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social security

Sixty-two percent of retirees report that Social Security is a major source of retirement income. By contrast, only 35% of workers expect the program to be a major source of income for them in retirement.1

Social Security was never intended to be a retiree’s sole source of retirement income, so lower expectations are realistic and could inspire you to save more in your retirement accounts. But low expectations also reflect concern about the future of the program. Only 10% of workers are “very confident” that Social Security will continue to provide benefits equal to those provided to current retirees.2

Many ideas have been suggested to address Social Security’s fiscal challenges. Here are some commonly cited solutions, with estimates of their impact from the Chief Actuary of the Social Security Administration.3

Eliminate or increase the earnings cap. Workers pay Social Security taxes on income up to an inflation-adjusted cap ($127,200 in 2017). Eliminating the cap in 2017 and later years would address 89% of the Social Security shortfall if benefits were not increased for high earners (72% if benefits were increased). Increasing rather than eliminating the cap would have a significant but smaller effect.

Increase the payroll tax. Workers currently pay 6.2% of earnings (up to the earnings cap) into the Social Security system, with employers matching that amount. Increasing the payroll tax to 7.6% for both workers and employers in 2017 and later years would completely eliminate the shortfall.

Raise the full retirement age. The current age to claim full Social Security retirement benefits is 66 for individuals born between 1943 and 1954; full retirement age increases gradually to 67 for those born in 1960 and later. Raising the full retirement age to 69 by 2034, with small increases thereafter, would eliminate 40% of the funding shortfall.

Sources
1–2) Employee Benefit Research Institute, 2016
3) Social Security Administration, 2016

Retirement Planning Adds To Social Security Benefits

You can become anxious when you have to deal with your retirement planning alone. So, let me help you figure out how much Social Security you can expect. Moreover, I can advise you on how to create a retirement where you don’t have to only rely on Social Security.
Let’s meet for a FREE retirement strategy consultation at my office.
Call (866) 471-7233.

Freeman2017-blog2

 

life insurance for a business owner

If you own your own business, I bet you think about your vulnerabilities. If something happens to you, what will happen to your business? Who will take over when you are gone? How will your family afford to live without your income?  Business continuation is difficult enough under normal circumstances. However, if there is an unexpected death of a key person or business owner, complications increase exponentially.

Company-owned life insurance is one way to help protect a business from financial problems caused by the unexpected death of a key employee, partner, or co-owner. If the covered individual dies, the proceeds from this type of insurance can help in several ways. Here are some examples.

Fund a Buy-Sell Agreement

A buy-sell agreement typically specifies in advance what will happen if an owner or a key person leaves the company, either through a personal decision or because of death or disability. The death benefit from a company-owned life insurance contract can be used to purchase the decedent’s interest in the company from his or her heirs.

Keep the Business Going

If survivors decide to continue the business, they might need a break. This period when operations cease will give them a chance to develop a future plan. The death benefit can be used to help replace lost revenue. It can also pay costs associated with keeping the doors open, including rent, utilities, lease payments, and payroll. And, it may help the surviving owners avoid borrowing money or selling assets.

Replace Lost Income for Business Owner

If a business owner has family members that depends on their business income, the proceeds from company-owned life insurance could help replace the lost income. It would also protect the family’s quality of life while they adjust and move on.

The appropriate coverage amount will depend on several factors. It could be a multiple of the business owner annual salary or the company’s operating budget. Don’t forget to include details like the cost of hiring and training a successor and any debts that the family may have to repay.

You should have a thorough examination of a business and personnel before deciding on the exact amount of coverage you need.

The cost and availability of life insurance for a business owner depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that the individual is insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges. In addition, if a contract is surrendered prematurely, there may be surrender charges and income tax implications.

The loss of an owner can be devastating to a small business. A company-owned life insurance contract may help reduce the financial consequences if such a loss were to occur.

I want to give you “peace of mind”.

I can help you determine the right life insurance for your business needs.  Let’s meet for a FREE retirement strategy consultation at my office. Call
(866) 471-7233.

Freeman2017-blog2

 

Life Insurance

Protect yourself against the financial consequences of premature death by using life insurance. However, choosing from the many types of life insurance that are available can be a difficult process. A few main categories are here to help you search for the right type of life insurance.

