Traditionally, life insurance has been viewed as a safety net in the event the family breadwinner dies. To be sure, life insurance in the pre-retirement years can help cover the needs of your survivors, which may include replacing lost income and funding education costs or other financial goals. Yet for those near or in retirement, the need to replace income may become less pressing, while the desire to preserve and protect wealth for retirement needs and pass wealth efficiently to the next generation gains greater importance. There are a variety of innovative insurance solutions that can help meet your needs and also provide a way to help you achieve some of life’s extras, including taking steps to ensure a family legacy.

Keep your legacy intact with life insurance solutions

You may not realize it, but retirement plan income from an inheritance may trigger a tax bill for your heirs that can significantly eat into the amount you leave behind. If you should die, the distributions your beneficiaries take from certain retirement assets such as Traditional IRAs, 401(k)s, non-qualified annuities, and non-qualified deferred compensation is considered Income in Respect of Decedent (IRD) and subject to income tax.  The tax on IRD assets is in addition to estate taxation and thus can result in double taxation. Unlike estate taxes, these taxes are typically paid by the beneficiary and not by the estate. Additional taxable income from an inheritance can cause a host of potential income tax problems, from bumping the beneficiary into a higher tax bracket, to phasing out personal exemptions and itemized deductions and erasing certain tax credits.

One way to make up for the IRD tax bite is to take out a life insurance policy with a value equivalent to the anticipated tax bill. With beneficiary proceeds that are generally exempt from estate and income taxation, the life insurance policy can help replace the amount of your legacy that is lost due to income taxation on IRD assets.

Diversify with a variation on traditional life insurance

A traditional life insurance policy provides an income-tax free benefit, often with limited growth opportunity and flexibility. There are other life insurance options that offer the potential for growth and an income-tax free benefit. These options also build “cash value” and have the added benefit of flexibility to access cash for unforeseen events. These policies can contain fixed rate investments, or provide access to a range of variable rate investments.

For example, Variable Universal Life (VUL) is a type of policy that offers the opportunity to build cash values. A VUL policy can add diversification to your retirement portfolio. As a form of permanent life insurance, VUL provides financial protection against unexpected events. Because the cash value within the policy can be invested in separate accounts, a VUL introduces investment diversification. A VUL also offers some flexibility regarding taxes. You can use after-tax dollars to pay premiums in the VUL now for the potential to accumulate cash value tax-deferred and  receive tax-free supplemental income during retirement. Your financial advisor and tax professional can help you determine whether a VUL would benefit your circumstances.

Ask questions and explore protection options with a financial advisor

Take time to review your financial plan with a qualified financial advisor to help assess whether a life insurance product can help you achieve your financial goals in retirement. To determine what kind of policy would best suit your needs, and the amount of the policy, ask yourself:

• How much of your present living expenses will remain after death?
• Will survivor Social Security benefits offset these expenses?
• Will your tax rate change?
• Will the investment risk tolerance of your surviving spouse change?
• What is the life expectancy of the survivor?

An important consideration when purchasing life insurance is cost. Most policy premiums increase with the policyholder’s age, and variable products may have other flexible premium options that affect their cash value. Review your cash flow to ensure you will have sufficient funds to pay your premiums for the duration of the policy. Your life insurance needs will fluctuate over the course of your lifetime as your needs, goals and circumstances change and should be reviewed annually.

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This information is being provided only as a general source of information and is not intended to be used as a primary basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of your advisor regarding your particular financial concerns.

Neither Ameriprise Financial nor its affiliates may provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues.

Variable life insurance is a complex investment vehicle that is subject to market risk, including the potential loss of principal invested. Before you invest, be sure to ask your financial advisor about the variable life insurance policy’s features, benefits, risks and fees, and whether the variable life insurance is appropriate for you, based on your financial situation and objectives.

Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA & SIPC.

Now that you have your financial problems well in hand and are nearly to the point of being debt free, it is a good time to begin thinking about your financial future. You have made sacrifices, changed your lifestyle, and allotted a significant portion of your monthly income to settling your outstanding credit card debts. With the lessons you have learned, and your new ability to budget and save on a monthly basis, you can begin structuring a retirement plan to guarantee financial independence into your golden years.

