An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are most often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live. An annuity is neither a life insurance nor a health insurance policy. It’s not a savings account or a savings certificate. You shouldn’t buy an annuity to reach short-term financial goals.

Your value in an annuity contract is the premiums you’ve paid, less any applicable charges, plus interest credited. The insurance company uses the value to figure the amount of most of the benefits that you can choose to receive from an annuity contract. This guide explains how interest is credited as well as some typical charges and benefits of annuity contracts.

A deferred annuity has two parts or periods. During the accumulation period, the money you put into the annuity, less any applicable charges, earns interest. The earnings grow tax-deferred as long as you leave them in the annuity. During the second period, called the payout period, the company pays income to you or to someone you choose.

– National Association of Insurance Commissioners.

• February 15, 2025

Probate is the legal process that governs how a deceased person’s assets are distributed upon their death. One way to think about the probate process is that it acts as ‘the script’ for how things go after someone passes away.

How Does The Probate Process Work?

The probate process will depend on whether your state has adopted the Uniform Probate Code (UPC). The UPC is an act drafted by the National Conference of Commissioners on Uniform State Laws. The act’s primary purpose is to streamline and standardize the probate process.

Here is a copy of the most recent Uniform Probate Code.

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What States Have Adopted UPC?

16 states have adopted the UPC in its entirety. These states are:

Alaska

Arizona

Colorado

Florida

Hawaii

Idaho

Maine

Michigan

Minnesota

Montana

Nebraska

New Mexico

North Dakota

South Carolina

Utah

The remaining states have not adopted the UPC. Some states adopted parts of the UPC, which can be seen in this chart.

The image below shows non-UPC states (green) and UPC states(red).

The Probate Process for UPC States.

There are 3 kinds of probate in UPC states.

• Informal Probate
• Unsupervised Formal Probate
• Supervised Formal Probate

Informal Probate: This probate process is used when inheritors are getting along and there are no problems (or expected problems) with creditors. This probate process requires no court hearings; it is just paperwork. Informal probate cannot be used if someone wants to content the proceeding.

Here are the steps involved with Informal Probate:

• File an application with the probate court to serve as personal representative. (It is important ‘personal representative’ is used and not ‘executor’ or ‘administrator.’)
• Once approved, you will receive a ‘letter of testamentary’ or ‘letter of administration’ which grants you official authority to act on behalf of the estate
• Send our formal written notices to heirs, beneficiaries, and creditors
• Publish a notice in the local paper
• Provide proof that you have done the above (sent notices and published notice)
• Prepare an inventory and appraisal of deceased person’s assets
• Distribute the property properly
• Close the estate

Unsupervised Formal Probate: This probate process is similar to Informal Probate, but is used when there is a reason to involve the court. This probate process is used when there is no valid will at the time of death (also known as intestate succession.)

Steps involved with Unsupervised Formal Probate:

• Schedule a hearing with the court
• Send written notice to all interested parties before your court hearing
• Publish notice of the proceeding in local paper
• Continue the probate process at the court hearing

Supervised Formal Probate: This is the rarest form of probate. This probate process is used when a court feels that it must supervise the probate process. This process follows the same general process as Unsupervised Formal Probate, but the judge might require more of you.

The Probate Process for Non-UPC States

No one state will have the same non-UPC probate process. This is just an outline, but many states follow this closely.

• Start the probate process by asking the court to make you executor (if there is a will) or administrator (if there is no will)
• Upon approval, file a petition or application for probate in the county the deceased person was living in at the time of death
• Publish a notice of probate in the local paper
• Mail the notice to beneficiaries and heirs
• Provide proof that you have done the above (sent notices and published notice)
• Post a Probate Bond (if required)
• Submit a self-proving affidavit
• File other documents required by the court
• Administer the estate
• Close the estate

• February 15, 2025

This guide explains major differences in different kinds of annuities to help you understand how each might meet your needs. But look at the specific terms of an individual contract you’re considering and the disclosure document you receive. If your annuity is being used to fund or provide benefits under a pension plan, the benefits you get will depend on the terms of the plan. Contact your pension plan administrator for information.

