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June 1994

Wink Tax Services




We all have dreams of a better future. We wish for a good college education for our children, for a leisurely retirement, for the financial ability to travel or live where we desire. But wishes alone will not allow us to achieve our financial goals. The only way to achieve those goals is to develop a realistic planĖ and follow that plan to its conclusion.


It is important to formally list your long-term goals in specific and quantifiable terms. A goal of "helping pay for my childís college education" isnít sufficient; a more appropriate goal would be: "I want to pay for the entire cost of sending my 8-year-old child to a public university for four years."

The most common long-term objectives include:

  • Financial independence (at retirement or sooner)
  • College education for children
  • Paying off debt
  • Supporting a desired lifestyle
  • Owning a business
  • Major charitable giving

List your goals in order of importance. Since we all have limited resources, some goals may have to be postponed until others are satisfied.


Once you have determined your goals, you must assess your current financial situation. A net worth statement will tell you how much you currently own and owe. Calculating your net worth on a periodic basis will allow you to measure your progress toward your financial goals.

Even if you donít feel the need for a strict budget to guide your spending, itís still a good idea to analyze how you are spending your income. If you are not satisfied with your savings progress, this analysis will help you determine how to reduce spending and increase savings.


You now have the necessary information to prepare a detailed plan, with specific strategies and timetables. Here are some tips to help you with your plan:

Estimate the resources needed to reach your goals ó Youíll need to consider current resources, future funds that will be available for your goal, the rate of return you can expect on your investments, the effect of inflation on your goal, the tax consequences of your investment strategy, and many additional factors.

Prepare definite steps for implementation ó The most difficult part of the process is implementing the plan. Make saving part of your routine so that it becomes second nature to you. Remember that the only way to save for the future is not to spend in the present. If you must, start out saving very small amounts Ė over a period of many years small amounts can grow into significant sums.

Donít just save, invest ó Develop an investment strategy that is compatible with your risk tolerance. Invest in assets that you are willing to hold for a number of years.

Be patient ó Achieving long-term goals requires a lifetime of discipline and dedication. Donít become overwhelmed by the amounts you need to save. In many cases, progress wonít be seen in a month or two, or even in a year or two.

Donít procrastinate ó There are always numerous demands for our time and resources, making tomorrow seem like a better time to start planning. But tomorrow often comes too late. In our 20s, we are just starting out. Our expenses and college bills are so high that we canít find the funds for the future. In our 30s, we have large house payments and young children, depleting most of our resources. Then come the 40s, when we find ourselves struggling to pay college bills for our children or to help our aging parents make ends meet. By the time weíre in our 50s, weíre finally thinking about our retirement, but we only have a few years left to save. If you want to achieve your goals, start now.

Donít set over-ambitious goals ó If you try to do too much at once, you may become disillusioned with your entire plan.

Monitor your progress at least annually ó This will let you see that you are making progress and allow you to alter your plan if your progress is not satisfactory or if your goals have changed.

Seek help if needed ó Developing a financial plan is a complicated process, requiring coordination of all aspects of your finances. If you need help, feel free to call, so that together we can achieve your long-term goals.


Since annuities are sold by insurance companies, many people assume they are a form of insurance. But in reality, annuities are investment vehicles administered by insurance companies that allow money to grow tax-free until withdrawn for retirement or other purposes.

Annuities are frequently compared to non-deductible individual retirement accounts (IRAs) because of this tax deferral of earnings. In both cases, contributions are made from after-tax dollars. Although non-deductible IRAs have a $2,000 annual limit on contributions, there is no annual limit on contributions to an annuity. Like an IRA, you must pay income taxes as well as a 10% penalty if you withdraw money from the annuity before age 59 Ĺ. This tax is waived if you die or are disabled, and may be avoided if you elect to withdraw the money from your annuity in equal payments based on your life expectancy. Unlike an IRA, you donít have to start withdrawing money from an annuity by age 10 Ĺ, although each insurance company will have its own rules.


Many types of annuities exist, with a wide variety of alternatives. You can purchase an immediate annuity that starts making payments to you at once or a deferred annuity that delays payments until sometime in the future. There are also many ways to purchase an annuity. You can purchase a single-premium annuity for at least $5,000 or an annuity with periodic premium payments, either of a fixed or variable amount.


One of the most basic choices, however, is whether to obtain a fixed or variable annuity. With a fixed annuity, the insurance company guarantees a minimum rate of return for the life of the contract. A higher return is usually guaranteed at the beginning of the contract. After the guaranteed period, the interest rate is adjusted annually according to a specified formula, but cannot go below the contract minimum.

With a variable annuity, you select the funds you want to invest in. Most companies manage stock, bond, money market, and real estate funds, allowing you to choose between the investments. One of the options is often a fund which operates like a fixed annuity. Most variable annuities allow you to switch between the different funds, although limits are set on how often you can switch without incurring additional fees. This is similar to switching between funds in a mutual fund family, except there are no tax consequences when you do so within an annuity. Although a variable annuity gives you the potential to earn higher rates of return than with a fixed annuity, it does not guarantee a minimum return. Thus, if your investments perform poorly, you may earn a low rate of return or even lose part of your principal.

With a fixed annuity, your monthly payment remains the same over the payout period. Thus, inflation will erode the value of your monthly income. With variable annuities, you typically have the option of receiving a fixed amount or an amount that will fluctuate based on how well your investments perform, hopefully giving you protection from inflation.

