STRS and PERS Pensions

STRS and PERS pension income is taxable!

When I meet with teachers and administrators who, for years, have saved, tax-deferred, toward their eventual pension incomes, I discover that they often think their incomes will be tax-free.

This misunderstanding of the STRS and PERS tax-DELAYED income source can prove disastrous for retirees planning on a teacher’s retirement income that may be 20% to 50% higher than what reality will dictate.

The Good News:

There are ways to mitigate this INCOME GAP. By simply contributing consistently to an FIUL (Fixed Index Universal Life insurance policy), for example, you can create, after ten or so years of growth (the longer the better) a substantial TAX FREE income!

“How?”, you ask. Simple: After years of contributing to your Life Insurance policy (your FIUL), you will have built-up a significant TAX FREE death benefit from which you can take a TAX FREE loan in the form of TAX FREE income. Your loan will be paid off by the death benefit when you die.

The FIUL grows like a Fixed Index Annuity in that the growth is based on an Index and the principal and annual gains are locked in against any market downturns.

FIULs can be complicated, and there are cautionary issues concerning investing in an FIUL.

I would be more than happy to help you learn more about Fixed Index Universal Life investments.




8 Myths That Can Make You Lose Out on College Financial Aid

Don’t Leave College Financial Aid Money on the Table!

Sending your child or grandchild to college? There are many myths about qualifying for financial aid, and if you believe them, you’re missing out!

Myths #1-4:

You won’t qualify for college financial aid if:

  • you own your own home
  • you have savings
  • you make a certain amount of money
  • you’re not working

These ideas are simply not true. There are many people who have qualified for financial aid with those circumstances.

Myth #5:

The best way to get college financial aid is to search for unclaimed awards.
This is not a good strategy. There is more than $185 billion in financial aid awarded each year, and unclaimed scholarships represent only a fraction of what is available.

Myth #6:

The sticker price listed for a college’s tuition is the same price everyone pays. Don’t let sticker price scare you. Some people pay full price, and others pay far less. Your actions, and your circumstances are what makes the difference.

There’s a lot that goes into understanding the ACTUAL price someone pays to get a degree. You may be very surprised once you have all the information.

Myth #7:

All college financial aid is alike.
There are many funding sources, and they vary greatly.

Myth #8:

Apply for funding AFTER your child has been accepted.
This belief is not only a bad strategy, it may prevent you from opportunities you would have had if you’d met the application deadlines.

Don’t let myths keep you in the dark!

I can guide you through the process, and we’ll have fun doing it. Give me a call. You’ll be under no obligation.

College Planning — It’s a Collaborative Effort

Make College Planning a Positive Experience

Just when your teen is straining to test his or her wings, they are faced with the overwhelmingly daunting task of choosing a college. They and their friends are busy sharing stories about various schools and comparing their future plans. Meanwhile, parents are struggling with just how much control their kids should have over the choice, since in most cases, it is the parents who will be at least partially involved in contributing funding.

In the end, the process becomes a collaborative project, made ever more difficult by the complexity of the application process. There’s so much to do. So much to know. And so little time. If only there were a simpler way!

A Better Way

As with any major investment, it helps to have the guidance of an advisor who can:

  • help your teen find a school that is the best fit for their strengths and needs
  • guide you through the many funding opportunities
  • inform you of financial options at your disposal
  • work in concert with your existing guidance counselor, CPA, or financial advisor as part of a team

Don’t Make a Mistake

Making a wrong move for a big investment like this can cost you — now, and in the future, down the road, when you’re facing retirement. There is no reason to sacrifice your retirement goals for your child’s education. Some careful planning now will make all the difference.

Let me show you how we can make this process fun, exciting, and easy. Your teen will feel confident they’ve made the right choice. You’ll save time, energy, and worry because the process is all laid out for you. You’ll know that you’ve left no financial aid stone unturned. And you’ll enjoy the relief of knowing you haven’t destroyed your retirement in the process.