Single Premium or Multiple Premium

You pay the insurance company only one payment for a single premium annuity. You make a series of payments for a multiple premium annuity. There are two kinds of multiple premium annuities. One kind is a flexible premium contract. Within set limits, you pay as much premium as you want, whenever you want. In the other kind, a scheduled premium annuity, the contract spells out your payments and how often you’ll make them.

Immediate or Deferred

With an immediate annuity, income payments start no later than one year after you pay the premium. You usually pay for an immediate annuity with one payment. The income payments from a deferred annuity often start many years later. Deferred annuities have an accumulation period, which is the time between when you start paying premiums and when income payments start.

Fixed or Variable

• Fixed
During the accumulation period of a fixed deferred annuity, your money (less any applicable charges) earns interest at rates set by the insurance company or in a way spelled out in the annuity contract. The company guarantees that it will pay no less than a minimum rate of interest. During the payout period, the amount of each income payment to you is generally set when the payments start and will not change.

• Variable
During the accumulation period of a variable annuity, the insurance company puts your
premiums (less any applicable charges) into a separate account. You decide how the
company will invest those premiums, depending on how much risk you want to take. You may put your premium into a stock, bond or other account, with no guarantees, or into a fixed account, with a minimum guaranteed interest. During the payout period of a variable annuity, the amount of each income payment to you may be fixed (set at the beginning) or variable (changing with the value of the investments in the separate account).

– National Association of Insurance Commissioners.

• February 15, 2025

During the accumulation period, your money (less any applicable charges) earns interest at
rates that change from time to time.  Usually, what these rates will be is entirely up to the
insurance company.

Current Interest Rate

The current rate is the rate the company decides to credit to your contract at a particular
time.  The company will guarantee it will not change for some time period.

• The initial rate is an interest rate the insurance company may credit for a set period of time
after you first buy your annuity. The initial rate in some contracts may be higher than it will be later. This is often called a bonus rate.

• The renewal rate is the rate credited by the company after the end of the set time period.
The contract tells how the company will set the renewal rate, which may be tied to an
external reference or index.

Minimum Guaranteed Rate

The minimum guaranteed interest rate is the lowest rate your annuity will earn.  This rate is
stated in the contract.

Multiple Interest Rates

Some annuity contracts apply different interest rates to each premium you pay or to premiums you pay during different time periods.  Other annuity contracts may have two or more accumulated values that fund different benefit options.  These accumulated values may use different interest rates.  You get only one of the accumulated values depending on which
benefit you choose.

– National Association of Insurance Commissioners.

• February 15, 2025

According to Investopedia:

A will is a legal document that states your wishes regarding the distribution of your estate and the care of any minor dependants. It is recommended that you use a will that is signed  and witnessed, so that your wishes are recognized in a court of law.

There are different types of wills, which include:

1. Testamentary or self-proving will is a written will that is signed in the front of witnesses.  It is the most common type of will and will generally hold up in court.

2. A Holographic will is a will that is NOT written or signed in front of witnesses and it rarely holds up in court. 

3. An ORAL will is one that is spoken before witnesses but it also has a hard time holding up in a court of law.

Why do you need a Will? 

Creating a will gives you, rather than the courts, the ability to distribute your assets, including family heirlooms, according to your wishes. 

If you have minor children, a will lets you provide for their care. If you have children from a prior marriage, even if they are adults, your will can dictate the assets they receive. Creating a will also minimizes tensions among survivors. Relatives battling over your possessions can weaken what may have otherwise been a strong family.

If you are charitably inclined, a will lets you direct your assets to the charity of your choice. Likewise, if you wish to leave your assets to an institution or an organization, a will can see that your wishes are carried out.

Certain assets aren’t covered by a will, which include anything with a beneficiary designation.  This can include life insurance policies, retirement accounts, and annuities. 

