Growing and Preserving Your Wealth

April 17, 2014
Ginny Grimsley

Ever since the financial crisis of 2008, many people have openly doubted the viability of achieving the American dream. These 3 tips will help pre-retirees and retirees preserve their wealth.

Ever since the financial crisis of 2008, many pundits and experts have openly doubted the viability of achieving the American dream.

With homeownership, job opportunity, and retirement security in decline, an Allstate/National Journal Heartland Monitor poll revealed most Americans agree with the experts. Seven in 10 think tomorrow’s adults—today’s kids—will have less financial security than adults today.

“There are several long-term issues we need to address, including our estimated $17.3 trillion debt, a legacy that our children are poised to inherit; but I think the United States will be stable for the next 10 years, and maybe longer if we get our financial house in order,” Stephen Ng, founder and president of Stephen Ng Financial Group, said. “Many Americans who’ve worked their entire lives for a comfortable, if not luxurious, retirement want to know their money will be there—that’s their dream.”

Ng, an international financial planner with certifications in 19 states, is passionate about teaching sound wealth practices to both clients and his community.

Here are 3 important tips all pre-retirees and retirees should know to help preserve their wealth.

Go to an independent retirement-planning advisor

Financial planning can be confusing. For most retirees, the numbers, rules, and terminology can seem like a foreign language.

An independent advisor, who is licensed in multiple products—insurance, annuities, etc.—allows for a higher degree of objectivity, tailoring options for a client’s specific needs. He or she will not be bound to a corporate agenda or limited in their knowledge.

Also, talk to the person who will be the architect of your financial future. Find out his or her values. How do they feel about their job? Are they patient in explaining your options? Do you trust your advisor?

Know your start-date options for retirement

Be aware that in most cases, withdrawals from tax-deferred retirement plans before age 59-and-a-half may be subject to a 10% federal income tax penalty. The latest date to begin required minimum distributions is usually April 1 of the year after you turn age 70-and-a-half. In most cases, withdrawals are taxed as ordinary income.

There are 10 common planning options, some of which are funded by employers. They are the defined benefit pension; money purchase pension; profit-sharing plan; savings plan; employee stock ownership plan; tax-sheltered annuities or 403(b) plans; individual retirement accounts; self-employed plans; simplified employee pensions; Savings Incentive Match Plans for Employees; and annuity contracts.

Make sure you feel good about your annuity

An annuity is a contract with an insurance company in which you make one or more payments in exchange for a future income stream in retirement. The funds in an annuity accumulate tax-deferred, regardless of which type of annuity you choose.

Fixed annuity contracts are issued with guaranteed minimum interest rates. Although the rate may be adjusted, it should never fall below a guaranteed minimum rate specified in the contract. Keep in mind that annuity guarantees are subject to the claims-paying ability of the insurance company and contain fees and charges that are not limited to sales and surrender charges.

All withdrawals of tax-deferred earnings are subject to current income tax, and, if made prior to age 59-and-a-half, may also be subject to a 10% federal income tax penalty. Additionally, if purchased within a qualified plan, an annuity will provide no further tax deferral features. The contract, when redeemed, may be worth more or less than the total amount invested.

“This may be plenty of information to take in for now, but this is only the tip of the iceberg,” Ng says. “Don’t be afraid to ask questions. The more education you have about your own money, the better.”