Choosing a college shouldn’t have to be a difficult experience. Give me a call, and let me show you what I’m talking about. You’ll be under no obligation.

Retirement Research Shows Confidence Rising

The Latest Retirement Research is In: A Good Plan is Key

In March of this year, the Employee Benefits Research Institute released its findings on the 2014 Retirement Confidence Survey, the longest running survey of its kind in the nation. They noted a rebound in American’s confidence in their ability to afford a comfortable retirement. The past five years, that confidence has hit record lows, but things are beginning to look up for American workers and retirees.

Those who are most confident about their retirements are likely to be actively participating in retirement planning, contributing to IRAs, defined contribution, defined benefit, savings, and other investments. It was found that those with a plan tended to save more. On the other hand, for many, their level of debt is a real worry.


Survey participants (workers and retirees) were asked questions such as:

  • How confident are you that you and your spouse will be able to live comfortably throughout your retirement years?
  • Do you currently own a retirement plan?
  • Do you have a significant debt?
  • Do you feel you have enough to take care of medical expenses through retirement?
  • Do you have enough to cover long term care?
  • Are you confident you’ll be able to cover basic needs?
  • Do you feel you’ve done a good job preparing financially for retirement?
  • Have you and your spouse saved money for retirement (outside of Social Security taxes and employer-provided funds)?
  • How many years have you been saving for retirement?
  • Have you done a retirement planning needs calculation?


Meanwhile, expectations about retirement are changing. Many people are deciding to work longer, and put off retiring. Others plan to work part-time.

Take a look at the full report; you’ll find it interesting. And then ask yourself how confident you are about your own retirement plans?

Want to be confident? 

Take the guesswork out of your retirement. Let’s get together and go over your own situation so we can come up with a strategy that works for you. You will be able to relax and retire with confidence, knowing that your hard earned money will keep on working for you.

Read the full report

Are College Tuition Costs Eating Your Retirement Savings for Lunch?

College Tuition vs. Retirement — Whose Goals Win?

How did this happen?

You and your spouse worked hard. You have been diligent parents. It seems like just yesterday, your kids were in diapers. And now, all of a sudden, your children are becoming young adults, discussing college and beyond. You’ve done everything you can to help them succeed. And of course, you want to help them through college.

But you’re worried.

The last Recession took a bite out of your investments. The Market came back with a roar, but 2008-2009 was sobering to say the least. Home values also took a hit. And all your plans on saving for retirement — well, right now, it’s beginning to look like you might be working forever.

I want to ask you a few questions:

  • When was the last time you stopped and took a close look at your investments? Are they still working for you?
  • Have you actually calculated the total cost of college tuition for all of your children? Do you know what aid is available to you?
  • Do you have any idea how tuition costs will have an impact on your future?

It’s time…

It might be time for you to sit down with qualified professional: someone who can guide you through your options so that you can make some informed decisions. Your family’s future is at stake. You really can’t afford not to.

The picture may be much brighter than you think.

I’ve been guiding Marin residents for the past 14 years, helping them navigate some of the major milestones in their lives. Together we take a holistic look at everything from Social Security strategies, creating a lifetime income, and paying for everything from college tuition to long term care. Once you have a solid, comprehensive strategy, your decisions become clear.

Why don’t you pick up the phone and give me a call, and we can have a conversation. You’ll be under no obligation. I look forward to talking with you.

Marin Seniors: Are You Prepared for What’s Around the Corner?

Look Forward to a Long Life!

With good genetics and a healthy lifestyle, chances are you’ll live a long and happy life here in Marin. But as you begin to think about retirement and beyond, it’s useful to take a look at statistics — both good and bad — so you can make plans to protect yourself and ensure your independence for as long as possible.

 Here’s the good news:

  • Seniors in Marin have a higher life expectancy than the U.S. average. Our average is 83.7 as compared with 78.6!
  • And we’re in excellent company. Between 2000-2010, the number of Marin seniors over the age of 60 increased by 38% — to 25% of the local population. And our numbers are expected to continue to swell.

