account holder.

This is a time when many people who have contributed faithfully to a 401(k) for decades are now uncertain about the best way to convert that savings into retirement income.  The amount of money involved can be significant.  Workers over the age of 60 who have been earning over $100,000 a year had an average 401(k) balance of $414,000 in 2013.

Common Misconceptions About Converting to an IRA

The Government Accountability Office had an undercover investigator call 30 plan administrators and ask them what he should do with an old 401(k) for a former employer.  Much of the advice he was given was misleading and, in some cases, completely untrue.

In several cases, the investigator was told that he would not be able to keep an old 401(k) and must convert the money into an IRA or accept a cash payout.  In general, the truth is that you can usually keep it, as long as it is worth at least $5,000.

About one-third of the plan administrators told the undercover investigator that the funds could not be rolled over into a new employer's retirement plan.  In truth, you can almost always roll the proceeds of one retirement plan into a new one. 

Personally, I found this misconception particularly interesting because it happened to me when I worked for a California public school.  The Human Resources Department at the district office told me that I could not roll my savings from one state retirement plan into another one.  However, when I contacted the two retirement plans directly, they both told me that it was simple and completely legal to move the money into my new retirement plan and they sent me the short forms necessary to complete the transfer. 

My own experience, combined with the research in the "Money" magazine article seems to indicate that there is a lot of confusion about the process, even among people who should be knowledgeable about handling retirement savings.

The Difference in 401(k) and IRA Fees

Many large 401(k) plans have very small fees.  Once you transfer you assets into an IRA, you can expect the fees to increase, especially if you add premium services such as individualized advice.  The employees and reps for these companies have large incentives to get you to sign up for these services, since they receive substantial commissions.  Therefore, it may be wise in many cases to keep your money in your 401(k) as long as possible.  However, there are exceptions.

What Should You Do With Your 401(k)?

According to the "Money" magazine article, here are your best choices for handling your 401(k):

*  If you work for a large Fortune 500 company, keep your money in their 401(k) as long as possible.  Some companies match your deposits, so it is especially advantageous to hold onto your 401(k).

*  If you change jobs from one major firm to another one, move your savings directly from your old 401(k) into the new one.

*  On the other hand, if you are with a small company, your 401(k) may have high fees.  In addition, if the money is invested in company stock, that could be a risky choice for your retirement funds. If this is the case, it is possible that you should switch to an IRA, pay lower fees and invest the principal in an index fund.

*  Listen to the advice of your 401(k) investment manager if you want to optimize the mix of stocks and bonds in your plan.  Periodically re-balancing your account is important for your financial security.  Their advice is often offered over the phone and can help you determine the right mixture of stocks and bonds for your age, health and situation. Later, your plan administrator can help you determine how much you can withdraw each year after you retire.  Expect to pay an annual fee of 0.6% a year, or more, in addition to your regular fund fees.

*  Another choice is to buy a target-date fund in your 401(k) plan.  It will automatically adjust your portfolio so that the investments become less risky as you age.

*  If you have at least $250,000 you may wish to consult with a local investment adviser.  This is a good idea for people who like to talk with someone face-to-face.  You can hire an adviser by the hour and pay a one-time, up-front fee in the range of $800 to $1500 for the advice you need rather than spend 1% to 2% a year for the remainder of your life.

More Information To Help You Make Wise Decisions

In the next three weeks, I will also post a series of articles that cover how to choose a good investment adviser, how to use an annuity as part of your retirement income and advice for people who manage their retirement funds themselves.

If you are planning your retirement, use the tabs at the top of this page to find links to hundreds of additional articles on financial planning, where to retire, medical concerns, family relationships and more.


"The One Retirement Move You Must Get Right," Money Magazine, July 2014, page 44.

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Wednesday, September 3, 2014

The North Hollywood Senior Arts Colony

Are you a retiring Baby Boomer who has always dreamed of living in a vibrant artist's colony?  Now you have that option in one of the most exciting cities in the world.  The NoHo Senior Arts Colony is a rental apartment community in the heart of North Hollywood in Los Angeles, California.  It gives retirees ages 62 and older the opportunity to live in a modern, fully equipped one or two bedroom apartment with access to amenities that include a pool, exercise equipment, art studios, literary programs, a theatre and a wellness program.

This community first came to my attention when it won the Community of the Year award from the National Association of Home Builders - 2014 Best of 50+ Housing.  I thought that winning this award was especially remarkable for a senior apartment complex and wanted to learn more about it.

Apartments at NoHo Senior Arts Colony

The modern apartments in this complex have gourmet kitchens with granite counters and a full appliance package, including refrigerator and microwave.  Each unit has a private washer and dryer, as well as either a private balcony or patio.  Residents have a choice of using either cable or DIRECTV.

This community is pet friendly and there is an underground, gated parking garage.  Rentals are competitive with other apartment complexes in Los Angeles and are within the means of many couples who are both receiving Social Security.

One bedroom apartments start at $1620 a month.
Two bedroom apartments start at $2120 a month.

Community Amenities

*  Heated Swimming Pool
*  Fully equipped fitness center
*  Billiards Room
*  Visual Arts Studio
*  Digital Arts Studio
*  Literary Studio
*  Artist's Lounge and Terrace for socializing
*  A wellness program operated by EngAGE
*  A 78-seat performing arts theater operated by The Road Theatre Company

Neighborhood Amenities

In addition to the wonderful community amenities that are available to artists, writers, actors and art lovers, this community is also located in the heart of North Hollywood.  This means you are only a short distance away from restaurants, live theater and museums.  It is located near the Art Institute of California - Hollywood, the North Hollywood Regional Library, and the North Hollywood Recreation Center.

In addition, residents are just a short drive to the Bob Hope Airport, Providence/St. Joseph Hospital, Griffith Park, the Hollywood Bowl and Universal Studios.

Living in Southern California provides you with pleasant weather the year around, as well as access to beaches, shopping, sporting events and charming neighborhoods.  Being in North Hollywood means that you will be living in the heart of all that Los Angeles has to offer.

If you have ever wanted to live in a vibrant artist's/writer's/actor's community, it is hard to imagine one with more opportunities than this one has to offer.


"The 50+ Housing Awards" Where To Retire Magazine, May/June 2014, page 14.

If you are retired or planning your retirement, use the tabs at the top of this page to find links to hundreds of articles about where to retire, financial planning, medical concerns, family issues and more.

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