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Annuity ? derived from the Latin word ?annus? ? is basically an investment vehicle, quite similar to the Certificate of Deposits offered by banks. An insurance product sold by insurance companies through authorized agents, this type of investment facilitates a series of payments in the future, in a defined manner, in exchange for an up-front payment of money.

Here is the way annuities work: You, the customer, makes an up-front payment or a series of payments and the money deposited will grow in a fixed or variable rate, tax-deferred, during the accumulation phase. The insurance company ? in return for your payment ? agrees to pay you periodically for the rest of your life. This phase of pay back to the customer is called the payout or annuitization phase. Annuity also comes with a death benefit (insurance part), which entitles the beneficiary of the customer to the value of the annuity or a guaranteed minimum, which ever is more.

Annuities are classified into Immediate Annuity and Deferred Annuity. In common man’s lexicon, the term ‘annuity’, if not specified, traditionally refers to Immediate Annuity only.

Immediate Annuity can be equated to an insurance policy that makes a series of increasing or level periodic payments to the customer, for a fixed number of years or until his/her death. Further, there is a variant of immediate annuity called Lifetime immediate annuity that offers an income for the lifetime of the annuitant. It is also called Pension.

Deferred Annuities are subgrouped into Fixed Annuity and Variable Annuity. In fixed annuities, a sum of money is paid to the insurance company and they in turn offer a guaranteed rate of return over the life of the agreement or the lifetime of the investor. On the other hand, in variable annuities, the money is deposited in separate accounts like mutual funds in a tax deferred manner. Here, the return on the deposit is not fixed, but variable according to the performance of the funds; you may watch your deposits reaping substantial gains at times or invariably plummeting to an all time low, depending upon the performance variations of the funds. Also, the fees are at a higher end with variable annuities.

But there are certain stringent Read more…

2006 is the twenty fifth year of the 401k investment plan. Have you had more than one job in the last 25 years? If so, then you probably have more than one 401k plan floating around.

401k plans are now over 25 years old. They seemed a unique idea at first, but now just about every employer offers one. And I?m sure I don?t need to tell you that they are a great way to save and earn money over the years.

The issue here is whenever you setup a 401k, you usually diversify your plan with your employer. Obviously, you must invest using the current options your employer offers, which is good. Investing a little in the high risk, some in the moderate risk, and some in the lower risk funds its typically the plan. You may have been a little more open on taking risk 20 years ago than you are today. Maybe now you are a little more conservative in your investment goals. So you think you are diversified, right?

Not really? especially if you have ten plans with ten different employers. Remember you tried to diversify each one when you set them up. Well, ten different plans diversified the same way means that your portfolio is not really diversified at all. One employer?s moderate Read more…

This tip is going to be on the psychological topic of discipline. Unlike many of the past tips, it will not be long. It will not have a clean-cut list of things you need to do. There will not be a simple plan that is ready to execute. There are no nicely labeled charts to tell you what to do. Discipline is a more illusive topic. Yet, if there were one tip that you should frame and put above your computer, it would be this one.

When it comes to trading, here is a definition for you. A definition that may be the whole essence of this article. For trading purposes, discipline can be simply defined as your ability to follow your trading plan.

Just like many past tips, here comes that reference to a trading plan. It is a simple concept. You need to define what you want to trade. You need to define when you want to trade it. You need to decide how to trade and manage it. You need to decide how to handle your account when you are making money (do you keep a ?trail stop? on profits?). You need to handle your account when bad days come along (do you have a ?stop loss? every day?).

Once you have this, a couple of rules are helpful. DO NOT change you plan during the trading day. Commit to only making changes when the market is closed. Otherwise, there is no plan at all. Read your plan every morning before you trade for at least one month. Then read every weekend. Get one of those little free applications that open programs for you at certain times of the day. Have it open your trading plan at 9:25 A.M., just before you trade.

The best way to enforce discipline is just by awareness. Keep records of your trades. Include on every trade an answer to the simple question, ?Was this trade part of my trading plan?? Yes or no. There is no in-between. Be aware that the undisciplined traders are almost guaranteed failure. Ask every day if you are keeping the discipline or are you just Read more…

Finding the right investment opportunities can be hard? with the constant fluctuations of the stock market it can leave you wondering whether any investment is likely to pay off well over a long period of time. If you’ve been putting off making investments because you’re worried that the long-term returns might not be worth the initial investment, you might want to consider investing in precious metals such as gold and silver. These investments not only tend to perform well over time, but are also the standard that most investors fall back upon when trouble seems to be affecting every other portion of the stock market.

If you wish to know more about investing in precious metals such as gold and silver, the information below should help you with the basics and you preferred financial website or investment broker should be able to assist you with the specifics.

