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Annuities: Immediate vs. Deferred

In the last article we went over the two different types of annuities, fixed and variable; both are avenues by which you are able to grow assets on a tax deferred basis over time. Now we are going to talk about the different ways you can receive or build to later receive a steady stream of retirement income payments.

The contract owner can implement one of two strategies, an immediate annuity or a deferred annuity. They can elect to begin to receive income right away with an immediate annuity, or to build their account value over time and convert it to income at some point in the future with a deferred annuity.

A contract is considered to be an immediate annuity if income payments are scheduled to begin one payout interval after the annuity’s purchase date. This is what is known as annuitizing the contract. It is important to understand the key term, annuitant. An annuitant is the person whose life the payment stream is based on. It is also important to understand the key term annuitization. Annuitization is the process of converting an annuity into a series of periodic income payments. This type of annuity is designed for regular cash flow. With an immediate annuity, a single lump-sum payment is made. This one-time payment initiates the starting date for the payout to begin (sometime within the next 13 months). The size of the payout that the annuitant will receive is based on the annuity’s principal, the payout option selected, the payout term, the annuitant’s age and whether it is a fixed or variable contract. You can choose income for your lifetime or for the joint lifetime of yourself and that of another person. An immediate annuity can be the ideal choice for an investor who fears they might outlive their resources or someone that just simply wants to receive regular income payments. It is also crucial that the contract owner be aware that annuitization is an irrevocable action.

On the contrary, a deferred annuity gives you the opportunity to build your retirement savings over a period of time. A contract is considered to be a deferred annuity if the income payments are scheduled to begin at some later point in the future. With this strategy, the contract owner is essentially deferring the time in which they will begin to receive the income payments (annuitize). This deferred account can be funded with either a lump sum, a series of payments, or even both. The contract owner will have the option to either annuitize the contract or lump sum it out in the future. With this type of annuity you have the ability to accumulate wealth over an extended period of time. One also has access to their money at any time, up until annuitization. However, it is important to know that these withdrawals may incur early withdrawal tax penalties. The deferred annuity is best suited for that investor who has already maxed out all of their other retirement plans such as 401(k)s and IRAs.

By design, an annuity is meant to secure a steady cash flow for an inpidual during their retirement. Each of these annuities have their own advantages and disadvantages. Before choosing between an immediate or a deferred annuity, one must decide if they are looking for a regular stream of income payments or if they want to accumulate wealth. Due to the complex nature of an annuity contract, it is important for investors to be properly educated before they invest in such a contract.

If you have maxed out all of your other retirement plan options or if you simply want to accumulate wealth, call Mitlin Financial, Inc. today at (631) 952-4466 and educate yourself on what may be a great addition to your retirement plan.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Annuities: Fixed vs. Variable Annuities

Although not for every investor, annuities can serve as a very useful tool in one’s retirement strategy. These financial products are sometimes portrayed in the media as controversial. When implemented properly, in the right situation, they can prove to be beneficial. Despite the many type of annuities, this article is going to focus only on fixed and variable annuities. Fixed and variable annuities are two of the primary types of annuity contracts commonly used today. Although each one has its own set of risks and rewards, both contract types aim to achieve the same goal; a steady stream of income payments in retirement.

A fixed annuity is an insurance contract where the owner earns a fixed rate of return while they own the contract; usually until the annuitant dies. Both the principal and earnings are guaranteed by the insurance company and backed by its claims paying ability. The premiums paid are placed in the insurance company’s general account. This general account generates a set fixed rate of return which fixed annuities are commonly known for. It is important to note that fixed annuities are often defined by this set interest rate that is stated in the contract. A major benefit of a fixed annuity is that the interest rate can never fall below the guaranteed minimum. Another benefit of a fixed annuity is that it grows on a tax deferred basis with the ability to turn the contract value into a stream of fixed income payments. Lastly, there is no upper limit on the contributions made to the annuity contract (unless the insurance company has implemented a cap). Keep in mind that fixed annuities may not work for all investors. This is why another type of annuity exists, the variable annuity.

A variable annuity is an insurance contract which can be purchased by making either a single or a series of premium payment(s). The defining characteristic of a variable annuity is the mechanism with which the premiums are invested. Unlike a fixed annuity, a variable annuity has sub accounts. These sub accounts may incur more risk as they fluctuate in value since they are invested in a manner similar to that of a mutual fund. Variable annuities also defer taxes until withdrawal and have the ability to turn the contract value into a stream of income payments. It is important know that these income payments may fluctuate as the performance of the sub accounts tend to fluctuate. Variable annuities also have no upper limit on contributions (unless the insurance company has implemented a cap). When it comes to the annuity type that suits you best, it is very important that you consider your risk tolerance.

You might be wondering how an investment vehicle of this sort could be even remotely applicable to your retirement strategy. The answer is simple. What if you have already maxed out your annual contributions to your 401(k), IRA or all other retirement plans? Investing in an annuity now becomes one of the more viable options of increasing your future retirement income. Contact us today and learn about how an annuity may help you invest and save on your road to retirement.


Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Advisor Compensation: Disclosure and Transparency

Do you know how your advisor is being compensated?  Are you paying fees? Are you paying commissions? Is your advisor’s compensation even discussed? These are just some of the many questions you should be asking yourself prior to choosing a financial professional to handle your family’s wealth management.

In the financial industry, compensation is a topic that is rarely spoken about. It is important that the financial professional handling your wealth disclose the way(s) which they are compensated.

On one hand, there are commissioned brokers; this structure is often used by stockbrokers, insurance agents and registered representatives alike. These financial professionals are compensated on a transactional basis. This means that compensation is received when an investment product is purchased and/or sold or when they trade on your behalf. How would you be able to tell in advance if this advisor truly has your best financial interests in mind or their own? You may never be able to know for sure. Does this sound like the type of relationship that you would want handling your investments and financial future? This model would be similar to going to a surgeon who is only compensated for performing surgeries.

On the contrary, there is an alternative compensation method which may better align the interests of both the client and the advisor while offering full transparency and disclosure in advance.  As a Registered Investment Advisory (RIA) firm, Mitlin Financial, Inc. stresses fee transparency and will always disclose our fees well in advance. The three types of compensation that Mitlin receives include financial planning fees, asset management fees and insurance commissions. The first type of fees that Mitlin receives are those from financial planning services. For a comprehensive financial plan that we create on your behalf, we would receive a flat fee. This flat fee is disclosed and agreed upon by both parties long before the financial planning process even commences. In terms of your investable assets, we charge an annual percentage of the assets that Mitlin manages on your behalf. A fee of this nature aligns the advisors compensation with the investor’s interests as the advisors compensation is tied to the client’s account. As the size of the client’s account grows, the fee does as well, and vice versa.  Lastly, there are commissions for insurance work done on your behalf. This would come into play if an insurance product, such as life, disability or long term care was appropriate for you. You always have the option to work with your already established insurance professional. This would only transpire if you decide to use us to place the insurance for you. This commission is paid directly by the insurance company. It is important to note that these insurance commissions are paid in almost every situation where a policy is purchased; someone will receive these commissions. As is the case with all of our compensations, insurance commissions are disclosed in advanced and are transparent.

When it comes to advisor compensation, it is important to know how your advisor is being compensated. At Mitlin Financial, Inc. we pride ourselves on compensatory transparency and disclosure. This disclosure and transparency breeds trust time and time again. And we know that there is no better advisor client relationship than one built on trust. Be sure to visit Mitlin's ADV for more information on how Mitlin is compensated; also check out our Mitlin Minute on advisor fees and compensation. Contact us today and see how we can help facilitate your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Advisor Diversification: The Scenario Where Diversification is Not Beneficial

We are told time and time again that one should never put all their eggs in one basket. In most instances, this statement would be valid. However, this is not true in every case; especially with regards to Advisor persification.

There are many detrimental effects that can result from having multiple Financial Advisors. You would think that by having more than one advisor that you are actually increasing your likelihood for financial success. Unfortunately, you are most likely hindering your chances for success. Having multiple advisors may create adverse inconsistencies between your investment strategies. The disparities can ultimately yield you with varying results; some of which may not be not ideal to both your short and long term financial goals, investment constraints and capital needs.

The communicative inconsistencies that may result from the use of more than one advisor can create financial issues for an investor. Advisor persification can also create high concentrations of investments that are not parallel to an investor’s risk tolerance or investment objectives. Neutralization of one’s investment strategies is another likely byproduct of persification amongst multiple Financial Advisors. With multiple advisors, you may actually be doubling up on or be creating competing investments for yourself. This adverse reality can most certainly create far more risk than the investing inpidual had originally anticipated. With regards to market cyclicality, there is never a guarantee that even the most qualified of all Financial Advisors won’t lose investment value at some point in their career. Having multiple advisors will not eliminate that risk of loss, but instead it could magnify it in times of bad financial markets.

The truth of the matter is, there is never a good reason to have multiple advisors. By having a concrete investment plan, a single advisor is more than sufficient in implementing this strategy that is specifically tailored to your risk tolerance, financial goals and capital needs. It doesn’t take more than one Financial Advisor to successfully employ that plan. Trust is by far, the single most important element rooted within the relationship between a client and their Financial Advisor. By persifying amongst multiple advisors, one has communicated a lack of trust from the get-go; defeating the entire purpose of the client-advisor relationship. If you work with more than one advisor, who is going to oversee the communication between them to insure that their inpidual plans and strategies mesh and work well together with your short and long-term goals? Chances are the answer to that question is, no one.

persification is a very important strategy when it comes to investing, however, it should be the advisor persifying for you; not you persifying amongst advisors. Call us today at Mitlin Financial and see why having one trusted Financial Advisor could be a more optimal strategy for securing your financial future.


Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Mitlin Minute: 529 Plans

This edition of the Mitlin Minute features 529 plans.

Please feel free to contact us with any questions at (631) 952-4466 x12.  

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Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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