What Happens if You don’t have a Will? 

If you do not have a will, you die intestate. In such a case, the state will oversee the distribution of your assets. Contrary to popular opinion, the state does not inherit your assets, but rather distributes them according to a set formula.

The formula often results in half of your estate going to your spouse and the other half going to your children. Such a scenario can result in the sale of the family home or other assets, negatively affecting the surviving spouse. This can create financial and emotional difficulties, particularly if your spouse was counting on the bulk of your assets to maintain his or her standard of living. Further complications can arise if your children are minors, as the court will appoint a representative to look after their interests.

Setting Up a Will

One of the first steps is to list all of your important assets and determine who is going to receive them.  It is very important to include the distribution of personal items that may cause family divisions.  IF your estate is complex and you would like to provide some control over an asset upon distribution, then the services of an estate planning attorney should be employed.  You can do it yourself if your estate is simple and you feel comfortable, which can be completed with online documents.  One thing to make sure is the will is signed in the presence of witnesses, and should be notarized.

Changing Your Will

To change your will you can just rewrite the existing will or make an addition to your will known as a codicil.  It is important that you always have the changes witnessed and is done so when you are of sound mind.

Keep in mind Probate. 

If your estate value is above the state probate amount, even with a will assets can still be subject to probate, which can add additional expense and create unnecessary time delays.

• February 15, 2025

When deciding at what age to take Social Security, it can be very confusing and there are many things to consider before making this decision.  Let’s take a look at some of the issues that may apply to you.

Once again like we did in the previous article on taking Social Security Early, let’s take a look at some important facts to consider:

1. Every year that you wait past full retirement age your benefits grow 8% until the age of 70. Inflation increases will be based in the higher amount.
2. The breakeven age if you decide to delay until age 70 rather then taking it at your full retirement age is between age 82 and 83.
3. Keep in mind when a spouse dies, the survivor will receive the higher of the two social security payments between you, but not both.

This entire analysis is making one very important consideration: Social Security funding from the government will remain consistent throughout your retirement.  Unsure about this?  Take a look at the article Will Social Security be there in the future?  For the purpose of this analysis let’s assume that it will be there.  Obviously the younger you are the more this may be a concern, older retirees most likely won’t have to worry about this.

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Let’s look at the reasons for delaying your social security.

Your health is good and the prospect for longevity is good.  This of course is the most obvious reason for delaying, because if you have a long lifespan then over time you will receive more money. The breakeven age is between 82 and 83.  Every year that you live beyond this age, will be money ahead for you.  Over a long lifetime this could be very substantial since you will be receiving a higher amount of Social Security and your increases will be larger as well.

Your portfolio will most likely last longer.  If you’re relying on your portfolio to supplement your retirement income studies show that even though you will be using up more of your portfolio in the early years, when the larger Social Security checks kick in it it takes the pressure off your portfolio and allows it to grow more.  Of course a lot of variables can change this picture, such as how your portfolio is made up, stock market corrections, and how much money you have.  To figure this out you need to work with a professional that can take you through real life scenarios.

You’re still working and you don’t need it.  This is becoming more common today among retirees as many companies are lacking good talent and your skills are still valuable and you figure you might as well keep bringing in the bucks.  It makes good sense to delay because if you take your Social Security while your working it just throws you into a higher tax bracket and your Social Security is taxed as well. 

Your spouse will be up a creek if you kick the bucket.  In many cases if a spouse dies the income from a pension or work will go away and they are stuck just relying on Social Security.  As we pointed out above, they will receive the higher of the two Social Security payments, not both.  By delaying your payment it will provide a much larger survivorship income for your spouse.  This can be very substantial.  Get out the calculator and figure out if the higher earner is gone what will they survivor have left in the form of survivorship pensions, life insurance and remaining assets that can be used to generate income. If it is not enough then this is one of the most important reasons to consider delaying your benefits.