 Now for the bad news:

  • One thing’s certain: everybody dies of something. Here in Marin, the top culprits are: heart disease, cancer, Alzheimer’s disease, and stroke.
  • Alzheimer’s disease is the third leading cause of death in Marin (It’s fifth in the State.) The total number of cases is expected to double by 2030. In America today, over 5 million people are living with Alzheimer’s and that number is expected to triple by 2050.
  • Falls are the primary reason for calls to emergency services in Marin.

What can you do?

Stop falling.

Seriously, what steps can you take to ensure you continue to live out a higher-than-average life expectancy in style? How can you continue to enjoy the Marin lifestyle?

Here are some tips:

  • You don’t need me to tell you: take care of yourself. Diet, exercise, and medical care. Friends, family, forgiveness, and freedom from stress. Meditation, spirituality, and communing with nature.
  • Get your financial house in order. Eliminate debt. Secure your financial future with a lifetime income stream (I can certainly help you there.)
  • And finally, I can help you with a stay-in-your-home long term care policy to pay for disability-related home renovations and support services. Don’t let a fall send you away from your home for good.

With a little planning, you can rest assured you’ve done all you can do to prepare for a good future for you and your spouse.

If you’re ready to discuss your options, give me a call. You’ll be under no obligation. I want to help you relax and enjoy your retirement.

(Sources: A Portrait of Marin 2012; Live Long, Live Well: Area Agency on Aging Area Plan 2012-2016)


Risk Got You Worried? Consider Annuities

Why have all your money at risk?

As a retirement advisor, I sincerely care about my clients. I am thrilled when one of my client couples, who have worked a lifetime to build a substantial estate, can now relax and enjoy life without worrying about paying the bills for the rest of their lives.

With fixed index annuities (Increasing Hybrid – Inflation Annuity), they know that they can count on income for life that will increase every year their market index credit is positive and that will never run out even if they outlive their original investment!

Myths and Misunderstandings About Annuities:

  • You lose control of your money
  • There are steep penalties for withdrawing early
  • There are huge fees
  • Advisors receive huge commissions
  • They’re confusing

Have my clients who have annuities lost control of their money? No. On the contrary, they now have a large insurance company ‘locked-in’ to a contract promising a growing income for life! They are now in total control of their money.

It’s true that most annuities do have some early withdrawal penalties called surrender charges. But my clients won’t need to worry about these because they’ve planned carefully to live within their means and have enough cash for emergencies.

Fees are generally around 1%. Don’t you think that’s fair for the guaranteed benefits provided? Often there are no fees at all, depending on the annuity.

They will not have to pay any of the commission unless they pay a surrender charge, a portion of which covers a portion of the commission.

Were they confused? . . . yes . . . until I cleared things up! You do need a guide . . .

Baby Boomers are now looking for long term certainty rather than growth as their primary investment objective. The crash of 2008 reinforced that trend.

Realities of Annuities

If you look at illustrations of fixed index annuities you’ll see that when the market goes up, the index value of the annuity goes up also, but at a slower rate than the market. When the market falls for the year, the index annuity remains level. Also notice that the gains are locked-in annually, so you will never lose any of your principal or annually locked-in gains.

An annuity is simply a contract between you and a life insurance company.

Fixed Index Annuities with Increasing Lifetime Income Benefit (Inflation Annuities) can provide benefits to you in all categories of retirement concerns, including:

  • Safety – backed by the claims paying ability of the insurance company
  • Growth of principal
  • Safety of principal and annual gains
  • Income for life (create your own pension)
  • Income that increases over your lifetime
  • Tax Deferral of growth
  • Liquidity (less surrender charges)
  • Legacy



©2014 Tom Pattinson




When Does an Annuity Make Good Sense?

Get the full story on annuities!

Ms. Helen Karr is a respected financial elder abuse expert. She was instrumental in getting the month of May designated as Elder and Dependent Adult Abuse Month in California. So, recently, when she told The San Francisco Chronicle (March 29, 2013) that a big issue on her radar was annuity and insurance fraud, I listened to what she had to say.