One great way to begin saving towards retirement is to set up a Roth IRA personal retirement account. Roth IRAs (or Individual Retirement Accounts) allow you to set aside after-tax income up to a specified amount each year. Earnings on the account are tax-free, and tax-free withdrawals may be made after age 59 and a half. Funds are used in much the same way as traditional investment programs, and can either be managed by your selected investment manager, or managed personally, whichever suits your individual needs.

 Setting up a Roth IRA account is fairly simple and straightforward. The first step in the process is to identify exactly where you should open your account. Many financial institutions offer IRAs, each with its own strengths and weaknesses. It’s important to search for a company that suits your needs. Questions to keep in mind when researching IRA offerings include the following:

•  Is there a minimum initial investment? Minimum contributions?
• What sorts of fees are assessed to the account?
• Does the company offer automatic contributions?
• What investment options are available? Can you invest in stocks? Mutual funds? Real estate?
• How reputable is the provider?

 If you already work with a financial advisor, they can assist you in selecting an appropriate financial institution to work with. A good starting point is the three leading American investment institutions — T. Rowe Price, Fidelity, and Vanguard. These large investment firms have more investment options than smaller institutions, and can support both aggressive and conservative investment plans.

 Actually setting up the Roth IRA account involves little more than filling out a detailed application (similar to a credit card application). You will need your social security number, banking information, and funds to cover an enrollment fee and initial investment into the account. Automatic fund transfers can also be selected to automatically transfer funds from your bank accounts into the Roth IRA each month, making investment that much easier.

 The only thing to do now is to sit back and watch your investment grow.  

 

 This article is for informational and educational purposes only.  It is not intended to provide legal, tax or financial analysis.  Please consult your attorney, accountant or tax advisor if you have legal, financial planning, or tax related questions.

If you are enrolled in a debt settlement program to settle your outstanding debt, you are taking control of your future, and taking the first step towards financial success. But what do you do when you become debt free? After we put away the plastic, how do we go about structuring a successful and profitable life after credit cards?

Here are four steps that can set you up for a successful future once your credit card debts are a thing of the past:

1. Pay Down Your Mortgage: Most people don’t view a mortgage as a debt, but rather as an investment. Technically, it is still a form of debt. And interest rates on home mortgages can make paying off the actual principal amount extremely difficult. Send the mortgage company as much as possible each month to ensure that you are paying down the principal as opposed to pure interest. The sooner you can pay off the mortgage, the sooner you can be entirely debt free.
2. Increase Your Emergency Fund to 12 Months: Although the standard emergency fund is capable of covering 3-6 months worth of bills, increasing the fund to cover a full year gives you additional protection. This is particularly true in today’s tough job market, with many unemployed workers requiring 8 to 10 months or more to find a new position.
3. Purchase Adequate Disability Insurance: Viewed by many as a luxury they just can’t afford, disability insurance is a smart move to make sure you and your loved ones are taken care of in the event of an accident or illness. Select a plan that gives your family comfortable coverage without breaking the bank.
4. Begin Preparing for Retirement: You may think you are far too young to even begin contemplating retirement. The fact remains that the sooner you begin preparing for retirement, the better off you will be when the time comes. Many companies today offer employer-matched 401k programs, and the sooner you can begin to put money into these accounts, the sooner the lump sum can begin to steamroll and start to amount to a sizable amount.

This article is for informational and educational purposes only.  It is not intended to provide legal, tax or financial analysis.  Please consult your attorney, accountant or tax advisor if you have legal, financial planning, or tax related questions.

If retirement is in your plans during the next two-to-three years, it is clear that the dramatic market downturn that started in late 2007 could not have come at a worse time. Like many in this situation, you may have found that your retirement nest egg is worth less than it once was, maybe a lot less. Can you still salvage your original plans for retirement?

It is possible, but it may take a bit more work to determine how you can make it happen. Some changes to your initial retirement strategy may be in order to recover some of the losses in your retirement savings. One lesson of today’s market environment is that the closer you get to your dreams/goals (whether for retirement, college or any other major goal) it may be wise to reduce the portion of your portfolio invested in the stock market.

Today’s reality may be reduced retirement savings compared to what you might have expected a few years ago. You also may want to consider other steps that will allow you to maintain your plans for retirement, possibly with some minor modifications. Consider the following options, or combine some of the strategies together.