You’re Trying to Reduce the Impact of Taxes from your RMD’s at age 70.  Now this can be very complicated.  If you do the math on your required minimum distribution from your IRA at age 701/2 and you find that it will be a pretty big number, and keep you in a higher tax bracket, you may want to take out money from your IRA/401k before you reach age 701/2 and pay the tax now at a lower tax bracket.  If you also have to count your social security income it can be counterproductive.  By delaying Social Security it keeps the rest of your income lower while taking money from the tax deferred accounts form your IRA’s and 401k’s.  You may want to consult with a tax advisor or a financial advisor with a good tax knowledge to help you figure it out.

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Summary

So as you can see there are many factors to consider when making the decision of when to take your Social Security.  Need some help?  We are here and would love to help walk you through your own personal situation and there is no one right answer for every person.

• February 15, 2025

The Social Security Department made some sweeping changes to some of the claiming strategy rules on November 2, 2015. One of those was the use of the restricted application, or claiming spousal benefits first while allowing your own benefits to continue to grow.

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The new rule only allows the use of the restricted application for those born before January 2, 1954. Basically, with the rule change for people aged 62 at the time of the change they grandfathered in the restricted application process.

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What does this mean filing a restricted application? The definition of this with the Social Security Department is you are only filling for one benefit. Technically your restricting the scope of your benefits to just the spousal benefit instead all of the benefits your entitled to.

Anyone born before January 2, 1954 can still file a restricted application. By filing for the spousal benefit you can receive 50% of their benefit, and allow yours to continue to grow past your full retirement age.

A  Few Rules First

• You must have reached your full retirement age to file for a restricted application. 
• You must not have already filed for your own benefits.
• Your spouse must have already filed for benefits.
• In the case of an ex-spouse they just have to have reached age 62, they technically do not have to file first.

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If you are a widow/widower, or survivor of a deceased ex-spouse, then you can file a restricted application even if you have not reached full retirement age and the year of birth does not matter.

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So getting past all of the rule details, how can this strategy help you? 

This can be a very effective strategy to allow your benefits to continue to grow.  Remember benefits will grow by 8% from your full retirement age until age 70.  So if you had thought of delaying benefits to increase your Social Security Income, with the Restricted Application on Spousal Benefits you can still receive some income while you delay.

Here’s an example of how this can be effective.  Let’s say we have two 66 year olds and the husband’s Social Security is around $2600 a month and the wife’s is $1000.  She can file hers and he would receive $500 a month as a spousal benefit and allow his to grow to over $3500 at age 70. Now when he files then her spousal benefit would be larger than her personal benefit and would jump up to $1300 a month.  Note, her spousal benefit will not grow past 50% of his amount at age 66, even though he delayed benefits and received a larger amount later.

• February 15, 2025

When trying to figure out Spousal benefits for Social Security it is a virtual minefield of rules so let’s dive in and make sure that you follow all of the guidelines.

Typically a spouse is entitled to their own Social Security based on their work history, or 50% of their spouses’ Social Security at their full retirement age, whichever is HIGHER.  If they wait until their full retirement age then they are entitled to their full retirement amount, or PIA.

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What If I’m divorced do I still Receive Spousal Benefits?

If you’ve been married more than once, then guess what.. you can choose the highest spousal benefit among your ex spouses.  Here’s another benefit that you receive that married couples don’t..you can file for spousal benefits even if your ex hasn’t filed yet. And your ex-spouse doesn’t need to know that you are filing on their benefit so you don’t need their Social Security number to file.

If you are divorced you may be able to receive 50% of your spouse’s earnings if:

• You have been married at least 10 years.
• You are still unmarried, or remarried after age 60.
• Both you or your ex-spouse must be at least 62 or older.
• Your ex-spouse it entitled to receive Social Security or disability benefits.
• If you remarry then you cannot receive your former spouse’s earnings unless your later marriageends by divorce death or annulment, or if you over the age of 60.
• The spousal benefit is more than your own benefits.
• Any delayed credits that your ex spouse may have earned will not apply to yours.

