1. Don't Waste Your Hard Earned Retirement Savings on High Fees and Taxes (You Could Lose as Much as Your Original Investment in Unnecessary Costs)

  2. Questions and Answers Regarding Study and Strategies Considered

    Are personal retirement savings important to most investors?
  3. For those individuals in the 50th to 90th percentiles of net worth, financial assets outside a 401(k) or Rollover IRA represent 50% to 80% of their total financial assets.

    What is a Drawdown Investment Plan strategy? 

    This represents a continuation of the pre-retirement investment strategy followed by a formula or arbitrary withdrawal of retirement savings to produce retirement income. Investments are typically in mutual funds, ETFs and CDs. If the savings are outside a 401(k) or Rollover IRA, the investment earnings are currently taxed at federal income tax rates that depend on whether they’re interest, dividends or realized capital gains, and any state income taxes. Drawdown Investment Plan strategies invariably require a withdrawal of principal, as well as investment earnings.

  4. What is the Income Plan strategy? How is it applied to Personal Retirement Savings?

    The Income Plan strategy requires a rethinking of investment models and products. We have done just that in our Savings2Income (“S2I”) planning method.

    The S2I strategy works with tax-qualified retirement savings (like a 401(k) or Rollover IRA) as well as with taxable or Personal Retirement Savings. As indicated in the release, these can account for 50% to 80% of total financial assets.

    For these non-qualified savings, the S2I strategy integrates a best in class no load variable annuity with fixed payout annuities from highly rated life insurance companies.  Here’s how the pieces work together:

    First, the low cost variable annuity with its tax deferral is invested in a diversified investment portfolio (with a large allocation to index funds) that matches the investor’s risk profile. This means personal retirement savings are compounding from tax deferral and low costs. Ideally, additional amounts are being contributed regularly to the no load variable annuity account.

    Second, there is a continual evaluation of the fixed payout annuity market (a “fixed payout annuity” provides Guaranteed Income in various forms) among highly rated insurance companies as to the pricing relative to fixed income investments.  Historically, investors purchasing Guaranteed Income have received an implicit crediting rate above the rate for comparable fixed income investments.

    Third, the Savings2Income planning method integrates these annuity products for optimal results - the gradual shift from the no load variable annuity to the form of Guaranteed Income most appropriate for the investor. That process continues until the investor’s chosen “no worry age” when lifetime Guaranteed Income is purchased to meet or exceed the investor’s onging essential expenses.

    Who can benefit from the S2I strategy applied to personal retirement savings?

    To get the full benefits of the S2I strategy, an investor should meet the following criteria:

  5. 1. Be in a federal marginal tax bracket of 25% or higher, and subject to state income taxes
  6. 2. Have personal retirement savings of $100,000 or more
  7. 3. Have no plans to access long term savings before age 59 ½.
  8. While the S2I strategy works best for investors meeting these criteria, it ’s not a hard and fast rule, and still works well in other situations. For example, if you live in a state with no state income taxes, it still works well for you, but not quite as well.

  9. Does the S2I strategy force the investor to give up liquidity and access to the account value?

    Most so-called experts would argue that by giving up liquidity during your lifetime you can generate more retirement income through so-called life contingent annuities. That’s not the basis of the S2I strategy, since any life contingent element does not emerge typically until 30 years after retirement.

    Will advisors offer the S2I strategy since it may represent a reduction in compensation?
    It is not necessary to worry about the reduction in advisor fee percentages under the Savings2Income approach.  The advisor receives an almost equivalent total amount of compensation  over time, and at the same time delivers a better result to the investor with less work concerning tax management.

  10. What are the assumptions underlying the study?

    Comparing different retirement income strategies is a challenge since the strategies may cut across multiple products, e.g., annuities vs. investments, different asset and product allocation approaches, different tax management regimes, etc.  Further, the comparisons are influenced by the often conflicting regulatory rules.

    Rather than throw up our hands and do nothing, we've developed a model that provides a comparison on a basic set of assumptions, and then, as necessary, solves for the revised assumption to make results equivalent.

    Here are the basic assumptions of the comparison:

    1. Investment - $250,000 lump sum at the current age
    2. Risk profile - moderate with 50% allocation to equities; portfolio is rebalanced each year
    3. Equity returns - 9% after fund expenses; fixed income - 5% after fund expenses
    4. Dividends – 2.5% per year; percentage of cap gains realized each year - 75%
    5. Timing of withdrawals from account – Every 5 years after Income Start
    6. Advisor fees - managed account - 1%; no load variable annuity - .60%
    7. Yield spread on fixed payout annuities vs. fixed income investments - 0%
    8. No Load Variable Annuity wrapper fee - .35%

    How could an Investment Plan match the results? 

    While there are any numbers of assumptions that might be tested, we focused on three that an advisor might challenge: equity returns, fixed income yields, and tax management. For example, the investment return on equities would have to exceed the assumption above by 3.50% per year for 30+ years. This is virtually impossible even for hedge funds. There are no tax management schemes or fee arrangements that could produce equivalence.


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