“Its not what you earn its what you keep” …(are your CD’s a safe place to save money)

It is a simple axiom but many of us in the hustle of the day forget about taxes, inflation and market risk to our investments. So lets consider something hypothetically.  If our investor invested say $50,000 in a bank and earned say 4% (unheard of in March 2008) that is $2000.  If he is in a 25% Federal Marginal tax bracket (that is earning between $65,100-131,450 as a married couple) and lets add say 7% for State Income tax rate that consitutes a 32% marginal bracket meaning the top income in is infact being taxed at 32%.Now if we could change that $2000 to being tax free in a different investment vehicle then we could remove it from that top rate of 32% and save $640 per year.  With the taxes accounted for the “real return” after tax is 2.72%.  But wait there is more.  What about inflation?Since the inflation rate for the last 12 months running through February 2008 has been 4.03% then our investor is losing “purchasing power” on his dollar the longer it is invested in the CD’s.  In fact if his money is earning 2.72% after income taxes and the inflation rate remained at 4.03% then in fact after 5 years our $50,000 of principle would purchase $3,740 LESS than it would have 5 years earlier.So in the “safe” CD did he really have a “safe” investment.  Yes, the market risk from the Stock or Bond markets was not changing the value of the account as in mutual funds etc., but on the other hand inflation was, and the interest rate after income taxes was not able to keep our “purchasing power” of $50,000 at least even, therefore our investor lost ground on his investment.Our recommended solution can sometimes be the use of a Investment Grade Indexed Universal Life policy that is Maximum Funded under TAMRA laws in a short time and designed for the purpose of maximizing accumulation and minimizing the insurance costs.  In the end, the accumulated values of the policy are TAX FREE if borrowed for income purposes in retirement, TAX FREE in the event of death, TAX FREE if borrowed during one’s lifetime for investment opportunities.  With historically average returns on various strategies running from 6.5% to over 9.61% over the last 20 years it can be a powerful exceptionally safe and liquid alternative to longterm investing, which outpaces inflation, legally avoids income taxes through compliance to certain laws governing life insurance.Let us know how we can help you NOT Miss your Fortune. 

So you’ve heard annuities are bad? Really?

Recently I heard talk from a client that they heard that annuities are bad.  Such overbearing absolutism is foolishness.  There is a place for such a financial tool that have been used in the world since the 1700’s.