Although annuities have attractive tax advantages, they should be used for long-term investing rather than as short-term tax shelters. Various penalties and restrictions can significantly reduce the tax advantages if annuities are not held for the long-term.


When you are ready to start withdrawing your money, you have several choices:

  • Lump sum, whereby you withdraw all your funds at one time.
  • Period certain, which pays you a certain amount for your life or for a specific time period, whichever is longer.
  • Straight life, which pays a monthly amount until your death.
  • Joint and survivor, which pays a monthly amount while either you or your spouse are alive.

The manner in which you receive your proceeds will affect how they are taxed. If you take a lump sum distribution, a loan, or surrender the contract, the proceeds are treated as fully taxable investment income up to the amount of income earned in the policy. After that, proceeds are considered a tax-free return of capital. If you annualize and take payments for a number of years, a portion of each payment is considered a return of principal and a portion is treated as ordinary income.


The vast number of options available can make it difficult to decide which annuity is best for you. For any annuity in which you are interested, be sure to obtain all pertinent information.

Of course, before deciding which annuity you should purchase, you must first decide if annuities are a viable option for you. Feel free to call us at (248) 816-1230 so we can discuss whether you should consider annuities.


When you are left an inheritance in a will, you may think you have no choice but to accept the

inheritance, even if it results in unfavorable tax consequences. But you can "disclaim" an inheritance by complying with strict federal and state laws. Why would you want to do so?

Consider the following example. A wife dies, leaving her entire $500,000 estate to her husband under the terms of a will written many years ago when their estate was small. The husband already has an estate worth $2,000,000. If he accepts the $500,000 from his wifeís estate, he wonít pay any estate taxes now. However, when he dies, the $500,000 bequest would result in a tax liability of $245,000 for his children ($500,000 times marginal estate tax rate of 49%). By disclaiming his wifeís estate now, the assets will pass directly to his children with no estate tax liability, since the estate is within the $600,000 exemption.

You do not have to disclaim the entire inheritance Ė you can disclaim only a portion. Thus, disclaimers can be used to update an old will, to revise a poorly planned will, or to offset the lack of a will. Your will can even provide for disclaimers, detailing what will happen if someone disclaims part of their inheritance. For instance, a husband can leave all of his assets to his wife with the condition that any amount she disclaims will go into a trust that will pay income during her lifetime, with the principal passing to their children after her death. This gives the wife the opportunity to divide the assets according to her needs and wishes at the time of her husbandís death.

Federal tax laws define the terms of a legally effective disclaimer:

The disclaimer must be a written, irrevocable, unconditional refusal to receive a full or partial interest in the bequest.

The disclaimer must be received by the estate within nine months after the benefactorís death.

The person who makes the disclaimer cannot receive any benefit from the disclaimed inheritance, such as dividends from stocks.

The person making the disclaimer cannot designate the recipient of the disclaimed property. Thus, it is important to understand who will receive the disclaimed inheritance before making the disclaimer.

The disclaimed inheritance cannot go into a trust benefiting the person making the disclaimer, unless that person is the decedentís spouse.

It is also important to check any additional conditions required by the state law.


Investments are subject to many types of risk, including:

Business and Industry Risk is the uncertainty regarding an investmentís ability to pay investors income and principal. This can be the result of bankruptcy or a significant decrease in business based on company or industry factors.

Inflation Risk is the uncertainty over future inflation rates, which will affect the future real value of your investment.

Market Risk is the risk that the general market or economic environment will affect the value of your investment. A stock may drop in value because the overall stock market is declining, which is called Stock Market Risk. A bond, on the other hand, may decrease in value because interest rates rise ó this is called Interest Rate Risk.

Liquidity Risk is the risk that you will not be able to sell your investment quickly at a reasonable price.

You cannot totally eliminate risk from your portfolio, but you should be aware of potential risks so that you can look for ways to reduce the overall risk in your portfolio.



Many companies, attempting to reduce their work force, make early retirement offers to their work force, make early retirement offers to their employees. Since the financial repercussions of retiring before the age you originally planned are significant, make sure to consider the following before accepting such an offer:

Consider personal factors first. Make sure you are psychologically prepared for retirement. Find out if the offer is really voluntary or if you will be laid off if you donít accept it.

Get professional help in analyzing the offer. You need to compare several options that require complex calculations ó what your retirement benefits would be at normal retirement versus the current retirement offer, how early retirement will affect your other retirement investments, and how you should handle your pension distributions. Since these are decisions you must live with for the rest of your life, it is important to get objective, professional advice before the decisions are made.

Make sure you understand what additional benefits you are obtaining by retiring early. Typically, for purposes of calculating benefits, these offers will add several years of service as well as several years to your actual age. Most, however, do not adjust your current salary, a significant factor in your benefit calculations.

Negotiate with your company. Donít simply accept the early retirement offer as is.

Determine if the offer has a Social Security supplement. Since you cannot receive Social Security benefits until age 62, many offers will provide an annual supplement until age 62.

Check health insurance provisions. Since you cannot obtain Medicare coverage until age 65, it is important to determine if the offer will also pay for health insurance until at least age 65.

Determine if life insurance coverage is provided.



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We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright © 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017