The cost and availability of insurance depend on factors such as age, health, amount and type of insurance you purchase. Before implementing a strategy involving insurance, it would be prudent to make sure that you are insurable.

Term life insurance

Term life insurance is the most basic and usually the most affordable. You can purchase a contract for a specified period of time. If you die within the time period of your contract, the insurance company will pay your beneficiaries the face value of your contract. This insurance can benefit your spouse, children or business.

You can buy a contract for any period between 1 and 30 years. Annual renewable term insurance usually can renew every year without proof of insurability. However, the premium may increase with each renewal. This options is useful if you can only afford a low-cost option.

Permanent life insurance

The other major category is permanent life insurance. You pay a premium for as long as you live, and upon your death, a pay out goes to your beneficiaries. This permanent contract typically comes with a “cash value” growth element. There are three main types of permanent life insurance: whole, universal, and variable.

Whole life insurance.

This type of permanent life insurance has a premium that stays the same throughout the life of the contract. Although the premiums may seem higher than the risk of death in the early years, they can increase in cash value.  You may be able to borrow funds from the cash value or surrender your contract for its face value.

Access to cash values through borrowing or partial surrenders can:

  • reduce the contract’s cash value and death benefit
  • increase the chance that the contract will lapse
  • may result in a tax liability if the contract terminates before the death of the insured
  • require additional out-of-pocket payments

Universal life insurance.

Universal life coverage goes one step further. You have the same type of coverage and cash value as you would with whole life, but with greater flexibility. Once cash value has grown, you may be able to vary the frequency and amount of your premiums. In fact, you could structure the contract so that the cash value covers your premium costs completely. Of course, it’s important to remember that altering your premiums may decrease the value of the death benefit.

Variable life insurance.

With variable life insurance, you receive the same death protection as with other types of permanent contracts. However, you have control over decisions for your cash value. You have the option of putting your money into stocks, bonds, or money market funds. The value of your contract has the ability to grow more quickly, but there is also more risk. If your financial instrument does not perform well, your cash value and the death benefit may decrease. However, some policies provide a guarantee that your death benefit will not fall below a certain level. You cannot change the premiums for this type of insurance. Moreover, you cannot change them in relation to the size of your cash-value.

Variable universal life

Variable universal life is another type of variable life insurance. It combines the features of variable and universal life insurance, with the ability to adjust your premiums or death benefit.

As with most financial decisions, there are expenses associated with life insurance. Generally, life insurance policies have contract limitations. Moreover, there are fees, charges, extra costs for optional benefits. Most policies have surrender charges during the early years of the contract if the contract owner surrenders the contract. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. FDIC does not guarantee life insurance nor does any other government agency. It is not guaranteed or endorsed by any bank or savings association.

You’ll have to pay tax if you have withdrawals of any increases. Also, you may be subject to surrender charges and a 10% federal income tax penalty if  you are younger than age 59½. Withdrawals reduce contract benefits and values. For variable life insurance and variable universal life, there is no guarantee on the financial instrument’s growth. Moreover, they can fluctuate with changes in index conditions. Thus, the principal may be worth more or less than the original dollar amount when the contract ends.

Variable life and variable universal life are sold by prospectus. Please consider the financial instrument’s objectives, risks, charges, and expenses before making your decisions. The prospectus, which contains information about the variable life or variable universal life insurance contract and the underlying financial instrument’s options, can be obtained from your financial professional. Be sure to read the prospectus carefully before making any final decisions.

Your retirement success is important to me.

I can help you determine the right life insurance for your needs and life situation.  Let’s meet for a FREE retirement strategy consultation at my office. Call
(866) 471-7233.

Freeman2017-blog2

 

Most homeowners make their regular mortgage payments every month for the duration of the loan term, and never think of doing otherwise. But prepaying your mortgage or making biweekly payments can reduce the amount of interest you’ll pay over time.

Biweekly Mortgage

Under a biweekly mortgage, instead of making the payments once a month, you make half your normal monthly payment every two weeks. For example, if your mortgage is $1,000 per month, under a biweekly system it would be $500 every two weeks.

