Is Your Income/Tax Picture Common or Uncommon?

Jim Lorenzen, CFP®, AIF®

6a017c332c5ecb970b0192ac851ba2970d-320wiIs your income common or uncommon?  

Most of us think our income is pretty normal, according to most of the studies I’ve seen.  That may be because we see our neighbors living in the same neighborhood we do; driving the same type of car; and probably making similar incomes.  The people we hang out with are probably similar to us, too.   Sure, we know there are people who are poor and others who are filthy-rich; but, that doesn’t mean our incomes are uncommon…. or does it?

How much money do you have to make to be in the top 1%? – the 1-percenters we all hear about.  How about the top 10% or even the top half of all Americans?   And, how much of the total tax revenue do people who are like you contribute?

According to MoneyTrax®, Inc., these are the numbers (rounded-off):

The Top__%

Total HH Income % of Total Tax Revenue Paid


$369K+ 37


$161K+ 59




25 $69K+


50 $34K+


So, not only are those who’s combined household income totals $69,000 or more in the top 25% of all households, they’re also paying 87% of tall the income taxes paid.

With our national debt now over $18 trillion and with the handwriting on the wall – have you ever seen Congress lower the debt ceiling? – there may be a message for the  Baby-Boomers who are getting within ten years of retirement:  It just might (I’m being kind) get worse.

Do you have a plan?  It might be a good time to start.



Buying An Annuity? Keep it Simple!

Jim Lorenzen, CFP®, AIF®

6a017c332c5ecb970b0192ac05f306970d-320wiIt isn’t uncommon for people to buy things they don’t need; and when it comes to annuities, it’s often no different, and it doesn’t help when (sometimes) an agent adds bells and whistles, in the form of elaborate policy riders, that the client will never use!

Today, because many baby-boomers are concerned about a lifetime income they can’t outlive, annuity recommendations often include a guaranteed minimum withdrawal benefit (GMWB) rider.  The problem is that often it isn’t needed.  Worse, the cost of the rider reduces the earnings potential for wealth accumulation by eating away at the interest clients would otherwise earn.

Rich Lane and Jeff Affronti, in the October 2015 issue of National Underwriter, cited an example of a buyer who purchased an annuity with $1 million in premium who paid more than $160,000 for this type of rider – and it ended-up being a benefit the client wasn’t even going to use!   They pointed out that the example may be extreme; but, the point is no less valid:  It’s a waste of money if it isn’t used.

In today’s low interest rates, it may not be the best choice to add an income rider over selecting the appropriate rate of return.  The GMWB rider may sound great, but during the accumulation stage the focus should be on accumulation.

If income is needed down the road, a deferred annuity will allow the client to turn-on (annuitize) the income stream.  If they need income now, simply purchase a single premium immediate annuity (SPIA) that allows instant access to funds that can be used to supplement Social Security.  For a guaranteed income, it’s probably the highest payout for the money available today.

Deferred annuities have an income stream ‘built-in’ to the product – they all have a basic fundamental feature that allows the owner to elect an income stream on or before the maturity date – and it doesn’t cost a thing.

Something to bear in mind.


Inflation (for YOU) May Be Less Than You Think

6a017c332c5ecb970b01a73de5d743970d-320wiJim Lorenzen, CFP®, AIF®

While historic inflation rates average a bit over 4% and many people doing their own calculations may be using figures in the 2-3.5% range, the actual numbers may – just may – be far less – maybe as low as 1%!

Why?  Because inflation doesn’t apply to ALL of your spending.  Many people are paying on a fixed mortgage – those payments won’t increase.   Granted, other outlays (food, energy, and products) may increase; but, the total may be less than you think.

If 70% of your spending increases at an average rate of 3% annually, but 25% of your expenditures remain constant, you’re actual realized increase is more like 2.25%.

But, what if you’re retired an your spending decreases?  That’s when your overall cost increases may be closer to 1%… maybe.

It’s important that your planning reflect these realities, as well as others.  There are other considerations, to be sure.  A bad (or no) plan can be the most expensive of all.


What Happens to Your Business if Something Happens to YOU?

