Brian Gruss Licensed Insurance Planner

Understanding the Difference Between Annuity, Bond and CD Ladders

One great way of creating a gradually disbursing retirement benefit while still keeping the long-term savings portion of your money conservatively invested is to create a bond, annuity or CD ladder. These ladders are separate investment instruments with varying maturity dates that allow you to take advantage of long-term savings rates while still making sure that some of your money is readily liquid when you need it. This strategy is called “laddering” because each maturity date is its own rung on the ladder of your retirement years.

While each ladder is a great strategy in its own right, it’s important to understand the differences between each of them before you decide which is (or are) right for your retirement plan.

Annuity Ladders

An annuity ladder is created when you spread out your annuity purchases over several years. Instead of investing all your retirement savings at once into a single annuity contract, you only invest some of the proceeds. The rest remains invested in equities, bonds, CDs and other appropriate investments. Then, over time, say every 5 years, you buy another annuity. Doing so helps insulate your savings from being locked in to low-interest annuities. This gives you the benefit of guaranteed income without interest rate risk.

Bond Ladders

Bonds are debt instruments that act as loans to companies and municipalities. While the issuer is using your principal for their projects they pay out interest to you. Once the bond matures, you are paid back the principal that you invested. When you create a bond ladder, you purchase several bonds with varying maturity dates. The later maturity dates afford the investor greater interest payments, but the earlier maturing bonds give the investor liquidity when they need it. Many bonds also have put options so that if you should pass away before the bonds in your ladder mature, your family can execute the put and be paid the principal by the bond issuer.

CD Ladders

CD rates vary depending on how long you are willing to have your principal tied up in the CD. A 20-year CD will have a significantly higher rate than a 6-month CD, but tying all your retirement money up for 20 years in order to get that rate is not a smart strategy since you are likely to need something to live on during the 20-year period. With a CD ladder, you can invest a portion of your savings into CDs with varying maturities. They will mature and pay you your principal and interest throughout the years as you enjoy your retirement.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1вЃ„2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

Tags: Annuities, Annuity Contract, Bond Ladder, Bonds, Debt Instruments, Interest Payments, Interest Rate Risk, Investment Instruments, Investments, Investor, Liquidity, Loans, Maturity Date, Maturity Dates, Municipalities, Proceeds, Retirement Annuity, Retirement Benefit, Retirement Plan, Retirement Savings

As Your Income Grows, So Should Your Life Insurance Coverage

Most people fail to realize that when they accomplish goals like earning more money and achieving a higher standard of living, they increase their need for life insurance. That’s because life insurance provides support for your dependents if you die prematurely. It allows your family to maintain the same standard of living they have become accustomed to, even after you die.

Just think of the many ways your family depends upon your income and what would happen if it were suddenly taken from them with no replacement. If you have a stay-at-home spouse, they may need the death benefit proceeds from a policy to pay the mortgage or save for your children’s education. The money your spouse receives from the death benefit can help them continue to care for your family in the interim while looking for a job. Without that financial cushion, your spouse might have to sell the house or your children may have to delay going to college.

To be sure that you adequately provide for your dependents, you should increase your life insurance as your salary increases. The ratio between your coverage amount and your salary decreases, as your salary gets higher. So if you begin with a policy providing a death benefit equal to ten times your salary, by the time you reach 50 years old and are earning twice as much money, the coverage amount will have decreased to only five times your salary.

And don’t think that once you turn 65 and your children are grown, you no longer need life insurance. Remember, most people live up to every penny they earn. As their income increases, they tend to increase their standard of living via expensive new homes or cars, so that at age 65, many of them could still conceivably be carrying mortgages or auto loans. In order for the surviving spouse to maintain their current lifestyle, the insured would have had to increase their coverage to keep pace with their spending.

There is also the issue of longevity. Today people are living into their eighties and beyond. If the insured dies at 65, the surviving spouse could live another twenty to thirty years, in which case they would need the death benefit proceeds to cover living expenses.

It is clear that there is a real need to have your life insurance keep pace with your salary. You should review your life insurance annually with your agent, Brian Gruss, to develop a plan to ensure your dependents will remain financially comfortable after your death.

Tags: Auto Loans, Children Education, Children S Education, Death Benefit, Dependents, Education Money, Financial Cushion, Going To College, Income Increases, Income Insurance, Interim, Life Insurance Coverage, Lifestyle, Mortgage, Mortgages, New Homes, Pace, Proceeds, Salary, Stay At Home

Getting a Divorce Doesn’t Mean Saying Good Bye to Your Life Insurance

Getting a divorce means making changes. Just about every aspect of your current lifestyle will be altered, and your life insurance needs are no exception. However, just because you’re getting divorced doesn’t mean you should drop your life insurance altogether.

If you and your ex-spouse don’t have children, and there isn’t anyone else relying on you for support, you probably won’t need as much life insurance as you did when you were married. But there are instances in which getting a divorce actually increases your need for life insurance, such as when:

• You are the parent of dependent children, and you must contribute to their support.
• The court approves a divorce settlement that requires you to carry a certain amount of life insurance with your ex-spouse as the named beneficiary, the proceeds from which will be used to support your children in the event of your death.
• The coverage you previously had is terminated as a result of the divorce.

In addition to revisiting the amount of life insurance you carry, you may also want to change your beneficiary. If your ex-spouse is the named beneficiary on your life insurance policy, and you plan on changing that designation, be sure you remain in compliance with your divorce decree. If your settlement agreement requires that you maintain your ex-spouse as the beneficiary of your life insurance, you cannot legally remove them.

Keep in mind that if your ex-spouse was designated as your beneficiary when your purchased the policy, getting a divorce doesn’t necessarily alter that. There are some states in which divorce automatically invalidates the ex-spouse as the designated beneficiary. However, don’t assume you live in one of them. Talk to your attorney and verify it.

Another point to remember is that specifying a change of beneficiary in your will doesn’t supersede the beneficiary designation stated on your life insurance policy. The only way to remove your ex-spouse as your beneficiary is to execute a change of beneficiary with your insurer. Your insurance agent can help you with the necessary paperwork.

If you do change your beneficiary, don’t name a minor child. Insurers will not pay the proceeds from a policy directly to a minor, and the probate court may require that a trust be established, and a guardian appointed, to manage the proceeds from the policy until the child becomes an adult.

If you are a recent divorcee, you should talk to Brian Gruss about evaluating your situation and recommending products that suit your current needs.

Tags: Beneficiary Designation, Compliance, Current, Dependent Children, Divorce Agreement, Divorce Decree, Divorce Settlement, Getting A Divorce, Instances, Insurance, Life Insurance Policy, Lifestyle, Proceeds, Settlement Agreement