Here’s another twist:  If you were born before January 2, 1954 and have already received retirement age you can take 50% of the divorced spouse’s benefit and allow yours to continue to grow.  See article on Can You Still File a Restricted Application?

Can I Claim My Spousal Benefits Early?

Yes you can but it will be at a reduced amount, depending on your age when you filed a benefit can be reduced by as much as 30%, so unless you really need it, it may be better to wait until full retirement age.

If My Spouse Claims Early will it Reduce My Spousal Benefit? Let’s say your husband filed for benefits early at age 62, and you have decided to wait until full retirement age to claim benefits.  You are still entitled to half off the spousal benefits from what his full retirement amount would have been not his reduced amount.

• February 15, 2025

A lot of people wonder if their Social Security benefits are going to be taxed, and if so at what rate?  Well the answer is it all depends on what you have coming in for income from other sources.  To find out you need to calculate your Provisional Income.  Nothing’s easy with the IRS right?  Let’s see how to figure this out:

So Just What is Provisional Income?

To calculate your Provisional Income, first add up all of your gross income, plus non-taxed interest income and one-half of your Social Security Income.  If this number exceeds the thresholds listed above then the amount above the threshold amount is taxed. 

It is also taxed on the state level.

• February 15, 2025

This is a very important question when deciding when to take your Social Security benefits and no one know the exact answer to this so let’s look at a few facts to consider to help provide some clarity on this issue.

The overall consensus it that the Social Security Trust Fund will run out of money in the year 2034 which at the time of this writing is only 17 years away.  This sounds pretty ominous doesn’t it, and many of you that are coming into retirement figure that you hopefully have more years then that. So what is causing the Trust Fund to become insolvent anyway?

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Let’s take a quick look at how Social Security is funded to get a picture.  The FICA taxes (Federal Insurance Contributions Act) that are taken out of each person’s paycheck, or taxed to you if your self employed currently are 12.4% up to the maximum amount of $118,000. If your employed your employer pays half of this and if your self employed you pay all of it.

The Social Security Trust Fund is a pay-as-you-go system. FICA tax revenue funds current Social Security and any money that isn’t paid out each year is held in the Social Security Trust Fund and is invested in government bonds. The money you pay in isn’t set aside just for you but instead is being used to fund the entire system, either paying out current benefits or going into the Trust Fund as surplus revenue.  Currently there is a surplus in the Trust Fund from the large segment of baby boomers paying into the system over the years.

Here’s the current predicament; there are more retirees today then ever before and this number will be increasing, while at the same time the working age population is getting smaller. Today the working age population is currently at about 60% of the overall population, and this percentage will be declining in the future,  It is estimated that in the year 2034 the Trust Fund will be exhausted and there will only be about 77% of the funds needed to fund Social Security at the current levels.  So if your 66 today then at age 83 you may see a reduced benefit of some type.

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So what are some of the changes we might expect to fix this problem?  There are many reforms that are being considered, such as increasing the amount that is subject to FICA tax for wage earners. Another proposal is upping the future age to receive Social Security payments. Currently those born between 1943-1954 the full retirement age is 66 and those born 1960 or later the age is 67. Years between 1954 and 1960, the full retirement age is 66 and a few months depending on the exact year. 

Other options to offset the shortfall for Social Security funding are to reduce future increases, apply a means test so higher net worth retirees may have reduced benefits, or simply cutting benefits for all retirees.  Whatever the case it certainly is something to keep a eye on. 

So should you file earlier if your future benefits may be reduced?  It certainly is a consideration and if your on the fence regarding this decision then this may be a valid reason to take benefits earlier.  For others you may have the confidence that the government will make the necessary changes to offset the future shortfall.  No one knows the answer to this so you will have to make your own decision, so as the old saying goes do you take the bird in the hand or two in the bush?

For more information on the SSA Trust Fund, here is the link. 

https://www.ssa.gov/oact/progdata/fundFAQ.html

• February 15, 2025