If you maintain the biweekly payment schedule you’ll make an extra month’s payment over the course of each year (26 payments per year, which is the equivalent of 13 full monthly payments rather than 12). You’ll also pay less interest because your payments are applied to your principal balance more frequently.

The effect of biweekly mortgage payments can be dramatic. For example, if you currently have a $150,000 loan at 8 % fixed interest, you will have paid approximately $396,233 at the end of 30 years. However, if you use a biweekly payment system, you would pay $331,859 and have it completely paid off in 21.6 years. You would save $64,374 and pay the loan off 8.4 years earlier!

Freeman Owen, Jr -Retirement Specialist

Be smart about your money EARLY to get the most from it. Retirement planning doesn’t begin in your 50’s. The earlier you plan for retirement, the easier it will be & the more you will have in your golden years.  Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at (866) 471-7233. 

 

College graduates gain a serious edge in earning potential. Workers with a bachelor’s degree typically earn 77% more over their lifetimes than those with only a high school diploma.

While it may be true that new grads are rich in “human capital,” they are often low on funds when first entering the workforce. Here are two ways to start off on the right foot financially.

First Financial Steps for New Grads

Hold down your living expenses.

Housing, transportation, and food comprise the majority of spending for most people, so committing to high rent or car payments could kick off a constant struggle to make ends meet. Finding a cheaper place to live (possibly with roommates), settling for an older-model vehicle, or cooking more meals at home could free up money for fun activities that are important to you.

Plump up your cash cushion.

It’s important to build an emergency fund that would cover three to six months of living expenses. Begin by determining how much income you can afford to set aside and transfer that amount automatically from your paycheck to a separate account. Having access to a healthy savings account makes it less likely that you will resort to borrowing, and it also gives you the financial freedom to switch jobs or change your living situation if you so decide.

Source: The Wall Street Journal, May 7, 2015

Freeman Owen, Jr -Retirement Specialist

Retirement planning seems so far away when you’re a recent college graduate. But, the early you begin, the more you’ll save and the easier it will be! Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at (866) 471-7233. 

 

retirement distributions

When it comes to receiving the fruits of your employer-sponsored retirement plan, you have a few broad options. Should you take the payout as systematic payments, a lifetime annuity, or a lump sum?

1. Systematic withdrawals

Some retirement plans may allow you to take systematic withdrawals: either a fixed dollar amount on a regular schedule, a specific percentage of the retirement money value on a regular schedule, or the total value of the retirement monies in equal distributions over a specified period of time.

2. The lifetime annuity option

Your retirement plan may allow you to take payouts as a lifetime annuity, which converts your balance into guaranteed monthly payments based on your life expectancy. If you live longer than expected, the payments continue anyway.*

There are several advantages with this payout method. It helps you avoid the temptation to spend a significant amount of your assets at one time and the pressure use a large sum of money that might not last for the rest of your life. Also, there is no large initial tax bill on your entire nest egg; each monthly payment is subject to income tax at your current rate.

If you are married, you may have the option to elect a joint and survivor annuity. This would result in a lower monthly retirement payment than the single annuity option. However, your spouse would continue to receive a portion of your retirement income after your death. If you do not elect an annuity with a survivor option, your monthly payments end with your death.

The main disadvantage of the annuity option lies in the potential reduction of spending power over time. Annuity payments are not indexed for inflation. If we experience a 4% annual inflation rate, the purchasing power of the fixed monthly payment would be half in 18 years.

3. Lump-sum distribution

If you elect to take the money from your employer-sponsored retirement plan as a single lump sum, you would receive the entire balance in one payment. You can invest and use it as you see fit. You would retain control of the principal and could use it whenever and however you wish.

Of course, if you choose a lump sum, you will have to pay ordinary income taxes on the total amount of the distribution (except for any after-tax contributions you’ve made) in one year. A large distribution could easily move you into a higher tax bracket. Another consideration is the 20% withholding rule. If an employer issues a check for a lump-sum distribution, they must withhold 20% toward federal income taxes. Thus, you would receive only 80% of your nest egg balance, not 100%. Distributions taken prior to age 59½ (or in some cases age 55 or 50) may also be subject to a 10% federal income tax penalty.