You see, I make my living giving financial advice to seniors, and that includes selling annuities.

I sincerely care about my clients. And while I would agree with Ms. Karr, that an annuity is not for everyone, it would be very easy for readers (especially seniors) to misunderstand her advice and think that all annuities are bad news. That would be a mistake.

Ms. Karr said, “If you’re already in your 70s and an insurance salesman tries to sell you [an annuity], and the fine print is that you can’t take out your money for 20 years without a very steep penalty, that’s an inappropriate product for that person.”

And I would agree.

But let me tell you a true story — a success story…

I had a client whose wife had been bugging him for years about the risk of running out of income in their really golden years. She refused to go on vacations because they were too expensive and she didn’t want to jeopardize their future. She is 70 and he is 76. Why does an annuity make sense for them?

Because they are setting aside funds they don’t want to lose. This money is to be used as a rock-solid base of a future lifetime income.

If all they wanted was easy access to their money, they would put it in a savings account. But it wouldn’t grow or provide them with a lifetime income. Besides, they have enough liquid money to cover emergencies.

How can you make sure you don’t outlive your $$?

These days, people are living longer, especially here in Marin. This couple was concerned they would outlive their savings. That’s a real concern. And they wanted to ensure their savings would keep pace with inflation and increases in the cost of living. But investing all of their portfolio in the market was way too risky, and they weren’t comfortable with that option.

So they chose an increasing hybrid annuity for about half their portfolio.

They are wise and prudent people. Not only had they created a nest egg for their retirement, they were comfortable sticking to a budget and living within their means. I was able to work with them to design an annuity that would provide them with a guaranteed lifetime income. Their investment will grow with the market to mitigate inflation and increases in the cost of living. But it will not be at risk, because it is shielded from market volatility.

The company guarantees their investment, and the company is one of the largest, most stable financial institutions on the planet.

They won’t need to worry about the ‘very steep penalties’ (the surrender charges), because they have planned carefully to live within their means and won’t need to ever take more than a 10% free annual withdrawal. Their Social Security combined with their guaranteed annuity income will cover their costs . . . for life!

I am thrilled that these good people, who have worked a lifetime to build a substantial estate, can now relax. They know that they can count on an income for life that will increase when the market goes up and that will never run out even after their principle runs out!

Have they lost control of their money? On the contrary. They’ve gained control of their money. They’ve made a wise investment.

The number one concern of seniors and elders is that they might run out of income in their really old age. Not this couple! She was so relieved to know that they don’t have to worry any more about ever running out of income, they went on vacation to celebrate . . . at her suggestion!

©2014 Tom Pattinson

Is the Market Making You Nervous? A Fixed Index Annuity Can Help (Part III)

If your money is in mutual funds and it’s making you nervous, I don’t blame you.  A Fixed Index Annuity is worth exploring!

  • In Part I of this series, I explained the basic types of annuities and riders.
  • Part II covered the meaning of “safety”.
  • In this final article of the series, let’s go over the pros and cons involved in making one of the most important decisions of your life!

Pros & Cons of Annuities

What are the Drawbacks of Annuities?

  •  They ‘tie-up’ your money. Retirement money – your nest egg – is supposed to be tied-up, and not spent! If you think you’re going to need more than 10% of your annuity each year, put enough aside in a money market to cover yourself. Otherwise, don’t invest in a long-term annuity. There are surrender charges if you take out more than your allotted penalty-free annual amount that is usually 10% per year.
  •  Variable annuities can lose a lot of money. Yes they do, and they charge huge fees.
  •  Annuities are too confusing. I’m just a phone call away.
  •  You can’t make as much with annuities as you can in the stock market. On the other hand, you can’t lose anything because of market downturns, with a Fixed Index Annuity (FIA).

What are the Benefits of Annuities (Fixed and Fixed Index)?