Boost your ongoing retirement plan contributions

One solution to combat low investment returns is to start saving more money. For example, if you were investing $250 per month in an IRA and at one time estimated you could earn 10 percent per year, you might consider that to be an unrealistic return expectation in today’s environment. If you adjust your return assumption to a more attainable 7 percent per year, you would need to make monthly contributions of $300 to accumulate a comparable amount of savings after ten years. If your expectations for investment returns are more conservative given recent market performance, making larger contributions can help overcome some of the difference.

Revisit the timing of your retirement

One reality for many individuals is that your retirement may need to be delayed and you may need to work longer. This can be beneficial by allowing you to continue earning income and accumulate additional retirement savings before you actually retire.

Alternatively, you can consider taking on part-time employment or consulting work to help supplement your income to decrease the amount of money you need from your retirement savings.

Reconsider the cost of your retirement

What were your plans for retirement? Did they involve significant expenses for a new retirement home or vacations on a regular basis? Did you envision a life of relative luxury in retirement? It might be necessary to scale back your plans if your retirement portfolio has been losing ground in recent years. If you can’t make up your losses by the time you leave the workforce, it is important to revisit your retirement income and what you can afford to withdraw from your savings. Avoid taking too much money out of your savings in the early years of retirement and risking a potential shortfall as you grow older. Some ways to cut your monthly expenses include: refinancing your mortgage (if you have not paid off the loan on a house), downsizing your home and cutting back on extravagances such as high priced vacations or daily lattes at Starbucks.

Become a tax-efficient investor and spender

Managing your retirement assets in a tax-efficient way can make a significant difference. For example, many retirees forget that withdrawals from their workplace retirement savings are almost always taxable, at their ordinary income tax rate. But if you have dollars saved in a taxable account (investments that are not in a tax-deferred savings vehicle), those should be tapped first when you retire. There is likely to be little or no tax on withdrawals. At the same time, dollars in tax-advantaged accounts (like IRAs or your workplace plan) can continue to grow in value with no current tax impact. This should help you stretch the value of your nest egg, especially when nest eggs are decreasing in size. A financial planner can help you work toward your retirement goals.

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This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

© 2009 Ameriprise Financial, Inc. All rights reserved.

File # 84848

6/09

1. Try to save approximately 15 percent of your salary each year toward retirement. These savings should include monies that your employer might match toward your contributions in addition to monies you invest or contribute to IRAs or other investments. Saving at this 15-percent savings rate will generally result in assets that will produce about 50 percent of your current salary.
   
2. When calculating your potential retirement income, take into account your investments, Social Security, pensions, part-time employment and other income sources such as rental property.
   
3. If you think you’re lagging behind, try to increase your annual contributions above 15 percent and consider putting annual raises, bonuses, cash gifts or inheritance money into retirement investments rather than spending these windfalls.
   
4. You can avoid or defer taxes by contributing to IRAs or investing in tax-deferred annuities. Talk to a financial planner for assistance.
   
5. If you’re not satisfied with the size of your retirement nest egg when you approach age 65, consider delaying retirement for a few years.
   
6. If you work for an employer offering a retirement plan such as a 401(k), 403(b), 457, SEP-IRA or ESOP, maximize your employer’s matching funds.
   
7. If you change jobs, do not cash out of your retirement plan. Roll the proceeds over into the new company’s retirement plan or into a rollover IRA. If you’re approaching age 55 and wish to retire early and begin taking withdrawals, then leave it where it is. You can tap a company retirement plan at that age, but would have to wait until age 59 ½ to withdraw penalty-free from an IRA.
   
8. Diversify your portfolio among many asset classes. This helps you maximize your return on investment while decreasing volatility.
   
9. This is tricky, but try to determine what percentage of your current income you want to live on. Although 70 percent is sometimes given as a rule of thumb, there is no set amount, and it will vary from individual to individual. Keep in mind that although you may be able to decrease certain expenses (debts) such as mortgage and car payments, your medical bills may increase.
   
10. Finally, when you do retire, plan on withdrawing only about 4 percent of your savings during the first year. Then, give yourself a cost-of-living raise each year by increasing the amount withdrawn in the first year by 3 percent. This low withdrawal rate will increase the probability that your assets will last for 30 years.

Saving money does not necessarily have to involve elaborate savings accounts, CDs, IRAs, or stocks and bonds – especially for those of us who do not have extra cash just lying around. Rather, saving for the future sometimes begins with the fundamentals. The following offers small measures that families can take to cut costs and actually start saving for their future.

Benjamin Franklin once said; “A penny earned is a penny saved.” Well, let’s see.

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