Monday, July 22, 2013

Buyer Beware with Variable Annuities

Variable Annuities are one of the most broker sold products out there. The reason is that the commissions on these products are very lucrative. Generally, they can range from 6 - 10% in commissions to the brokerage firm.

What is generally glossed over during the sales process are the surrender charges. The surrender charges can get as high as 14% or more in the first year and decline from there over a ten year period or sometimes even longer.

Also, the expenses on these policies are very high and sometimes can be in the 2.5% to 3% per year range. Common sense would tell you that this acts like an anchor on a boat. You are not going anywhere as long as you have that kind of an anchor holding you back.

Further, brokers often tout the 10% free withdrawals, but fail to tell you that this does not start until one year and a day later.

Perhaps, the biggest fallacy in regard to Variable Annuities are these Guaranteed Minimum Withdrawal Benefit Riders. Most of these riders have a 5% guarantee. Here is where it gets confusing. These policies have a 10% free withdrawal already. So, the 5% GMWB Rider is of what benefit? Why do I need to pay 0.50 to 0.75% per year additional for a 5% GMWB Rider if I am already getting a 10% free withdrawal without any rider charges? This will knock my annual expenses up closer to 3% to 3.75% per year!

The broker's answer is that the Variable Annuity invests in the stock market and in case the broker's advice is horrible and the policy loses money, then you are still guaranteed the 5% withdrawals with the GMWB Rider. Gee thanks. Just what I need, an investment weighted down with expenses that most likely is going to perform poorly, because my broker doesn't have a clue how to diversify it.

Oh by the way, did I mention that there are several insurance companies who are panicking about having these GMWB Riders on their Variable Annuities and are offering to buy their policy holders out with cash payments? Could this be a clue that maybe that cannot guarantee the 5% GMWB Rider like their broker claims?

Another thing. The 10% free withdrawal is a cap, so technically you can pull out only 5% if you wanted. Again, why do you need to pay for the cost of the GMWB Rider every year? I for one am unconvinced.

One final point on Variable Annuities. Did your broker tell you that if you really wanted to buy a Variable Annuity, then you can find them without any commissions or surrender charges? That's what I thought.

I recently tried my hand at producing a short video that shows the broker sales process to unsuspecting buyers. After they buy the variable annuity, then this is when they find out all the sordid details.

Please forgive as I am not a video producer, but I think I get my point across. Click the link below to go to our web site. Enjoy.

Meet Wally Street

Tuesday, July 9, 2013

Flying Solo?

Are you flying solo as a small business person? Do you work for yourself or have your own LLC or S-Corp? Do you have a Solo 401(k)? Ideally it is best if you are the only employee as it makes things a little simpler, but you can have up to five employees with a Solo 401(k). You do not have to be incorporated, but you do want to pay yourself a salary. By paying yourself a salary, you can salary deduct up to $17,000 per year with an over 50 catch up contribution of another $5,500 per year. Theoretically, you can put up to $51,000 into a Solo 401(k) in 2013 with a Profit Sharing contribution to make up the difference. You can put up to 100% of your compensation, or $51,000 into this plan.

Now is the time to get started. If you are okay with traditional investments like mutual funds, ETF's and stocks, then Schwab, Fidelity or TD Ameritrade all have Solo 401(k) plans. However, you probably want an adviser like me to help you.

Here is why it might be a wise decision on your part to consider me as your adviser. Did you know that if you have an old 401(k) that you can re-roll it back into your new Solo 401(k)? That is only if you haven't messed things up by rolling it into an IRA Rollover account and combining it with a different IRA. Assuming that you have either left it at your former employer, or you rolled it over and kept it separate from your other IRA's, then you are good to go. You might have well over $100,000 right out of the gate.

Another reason you might want to hire me is that now that you have re-rolled your old 401(k)/IRA Rollover into your newly created Solo 401(k), you can now by real estate with the funds. Yes, you can buy real estate with your Solo 401(k). For that matter, you can buy real estate in your IRA or Roth IRA, too. Oh by the way, you can have a designated Roth account with your Solo 401(k). This means that your salary deduction amount can all go into this Designated Roth 401(k) which is tax free.

I can literally go on and on with planning ideas. Each case is different, but rest assured, I can provide great solutions for you.

A third reason to hire me is because you can pool Your Solo 401(k), your IRA, your Roth IRA and even combine with other family members accounts to buy real estate. Friends or business partners can combine their accounts, too. 

Think about this example. Suppose you are a two person law firm with a paralegal and a clerical person. You both have old 401(k)'s that you rolled into your new Solo 401(k). Your paralegal and clerical person can buy traditional investments with their accounts. However, you two attorneys can purchase your own office building with your Solo 401(k). Why? Because these Solo 401(k) accounts can hold the real estate until you are ready to sell and hopefully inflate the value of your accounts in the process.

A final reason to hire me is that there are a myriad of IRS rules involving buying real estate in these accounts. I can help keep you on the straight and narrow, help you find properties as a real estate agent, in addition to being an Investment Adviser.

If you are a real estate agent, a real estate agent team, a CPA, an attorney or other self-employed business person, then you really ought to take a look at these options. After all, it's your business and your future.

So, if you want to know more, then give me a call at (904) 547-2913.