Jim Lorenzen, CFP®, AIF®

Fotila Images

Fotila Images

I can speak from personal experience on this one. I’ve been a business owner for thirty-seven years, owning seven different businesses in three different industries; and my wife’s former husband passed away (unexpectedly) after building a chain of seven quality restaurants that stretched from El Paso, Texas to Northern California.

Experience teaches preparation.

If you’re a business owner or a partner in a business, have you asked yourself what would happen to your business if something should happen to you? Death and disability, are possibilities even if we want to avoid the thought. And, of course, some want to retire.

Does the business simply stop? If so, that may cause a lot of equity to simply be flushed away.
Does your partner’s spouse inherit your partner’s share? Do you want that?

Every objective brings with it issues you should consider:

Retain the Business for Your Family

• Is there a capable and willing family member?
• Will the family member be acceptable to any other business owners?
• How will you or your surviving dependents replace the income previously provided by your business?
• Is there a need to equalize inheritances among family members?
• Will there be enough liquidity in your estate to pay taxes and other settlement costs?

Sell the Business

  • To whom will your business interest be sold?
  • At what price?
    • What is the value of your business as a going concern?
    • How does that value compare to the liquidation value of your business?
    • How will you or your surviving dependents replace the income previously provided by your business?

    Will there be sufficient funds available to allow for a planned liquidation?

  • And at what events (death, disability and/or retirement)?
  • What is the value of your business interest?
  • Will the funds be available to complete the purchase at your death, disability and/or retirement?

Liquidate the Business

  • What is the value of your business as a going concern?
  • How does that value compare to the liquidation value of your business?
  • How will you or your surviving dependents replace the income previously provided by your business.
  • Will there be sufficient funds available to allow for a planned liquidation?

The objective of business continuation planning is to assist in evaluating which of these alternatives is most suitable for your situation and to help provide the funds that will be needed to assure that your business continuation goals become a reality.


Insurance Company Ratings May Not Be What They Seem!

Jim Lorenzen, CFP®, AIF®

Don’t believe beautiful illustrations.  They’re based on assumptions that can change.  Unless you know the probability of success in advance – not an easy thing to do – you may be buying a “pig-in-a-polk”, as we used say when I was in college back in Virginia.

Example:  Before Executive Life of New York went under, they had over 50% of their portfolio invested in less than investment grade ‘junk’ bonds, despite the fact that in June 1987, the New York legislature had mandated that insurance companies licensed to business in that state were to limit their general portfolios to no more than a 20% allocation to such bonds. Remember, there are no guarantees; there are only guarantors. [Source: The New Insurance Investment Advisor, Ben G. Baldwin, McGraw-Hill 2002, p. 37.].   Is your insurance agent a qualified investment advisor who knows what to look for “under the hood”?

Most of the well-known rating agencies we’re familiar with are actually paid by the insurance companies they rate.

Yes, you should read that again.

Little wonder many insurance companies that failed actually had good ratings when they went under.   My personal favorite rating agency is Weiss.  They receive no money from the insurance companies they rate – they’re paid by customers who access the ratings. Their ratings are called ‘safety ratings’ and they seem to be a little more stringent. For example, according to the September 2002 Insurance Forum, of 1221 life and health companies rated by Weiss, only 3.9% of companies made it into the ‘A’ category. Compare that with the 54.9% rated ‘A’ by Standard and Poor’s. At Moody’s, 90% of their list made it to ‘A’ that year. A.M. Best gave ‘A’ to 56.3% of the companies they rated.

The takeaway: You may want to be sure your agent is not only independent, but understands whether and how life insurance fits into your overall financial plan. Your agent/advisor should also khow the difference between a “highly-rated” company and an “investment grade” company.

Thought you might be interested.


“When the Market Goes Up, You Make Money! When the market goes down, you don’t lose!”

Fotila Images

Fotila Images

Jim Lorenzen, CFP®, AIF®

Sound familiar?  If so, it’s because you saw all those television commercials  selling safety to a frightened public.  After all, all those daily market gyrations are scary to an aging boomer population who’ve spent most of their adult lives getting their financial education from television gurus, talking heads, and financial (entertainment) magazines.