Investments in Gold and Silver

Many people aren’t even aware that they can make investments in precious metals such as gold and silver via the stock market. These investments are often made in the form of indexes, and are traded in the same manner as if they were actual stocks. The value of these index shares will fluctuate depending upon the time of the year and other factors that can cause problems with the world economy, though precious metals such as gold and silver seem to grow in value the most during times of financial crisis when people are wanting to put their money into more secure currency standards.

Gold and silver investments also tend to increase seasonally, especially around Valentine’s Day and Christmas when jewelry sales show their biggest increases.

Advantages of Gold and Silver

As mentioned above, one of the main advantages of precious metals such as gold and silver is the perceived value and stability against major fluctuations of value. Gold and silver have both served as the basis for various economies around the world, and even as other types of currency might rise and fall in value these precious metals are still as stable as ever. Factor in the value of metals such as gold and silver to the jewelry industry and you have an investment that’s not likely to drop in value and fade Read more…

You hear it over and over in the media: “Invest for your retirement!” But with so many retirement options and a limited amount of money to put towards retirement investments, it isn?t always clear where the investor should put her money.

In fact, one of the most common questions that both current and prospective investors ask is: if I have a limited amount to contribute, where should I put my money first, second and so on?

In the best situations, you?d maximize all of your legally allowed retirement contributions every year. But many of us do not have the financial freedom to do this. We need to place our retirement money where it will be most effective. Here are some rules to guide you in your decision making process:

Retirement Rule #1: Maximize Your Company?s Matching Contribution

If your employer provides matching contributions in a company sponsored plan, then put in as much as you need to receive the full match. It?s not everyday that you can get 25-100% of a return on your investment immediately.

Rule #1 is the easiest decision to make. But if your company doesn?t match, or you?ve got some left over money to invest, how do you choose between the other options?

Retirement Rule #2: Prefer Quality and Flexibility

If your employer?s retirement plan is very restrictive and doesn?t offer you very many good investment options, then choose to first maximize any IRA of your choice. Choosing a good IRA is as easy as choosing a good mutual fund: you want to identify a fund that has a strong track record, has good management and is poised to provide consistently high, long-term returns.

On the other Read more…

Two things have been happening a lot lately, IPO?s and ?secondaries? and since we?ve got a lot of new people reading the publication I thought I might want to visit secondaries for a moment. Most people understand the idea of an IPO, but a secondary often gets them a bit confused.

A secondary offering occurs when a company literally releases more stock out into the float. But some interesting things usually take place when that happens. Let’s look: In general terms when a secondary is announced the stock will fall like a rock for a day or so. Why? Well, basically they are saying, “We are putting more shares out there” and that has the undesirable effect of “dilution.” So more times than not when a secondary is announced, that stock takes a tumble.

Now, why do they do secondaries? For a number of reasons. First, they want money. The money is generally slated for some type of expansion project or even hopes of an acquisition. Then they also do them to put more shares out for institutions to buy. Some institutional buyers will actually approach management and say, “Hey we would like to take a stake in you but you don’t have enough shares for our liking.” Many companies want the exposure that institutional buying brings and will do the secondary. Sometimes it is done to allow insiders a chance to sell their shares too. (That isn’t too widely done but it happens) So what does all this mean for us? It means that there is a good chance the stock will take a near term hit. BUT it also means the stock will probably be a good buy again shortly afterwards. Here is why: When a secondary is to be done, there are underwriters involved in marketing that stock just like when the stock first came public.

Those underwriters are going to want to see the stock price move higher after the offering (so they can make some Read more…

Obviously, nobody asked the marketing guys before coming up with this one. Who in the world thought up the name “non-qualified deferred compensation?” Oh, it’s descriptive alright. But who wants anything “non-qualified?” Do you want a “non-qualified” doctor, lawyer, or accountant? What’s worse is deferring compensation. How many people want to work today and get paid in five years? The problem is, non-qualified deferred compensation is a great idea; it just has a lousy name.

Non-qualified deferred compensation (NQDC) is a powerful retirement planning tool, particularly for owners of closely held corporations (for purposes of this article, I’m only going to deal with “C” corporations). NQDC plans are not qualified for two things; some of the income tax benefits afforded qualified retirement plans and the employee protection provisions of the Employee Retirement Income Security Act (ERISA). What NQDC plans do offer is flexibility. Great gobs of flexibility. Flexibility is something qualified plans, after decades of Congressional tinkering, lack. The loss of some tax benefits and ERISA provisions may seem a very small price to pay when you consider the many benefits of NQDC plans.

A NQDC plan is a written contract between the corporate employer and the employee. The contract covers employment and compensation that will be provided in the future. The NQDC agreement gives to the employee the employer’s unsecured promise to pay some future benefit in exchange for services today. The promised future benefit may be in one of three general forms. Some NQDC plans resemble defined benefit plans in that they promise to pay the employee a fixed dollar amount or fixed percentage of salary for a period of time after retirement. Another type of NQDC resembles a defined contribution plan. A fixed amount goes into the employee’s “account” each year, sometimes through voluntary salary deferrals, and the employee is entitled to the balance of the account at retirement. The final type of NQDC plan provides a death benefit to the employee’s designated beneficiary.