  •  They can make weekends more fun. After a scary stock market loss on Friday, you don’t have to worry if Monday is going to be next Black Monday. You can just kick back and impress your friends with your casual demeanor and newly acquired inside knowledge about how to keep your long-term money safe and growing.
  • A Fixed Index Annuity makes money when the market goes up, and guarantees you will not lose your principal and locked-in gains when the market goes down.
  •  A Fixed Index Annuity often gives you up-front bonuses on your money.
  •  A Fixed Index Annuity can guarantee three times your initial premium if you ever need custodial care.
  •  A Fixed Index Annuity can protect your heirs. An FIA can guarantee that you can take 4% out of your savings every year and still leave your spouse and heirs with more than you had in the beginning. Heirs inherit immediately. FIAs can assure you that your heirs will be able to receive lifetime payments from your IRA, equaling many times the ‘at death’ value of the IRA.
  •  Annuities can protect your assets from lawsuits.
  •  An Inflation Annuity is a Fixed Indexed Annuity that guarantees an increasing annual income each time the annual index credit is positive. Heirs inherit a lump sum.
  •  Annuities grow tax-deferred.
  •  Annuities have no fees, unless you choose a strategy that has them.
  •  Annuities avoid probate.
  •  Annuities make changing a beneficiary, e.g., a recalcitrant child, VERY easy.
  •  Annuities can avoid the complexities that sometimes exist in trusts. For example, a Fixed Annuity can provide for a ‘special needs’ child or relative by simply having a check sent consistently to the recipient, without having to go through a fiduciary or trust.
  •  Fixed Annuities are designed to beat CDs. (But they have longer terms).
  •  Annuity interest is not counted in your Social Security tax determination, as interest is with CDs and “tax-free” municipal bonds. Fixed annuity income is not counted in your Provisional Income. This can reduce or eliminate income taxes on your Social Security benefits.
  •  Annuities are not counted as assets in determining needs-based college funding eligibility!

Give me a call and we can talk about your individual needs. The more you know, the less nervous you’ll be about protecting your nest egg.



©2014 Tom Pattinson


Marin Seniors Want Independence

Stay-at-home Strategies for Marin Seniors

This recent Pacific Sun article (June 21) by Peter Seidman highlights some of the innovative ways our community is addressing the needs of Marin seniors so they can maintain their independence:

As Marin’s population continues to skew older, the challenges the county faces will require innovative strategies beyond reliance on government programs and government funding.


One of those strategies exists today. Marin Villages is building a new community in which neighbors connect with neighbors. The Marin Villages organization is based on a national model.


A Village to Village network seeks to provide support for local Villages organizations springing up across the country. The goal of the network focuses on fostering an atmosphere for an intergenerational model of living. The catch phrase “it takes a village” caught on a while ago to describe a paradigm of child rearing in which members of a community accept responsibility for raising young people in a society. That same paradigm is at the heart of the Villages movement. But there’s a twist: The local Villages in the movement are focused on creating a community for older adults.


The challenges of aging in Marin are in some ways the same as in many other counties in California and the rest of the country. But unique circumstances in Marin make the introduction of the Villages model especially beneficial.


Call it neighbors connecting with neighbors. But it’s more than that. The model actually seeks to create a new sense of community. And the need for that creation is clear, according to demographic projections that continue to predict that Marin’s percentage of older adults will expand.


According to a report the Marin Community Foundation released in January 2013, one of the biggest changes in Marin demographics is the increasing number of older adults in the county. Between 2000 and 2010, the number of Marin residents 60 years old and older increased from 44,000 to 61,000, according to federal census figures. The Marin County Health and Human Services Department estimates that in 2010 the number of adults 60 and older represented 24.3 percent of the county’s population. And that percentage will continue to increase in the next decades as the Baby Boom generation reaches its 60s and beyond. Although the number of people in their 60s is expected to begin declining in 2030, the number of even older adults will increase.   The county offers a panoply of services for its older residents, but the increase in numbers demands a new way of looking at providing services and maintaining the mental and physical health of older Marin residents. It’s a challenge that will take a village.