When in doubt, hide.  Buy gold,  buy silver, buy guarantees!  Maybe all risk will go away.  Maybe.  Maybe not.

Being conservative when inflation and interest rates have nowhere to go but up is probably a smart idea.   The question is, where does conservative leave off and ignorance take over?

What are those commercials really selling?  Equity-indexed annuities (EIAs).  Without getting to far into the weeds, EIAs are basically insurance company IOUs.  Your money is not invested in the stock market.  It’s loaned to an insurance company.  The insurance company puts the money in its general account and invests in a conservative portfolio, made-up mostly of bonds.

How do they tie returns to the stock market when the company has invested in bonds?  You can get my 3-1/2 page report here!


Changing Jobs? You May Have an Important Decision to Make!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®

What to do with your money in an employer-sponsored retirement plan, such as a 401(k) plan?

Since these funds were originally intended to help provide financial security during retirement, you need to carefully evaluate which of the following options will best ensure that these assets remain available to contribute to a financially-secure retirement.

Take the Funds: You can withdraw the funds in a lump sum and do what you please with them. This is, however, rarely a good idea unless you need the funds for an emergency. Consider:

  • A mandatory 20% federal income tax withholding will be subtracted from the lump sum you receive.
  • You may have to pay additional federal (and possibly state) income tax on the lump sum distribution, depending on your tax bracket (and the distribution may put you in a higher bracket).
  • Unless one of the exceptions is met, you may also have to pay a 10% premature distribution tax in addition to regular income tax.
  • The funds will no longer benefit from the tax-deferred growth of a qualified retirement plan.

Leave the Funds: You can leave the funds in your previous employer’s retirement plan, where they will continue to grow on a tax-deferred basis. If you’re satisfied with the investment performance/options available, this may be a good alternative. Leaving the funds temporarily while you explore the various options open to you may also be a good alternative. (Note: If your vested balance in the retirement plan is $5,000 or less, you may be required to take a lump-sum distribution.)

Roll the Funds Over: You can take the funds from the plan and roll them over, either to your new employer’s retirement plan (assuming the plan accepts rollovers) or to a traditional IRA, where you have more control over investment decisions. This approach offers the advantages of preserving the funds for use in retirement, while enabling them to continue to grow on a tax-deferred basis.

Why Taking a Lump-Sum Distribution May Be a Bad Idea:

While a lump-sum distribution can be tempting, it can also cost you thousands of dollars in taxes, penalties and lost growth opportunities…money that will not be available for future use in retirement.

Let’s say that you have $100,000 in a retirement plan with a former employer, you’re under age 59-1/2 and you’re in the 28% federal income tax bracket.

Taxes and penalties if you… Roll the $100,000 into an IRA Take a lump-sum distribution
20% mandatory withholding at the time of distribution $0 $20,000
8% additional income tax due at filing $0 $8,000
10% premature distribution penalty tax $0 $10,000
Ending Balance: $100,000 $62,000
Cost to Take the Funds Today:                                            $38,000


Value of $38,000 in … 5 Years 10 Years 15 Years 20 Years
5% Return $48,499 $61,898 $78,999 $100,825
8% Return $55,834 $82,039 $120,542 $177,116
10% Return $61,199 $98,562 $158,735 $255,645

Before making any decisions, it’s best to get your ducks lined-up.  You can begin by using our Retirement Planning Priority Review, which you can get here.



NOTE: The above is a hypothetical example for illustration purposes only and assumes that one of the exceptions to the premature distribution penalty tax is not available. In addition to the federal taxes illustrated above, state tax may also be payable. This example is not indicative of any particular investment or performance and does not reflect the fees and expenses associated with any particular investment, which would reduce the performance shown above if they were included.

Are You ” On-Track ” to a Successful Retirement?

6a017c332c5ecb970b019affbd774b970c-320wiJim Lorenzen, CFP®, AIF®

Retirement success may not be as easy to achieve as many think.   I attended a conference and heard one speaker relay a story about one company’s 401(k) enrollment meeting where 100% – yes, everyone – said they wanted to enroll in the company’s 401(k) plan.   They all were going through the materials and even choosing allocations they felt were appropriate – and all them were excited about starting to save for their retirement! Continue reading