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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.  

Visit us at www.mitlinfinancial.com or email us at This email address is being protected from spambots. You need JavaScript enabled to view it.

Feel free to contact us with any topics you would like covered in an upcoming Mitlin Minute.

 

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

Will you be able to afford tuition costs for your children’s future higher education?

In this fast-paced environment of rising college tuition, overwhelmed Americans continue struggling to make ends meet with regard to affording higher education. Inflationary pressure has caused tuition costs to reach unprecedented levels. The net cost (the cost after scholarships, grants and federal tax benefits) that in-state residents will pay for public colleges this year, rose 4.6% to an average of $16,510. That's more than twice the rate of inflation, which rose just 2% over the last 12 months. As time passes, this trend only seems to be worsening.

Taking financial initiative can be the differentiating factor between affording and not affording these higher education costs. One of the strategies used to offset these rising costs are 529 college savings plans. These tax-advantaged investment vehicles were designed in the United States in effort to encourage Americans to save for future higher education costs.

529 Plans are useful education savings plans that can provide tax benefits and tax-deferred growth. These vehicles can be a very powerful tool for any family disciplined enough to save decades in advance. Investors can make contributions up to $300,000 throughout the plan’s lifetime. Some states offer residents an income tax deduction for a portion of their contribution. Additionally, there are no income limitations on donors making contributions. Parents do not need to be concerned about a student using these funds for purposes other than school. Assets in the 529 account will remain under the donor’s control; even after the student is of legal age.

It is important to note that for 529 Plans, there is one major restriction when it comes to distributions. Funds withdrawn from a 529 Plan for purposes other than education, will be subject to a 10% penalty, as well as federal income tax on the growth of the account.

The inevitable cost of college tuition is one that no one can afford easily, nor escape. The general population continues to struggle to pay for such highly inflated tuition fees. This struggle truly creates the need for an alternative savings strategy. The key to affording college is to start saving earlier than when your child reaches high school, middle school, or even elementary school. 529 college savings plans can be helpful in making higher education more affordable. With tax benefits, saving strategies and guidance, it is far easier for overwhelmed Americans to save for and one day alleviate such rising costs. Although savings may only be used for educational expenses, these savings plans force a discipline upon donors that they may have otherwise lacked. Don’t let the opportunity pass you by, for every year, week and day that elapses, you could have just inched that much closer to achieving future higher education affordability for your children.


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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