The key benefit with NQDC is flexibility. With NQDC plans, the employer Read more…

When are Social Security checks potentially loans and not benefits? Why, when you have “excess earnings” of course. In today’s economy, many senior citizens still work during their “retirement” either because they want to or, all too often, because they must to make ends meet. Retirees who want to work as well as collect social security retirement benefits must plan their compensation carefully if they want to avoid losing some or all of their social security benefits.

In order to collect social security “old age” benefits, you must be “retired.” Congress has reasoned that if you earn more than a specified amount, you are not “retired” and, therefore, are subject to having some or all of your benefits eliminated. Congress does allow you some earnings before your benefits are jeopardized.

The amount of allowable earnings depends on your age. If you are over 65, there is no limit on the amount you may earn and still collect your full benefit. If you are at least 62, but younger than 65, you may earn up to $12,480 in 2006 before your benefits are affected. The earnings limit is adjusted each year for inflation. If you earn in excess of the limit, you must repay some or, potentially, all of the benefits you receive. For every $2 you earn over the $12,480 limit, you must give up $1 of benefits.

A special rule applies in the year in which you retire. In the initial retirement year, no matter how much is earned for the year, no benefits will be lost for any month in which you earn $1,040 (1/12 of $12,480) or less.

For purposes of the retirement test, “earnings” are defined as “wages” earned as an employee or the “net earnings” of a self-employed person. The earnings must result from work performed after retirement. “In kind” Read more…

Despite the new tax rate reductions of the Jobs and Growth Tax Relief Reconciliation Act of 2003, the top marginal tax bracket for many retirees is a whopping 46.3%. Why? Because Social Security benefits are subject to income tax. Those affected are Social Security recipients who have the good fortune (misfortune?) to be subject to both the 25% income tax bracket and the 85% inclusion rate for Social Security benefits.

Here’s how it works. First, you must understand how Social Security benefits are taxed. The income tax formula begins with the calculation of combined income. For all practical purposes, combined income equals adjusted gross income (not including Social Security), plus municipal income, plus one half of the taxpayer’s Social Security benefit.

So far, so good. If a married couple?s income is under $32,000 ($25,000 for a single taxpayer), Social Security benefits are not taxable. If combined income is between $32,000 and $44,000 (or $25,000 and $34,000 for a single person), the taxable amount of Social Security equals the lesser of one half of Social Security benefits or one half of the difference between combined income and $32,000 ($25,000 if single). Up until now, it?s not too complicated.

Here’s where the real fun begins. If the taxpayers’ combined income is over $44,000 ($34,000 if single), the taxable amount of Social Security equals: the lesser of (1) 85% of the benefit, or (2) the sum of 85% of combined income over $44,000 ($34,000 if single) plus the lesser of $6,000 ($4,500 if single) or the amount of Social Security taxable under the old rules. Nobody ever said new tax laws created tax simplification.

Here’s how we come up with that 46.3% bracket. In order to illustrate an increase in the marginal tax, you have to compute taxable income. Taxable income, as we all know, is net of allowable deductions and exemptions. The standard deduction (that many retired people claim), personal exemptions and the tax brackets are all adjusted annually for inflation.

Assume Hank is over 65, files single, utilizes the standard deduction, and has total Read more…

One of the great mysteries of personal finance is: How are social security retirement benefits calculated? The computation itself is something of a mystery. It’s so complex that I’m not sure who could have dreamed it up. I am sure that most in Congress don’t understand it. In this article we’ll take an abbreviated look at what goes into the computation.

We will be concentrating on the method of computing retirement benefits in place since 1979. Before then a different, but equally bizarre, method was used. The changes were instituted in 1979 to help keep benefits more or less inflation-proof. The computation begins by determining a worker’s Average Indexed Monthly Earnings (AIME). The AIME is based on the worker’s social security wages or earnings from self-employment after 1950, but only up to the social security maximum for each year.

The worker’s earnings are then “indexed” by adjusting them for the average national wage increases. The purpose of the indexing is to state the wages in terms of the level of wages in the second year prior to social security eligibility. Generally you are eligible for social security at age 62, so we index to the year in which you turn 60.

Now that you have “adjusted” the earnings, you must next determine the average. Begin this process by determining the number of years after 1950 (or turning 21 if later) and before when you turn 62. Got that number? Great, now subtract five. (Why five? Beats me.) Social security calls this figure the “number of computation base years.” Now, go back to your indexed annual earnings and select the highest earning years until you have enough to equal the “number of computation base years.” For example, you began work at 22 and worked to 62. Read more…