To avoid some of these problems, you might choose to take a partial lump-sum distribution. Then, roll the balance of the funds directly to an IRA or other qualified retirement plan in order to maintain the tax-deferred status of the funds. An IRA rollover might provide you with more options, not only in how you choose to invest the funds but also in how you access the funds over time.

After you reach age 70½, you generally must begin taking required minimum distributions from traditional IRAs and most employer-sponsored retirement plans. The tax on these distributions will be as ordinary income.

Note: Special rules apply to Roth accounts.

Before you take any action on retirement plan distributions, it would be wise to consult with a tax professional. Choose carefully, because your decision and the consequences will remain with you for life.

*Annuity guarantees are subject to the financial strength and claims-paying ability of the insurer.

My business is to help you manage your money BETTER so you can enjoy a golden retirement.

I can help you start the process today!  Let’s talk. Meet me for a FREE retirement strategy consultation at my office by calling (866) 471-7233.

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Required min distributions

A required minimum distribution (RMD) is the annual amount that must be withdrawn from a traditional IRA or a qualified retirement plan (such as a 401(k), 403(b), and self-employed plans) after the owner reaches the age of 70½. The last date allowed for the first withdrawal is April 1 following the year in which the owner reaches age 70½. Some employer plans may allow still-employed owners to delay distributions until they stop working, even if they are older than 70½.

RMDs are designed to ensure that owners of tax-deferred retirement monies do not defer taxes on their retirement dollars indefinitely. You are allowed to begin taking penalty-free distributions from your tax-deferred retirement nest egg after age 59½, but you must begin taking them after reaching age 70½. If you delay your first distribution to April 1 following the year in which you turn 70½, you must take another distribution for that year. Annual RMDs must be taken each subsequent year no later than December 31.

The RMD amount depends on your age, the value of the nest egg dollars, and your life expectancy. You can use the IRS Uniform Lifetime Table (or the Joint and Last Survivor Table, in certain circumstances) to determine your life expectancy. To calculate your RMD, divide the value of your balance at the end of the previous year by the number of years you’re expected to live, based on the numbers in the IRS table. You must calculate RMDs for each set of monies that you own. If you do not take RMDs, then you may be subject to a 50% federal income tax penalty on the amount that should have been withdrawn.

Remember that distributions from tax-deferred retirement plans are subject to ordinary income tax. Waiting until the April 1 deadline in the year after reaching age 70½ is a one-time option and requires that you take two RMDs in the same tax year. If these distributions are large, this method could push you into a higher tax bracket. It may be wise to plan ahead for RMDs to determine the best time to begin taking them.

My business is to help you manage your money BETTER so you can enjoy a golden retirement.

I can help you get the process started today!  Let’s talk. Meet me for a FREE retirement strategy consultation at my office by calling
(866) 471-7233.

Freeman2017-blog2

 

In 2015, prices for food eaten at home rose just 1.2%, less than half the 20-year average of 2.5%. Even so, an average family of four now spends as much as $1,300 a month on nutritious meals and snacks prepared at home.

Outsmart the supermarket

Fortunately, some extra effort and planning could help lower your family’s grocery costs.

  1. Stock up on nonperishable food such as rice and pasta, canned goods, and frozen fruits and vegetables when they are on sale.
  2. Grocery stores often rotate advertised specials for beef, chicken, and pork, so you may want to buy extra meat when prices are lower than normal and freeze most of it, and/or plan meals around sale-priced cuts.
  3. Select fresh produce in season and forego more expensive pre-cut and pre-washed options.
  4. Keep in mind that store brands may offer similar quality at a significant discount from national brands.
  5. You may need to join a store’s loyalty program to benefit from some weekly promotions and personalized deals. In some cases, a membership card may be linked to a smartphone app that tracks your shopping history and adds electronic coupons to your account.

Source: U.S. Department of Agriculture, 2016

Freeman Owen, Jr -Retirement Specialist

Keeping your money safe starts with small changes everyday. Your retirement plans works in the same way. Let’s talk about how to get you started putting dollars away for your nest egg.

Meet me for a FREE retirement strategy consultation at my office at (866) 471-7233. 

 

March 6, 2017

Credit scores were a well-kept secret for many years. That has changed as a result of recent initiatives by the Consumer Financial Protection Bureau and Fair Isaac Corporation (FICO), which provides the most commonly used credit scores based on its proprietary software.