Read the full article: Pacific Sun

Is the Market Making You Nervous? How Stable is Life Insurance? (Part II)

If your money is in mutual funds and it’s making you nervous, I don’t blame you.

 In Part I of this series, I explained the basic types of annuities and riders. Now, I’d like to discuss the meaning of “safety”.

 What is Safe?

             During the Depression of 1929 real estate values fell 80%. In the banking industry, 9,000 banks went under. Fixed Index Annuities did not exist at that time. However, the life insurance industry increased from $18,010,000,000 in 1929 to $23,334,308,702 in 1934, an increase in assets of $5,324,308,702.

Are we facing a fundamental crisis in the economy in the next few years?

  •  Banking: The banking industry has invested hundreds of billions of dollars in worthless mortgage-backed securities (sub-prime loans) which has weakened its very foundations throughout the world.
  •  Real Estate: The real estate market is again at risk of falling because of another sub-prime mortgage debacle.
  •  Stock Market: Many experts believe the market is poised for a dramatic re-adjustment.
  •  Life Insurance Industry: The life insurance industry is by far the most stable sector of the United States and world economies, with trillions of dollars in reserves.

Protect Your Money in a Depression or Recession

I deal only with top-rated life insurance companies that usually have less than 1% of their assets in mortgage securities. The life insurance companies invest in very conservative bonds and purchase options that guarantee the returns they have promised you, under the rules of your contract. They make money simply by having your money in their capital account, so they will provide you with certainty and safety in exchange for leaving your money with them.

According to the U.S. Department of Commerce, the financial stability of the life insurance industry has been demonstrated convincingly even during times of financial panic. During the Great Depression of 1929, when 9,000 banks suspended operation, the majority of all life insurance in force continued unaffected. Reinsurance, acquisitions, and mergers protected virtually all contract owners in the affected companies against personal loss, as they do today.

Additionally, the California Department of Insurance and the California Guarantee Fund closely regulate all of the insurance companies’ practices. Did you know the Legal Reserve Fund for insurance companies requires a much larger reserve percentage to protect your money than the reserve to which banks have to adhere? In California, $200,000 invested in fixed annuities is protected by State law, somewhat like the way the Federal law, through the FDIC, guarantees $250,000 of your money held in banks.

            This article is the second of a three-part series. Be sure to check out my next article where I explain: “What are the Pros and Cons of Annuities?” Your future depends on it.



©2014 Tom Pattinson

Is the Market Making You Nervous? Is an Annuity the Answer? (Part I)

If your money is in mutual funds and it’s making you nervous, I don’t blame you.

You might want to consider a Fixed Index Annuity.

“No, not an annuity!” I can hear you say. Well, hear me out. I’ve been a financial advisor for decades, and one thing I’ve discovered is there is an almost universal misunderstanding of annuities. But at the same time, there’s a growing interest in what fixed and fixed index annuities have to offer.

Why the current interest in fixed annuities? Because ‘fixed’ means ‘guaranteed.’ ‘Guaranteed’ means that the full faith and credit of the life insurance company issuing the annuity backs your contract and their promises to you.

The companies backing your contract are top-rated, hundred-year-old life insurance companies with little or none of their assets in mortgage securities, derivatives or credit default swaps. These multi-billion dollar insurance companies are totally regulated by the jurisdictions of all 50 states.

Traditional Fixed Annuities give you a specific, fixed, tax-deferred return for the term of the contract.

Fixed Index Annuities credit your account (if the market goes up), with a percentage of what one or more of the major stock indexes have returned, and they guarantee you that your principal and locked-in gains will never lose money due to stock market downturns.

Two Basic Types of Annuities

  • Variable Annuities are at risk in the marketplace, because the insurance company puts your money in the stock market, not in their capital account. They also charge high fees.
  •  Fixed Annuities are guaranteed not to lose principal or locked-in gains due to market downturns. Your money is placed in the capital account of the insurance company, not in the stock market. There are generally no fees or low fees.