By April 2016, more than 150 million consumer credit-card and loan accounts included free access to the FICO® scores used to manage those accounts.1 This is an important benefit. Your score can influence loan approval and terms for a variety of financial transactions, not only for major purchases such as a home or an auto loan but also for the interest rate and limits on a credit card, the cost of insurance premiums, and approval on a home rental. It might even affect a job application.

Know Your Credit Score

Three Key Digits

The FICO score is a three-digit number ranging from 300 to 850. The score is derived from a formula using five weighted components (see chart). Different versions of this score are available to lenders, and the score you see on your account may not be the same score that another lender would use. But it should be a good guideline.

Here are some tips that might be helpful if you want to improve your score or maintain a current high score:

  • Use at least one major credit card regularly and pay your accounts on time. Setting up automatic payments could help avoid missed payments.
  • If you miss a payment, contact the lender and bring the account up-to-date as soon as possible.
  • Keep balances low on credit cards and other revolving debt. Don’t “max out” your available credit.
  • Don’t open or close multiple accounts within a short period of time. Use older credit cards occasionally to keep them active. Only open accounts you need.
  • Monitor your credit report regularly.

You can order a free credit report annually from each of the three major consumer reporting agencies at annualcreditreport.com or by calling (877) 322-8228. If you find incorrect information, contact the reporting agency in writing, provide copies of any corroborating documents, and ask for an investigation. For more information, visit consumer.ftc.gov/articles/0155-free-credit-reports.

Source:
1) Fair Isaac Corporation, 2016

Freeman Owen, Jr -Retirement Specialist

My business is to help you manage your money BETTER so you can enjoy a golden retirement. I can help you get the process started today!  Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at (866) 471-7233. 

 

A recent study by the Social Security Administration projected that an average of 56% of households receiving Social Security benefits will owe federal income tax on some or all of their benefits during the period from 2015 to 2050.1 This typically applies to taxpayers who have other substantial income, such as from a pension, financial products, or employment.

The formula for determining the tax liability of benefits is somewhat complicated but may be worth taking time to understand. Whether you are already receiving Social Security or projecting your future retirement income, knowing how much of your benefits might go toward taxes is important for realistic planning.

Taxing Social Security Benefits

Combined Income

The tax liability for Social Security benefits depends on your “combined income,” sometimes referred to as modified adjusted gross income (MAGI). For most people, this is adjusted gross income plus tax-exempt interest (such as from municipal or Treasury bonds) plus one-half of your Social Security benefits.

If your combined income exceeds a “base amount” of $25,000 ($32,000 for joint filers), you may owe federal income tax on up to 50% of your Social Security benefits. If your combined income exceeds a higher base amount of $34,000 ($44,000 for joint filers), you may owe tax on up to 85% of your benefits. Single-filer base amounts apply to those filing as head of household, qualified widow/widower, or married filing separately if spouses did not live together during the year. If you are married filing separately and lived with your spouse, the base amounts do not apply, and you will probably pay taxes on all your benefits.

The taxable portion of your benefit would be included with other ordinary income and taxed at your marginal rate.

Increasing Tax Liability

The combined income thresholds, which were set in 1983 and 1993 and intended for high-income beneficiaries, have never been indexed for inflation. This has increased the percentage of beneficiary households who are subject to taxes on their benefits from 8% in 1983 to 52% in 2015. For those whose benefits are taxed, the average percentage of benefits that goes toward paying taxes is expected to rise from 11.9% in 2015 to 14.7% in 2050.2 Adjusting these base amounts is among the many provisions considered in broader Social Security reform.3

If you are already receiving Social Security benefits, you should receive Form SSA-1099 each January, listing the amount of benefits you received in the previous year. If you expect to owe federal income taxes, you can pay estimated taxes with Form 1040-ES, have additional taxes withheld from other income, or request to have taxes withheld directly from your Social Security benefits by completing Form W-4V, Voluntary Withholding Request.
Sources
1–2) Social Security Administration, 2015
3) accountingweb.com, February 24, 2016

Freeman Owen, Jr -Retirement Specialist

I offer free Social Security Workshops to help you know more about your social security benefits. Click here to see my workshop offerings.  Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at (866) 471-7233.