Two Types of Fixed Annuities

  • Traditional Fixed Annuities are essentially long term, tax-deferred CDs that usually offer higher rates than CDs.
  • Fixed Index Annuities are linked to the market indexes, but they are not in the market. They are categorized as ‘fixed,’ because they are guaranteed not to lose principal and locked-in gains due to market downturns. In other words, if the market goes up, you win; if the market goes down, you stay even and still win.

If your money is in a Fixed Index Annuity and the market goes up, as it has done historically, you can make a good return on your money. (See for the history of Fixed Index Annuities.) But if the market crashes, as it did in during the Depression, in 2000 and 2008, and may again, you will never lose your money due to market downturns. Also, any gains are locked-in, usually annually or bi-annually.

Fixed Annuities Can be Annuitized

             At a certain point, you might want to “annuitize” or “spend down” your money, so that you are guaranteed a steady income for life. You and your advisor should carefully analyze this decision, for a SPIA (single payment immediate annuity) is an irrevocable contract.

Fixed Index Annuities Offer Riders

  •  Lifetime Income Rider

There are two kinds of Lifetime Income Riders: Level Income and Increasing Income.

The increasing income rider is designed to provide an income increase each time the index credit is greater than a certain spread. Level income riders often begin with a higher income, but produce a level income and cannot keep up with inflation. 

  •  Family Endowment Rider

Another unique Fixed Index Annuity company offers a ‘family endowment rider’ that credits your death benefit by 4% per year, so if you take 4% out each year, your death benefit value stays level, even if the market loses value. Your spouse and heirs are ‘reimbursed’ for the money you’ve taken out.

This annuity is specifically targeted at 401ks, IRAs, 457s, and 403bs, because it reimburses the heirs for more than the required minimum distributions (rmd) that must be taken out by the owner at age 70½. People with large amounts of tax-qualified money can relax and spend their money from the rmds on themselves without worrying about reducing the inheritances of their spouse, children, and grandchildren.

            This article is the first of a three-part series. Be sure to check out my next article where I explain: “What is ‘Safe’? Your future depends on it.

©2014 Tom Pattinson



Is There a Hole in Your Retirement Bucket?

The Last Crash Hurt People in Retirement

When the market suddenly lost around half of its value as it did in the 2001 and 2008 downturns, it was a big shock, and it hurt a lot of people, especially those who were near or in retirement.

And it happened so rapidly. On October 1, 2008, the S&P 500 was at 1161, but in less than 10 days it was down 20%. By Thanksgiving it had fallen to 750, and by March it had dropped over 50% to a low of 676.

So many people lost their life savings. And sadly, some will never recover from the loss.

It’s no wonder people are looking for better ways to protect their investments.

Our changing outlook

At the peak of our earning power, we want to accumulate wealth, so we are more comfortable with investments that will perform aggressively and make our savings grow. We know these investments carry a higher degree of risk, but that risk is spread over time.

As we begin to move into our 60s and beyond, it’s natural to be less comfortable with risk. Careful investors start to focus more on preserving what they have and making sure their savings serve them well throughout their lifetime.

A Better Bucket

Imagine two investment buckets. The first is dedicated to aggressive growth. Mixed in is a fair amount of risk. The second bucket offers security and certainty. There is less risk and usually less growth . . . until the increasing hybrid annuity (or ‘inflation annuity’) which provides less risk as well as substantial growth was introduced.

By pooling your investments with other people’s, life insurance companies that offer policies and annuities are able to pool the risk. Your investments are safer than they would be in your risk bucket, yet they continue to grow. And, with an increasing hybrid annuity (inflation annuity), you can receive a guaranteed lifetime income that will increase as the market increases, so you can more safely plan your retirement.


Life insurance policies and annuities are guaranteed. But there is something important about these guarantees that you should know.

I want you to understand that these guarantees are not the same as those provided by the FDIC for your bank accounts, but are rather backed up by the issuing insurance companies themselves.

They call this the ‘claims paying ability’ of the company, and this is generally reflected the financial strength of the company. This means it is extremely important to use a reputable and stable insurance company when looking into these types of investments.

There are a number of independent sources that measure this financial strength such as AM Best, the primary rating source for life insurance companies. As your financial advisor, I would be happy to help you interpret this data. Together we can find solutions that will offer you the certainty and security you need to plan and enjoy your retirement.



©2014 Tom Pattinson



Will the 4% Withdrawal Rule Fail You in Retirement?

Do You Have Enough $ to Retire?

I sat down to breakfast on Sunday, and opened the paper. There, in the business section, was an article by Financial Columnist Kathleen Pender: You Don’t Have Enough Money for Retirement – Do You? (Sunday, June 8, 2014, S.F. Chronicle). As a retirement specialist myself, I think about these things all the time. I soon found myself talking back to the newspaper (Has that ever happened to you?) The following quote really caught my eye:

Charles Schwab, like T. Rowe Price, bases its (lifetime income) assumptions on the 4 percent rule. This rule says that in your first year of retirement, you can withdraw 4 percent of your nest egg. Every year thereafter, you should be able to withdraw the same amount, plus inflation, and have a very good chance of not outliving your money.


Anthony Webb, research economist with the Center for Retirement Research at Boston College, calls that “a really, really bad rule. It doesn’t respond to realized market returns,” he says.”Imagine you have $1 million. You start off drawing $40,000 (plus inflation) a year. In year two, you have the great financial crisis like we experienced in 2008. Your $1 million shrinks to $500,000. If you continue withdrawing $40,000 (plus inflation) from $500,000 you are certain to run out of money very soon.”

Mr. Webb, I couldn’t agree with you more!

Why would anyone in their 60’s leave all of their retirement savings at risk in the market (no matter how diversified and well-managed it is) . . . and then begin to take out their 4% (plus inflation) at retirement, praying that the market won’t crash in the next 30 years? There’s no real security in that strategy, is there? No counter-balance to the risk. Many respected analysts believe 4% is much too much to plan on, and that 3% would be more reasonable. Who knows? It’s all a guess.

Here’s what I advise to my clients: “Why not, instead, truly diversify your retirement portfolio and place a portion of your portfolio in a safe investment vehicle that is guaranteed* by one of the largest, most stable investment institutions in the world? It will provide a lifetime income starting at 4% to 6% or higher, since the longer you delay your lifetime income, the higher the withdrawal rate becomes. Your investment will be growing each year there is a market index credit . . .  even after you have run out of money!”  Does that make sense to you?


*Guarantees are only as good as the claims-paying ability of the guarantor.

With a Fixed Index Annuity, You Don’t Have to Depend on Luck

A Fixed Index Annuity Makes Your $$ Work For You!

Here’s what happens when you deposit your money into a Fixed Index Annuity:

The life insurance and annuity company invests around 95% of your money in the safest investments available – primarily investment grade corporate bonds and U.S. Treasuries.

The company then determines what it can pay you in a fixed return and still make their required profit. If you choose the fixed return strategy, the company pays that amount to you annually. If you want to be linked to a market index, the company uses the money that would have been used to pay the fixed return to buy ‘index options’ (not stock options) from a broker/dealer in the secondary market.

The index options insure the company’s promises to you. Index options are essentially insurance policies that guarantee the return rates the company is promising in the strategies they offer.

The seller of the index options profits from the premium paid by the company. The buyer is making a bet that the index growth will at least match the company’s promised returns.

When the index goes up for the year, the index option is exercised, and the return guaranteed by the seller of the index option is paid in cash. The underlying interest -stocks of the S&P or some other index – is never transferred. This is the main difference between index options and stock or bond options.

This explains why, if you own a Fixed Index Annuity, you are not actually ‘in the market,’ but nevertheless can profit from gains in the market.

© 2014 Tom Pattinson