Writing Sample: "Don't Get Stuck Paying Extra Taxes"

The subject line "Don't Get Stuck Paying Extra Taxes" compelled me to open the e-mail.

That's the power of a subject line that tells the reader "what's in it for me."

I opened the latest e-newsletter from Westchester Mortgage even though I was pretty sure I'm not making any dumb tax mistakes with my house. I was right. The article warned readers to be careful when using money from a retirement account to buy a house. Luckily, I don't have to worry about that. I've been in my house more than 15 years.

Try to put yourself in your readers' shoes when you compose an e-mail subject line. Your effort could increase your readership.

_________________
Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.Wr

Why baby boomers will NOT offer a gold mine for financial services

If your business strategy depends heavily on Baby Boomer-driven rapid growth in the number of retirees, it’s time to re-think your approach.

That's according to "The Baby Boomer Retirement Fallacy and What It Means to You," which appears on a blog on the Harvard Business Publishing website.

Over the next 25 years, the number of retirees will grow at a rate of zero to 4% per annum, according to Kevin P. Coyne and Shawn T. Coyne, the management consultants who coauthored the blog post. The Coynes say the hype around Baby Boomer retirement fails to take into account the fact that people are staying in the work force later in life.

They're selling versions of their study, "Smaller than You Thought: Estimates of the Future Size and Growth Rate of the Retirement Market in the United States" for prices ranging from $950 to $2,850.


_________________
Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.

It'll be tough to sell advisors on longevity annuities

Longevity annuities--annuities that kick in at, say, age 85--are going to be a tough sell to financial advisors.

That was my gut reaction when I wrote about longevity annuities on this blog. My unscientific sampling of advisors on LinkedIn reinforced that impression. They warned against the costs associated with annuities and suggested other alternatives for providing long-lived income in retirement.


Many oppose longevity annuities

For example, Tom Taylor, principal and portfolio Manager at Thoma Capital Management LLC, said "I have never recommended a longevity annuity to a client or any annuity for that matter. Building a bond laddering portfolio that invests in TIPs and US Treasury notes is a much better way to go."

Patrick Costello of Costello & Associates said, "paying a lump sum now for a benefit that won't be available for 20 years, with no interim access to the sum, predicated on the unlikely scenario that one will be alive long enough to receive a good inflation adjusted return seems like a fool's move."


Some advisors would consider longevity annuities

However, I did turn up some advisors who seemed willing to consider longevity annuities to help clients avoid outliving their assets.

"As with all insurance products, based on actuarial tables, there are winners and losers," said James C Brandon of JCB Capital Performance.

Jeff Motsco of Motsco Financial said, "Some annuities are good, some are great, and some you don't want to go near, but dismissing something based on cost without considering benefit is haphazard."

Al Aldrete of New York Life suggested that a longevity annuity is a good way to hedge the possibility that a client would live much longer than he or she expected. He said, "This is not a tool to be used with everyone. But for clients who have serious concerns about living too long (because their parents and/or Grandparents have lived into the 90's and 100's) and they are not sure about the fate of Medicare, Medicaid (MediCal in California) and Social Security, this gives them a peace of mind that they will have something."

_________________
Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.

Financial Analysts Journal article favoring annuities

The Financial Analysts Journal writing favorably about annuities? That grabbed my attention.

In "The Longevity Annuity: An Annuity for Everyone?" in the Jan./Feb. issue of the Financial Analysts Journal, Jason S. Scott suggests that a relatively new product called a longevity annuity can maximize retirement spending for some retirees. This is especially true for retirees who:

• Are in good health
• Aren't very concerned about leaving a bequest
• Have enough wealth to afford an annuity, but not so much that they needn't worry about outliving their assets

Here's how Scott, managing director of the Retiree Research Center at Financial Engines, describes this product.

"Longevity annuities are essentially immediate annuity contracts without the initial payouts. That is, a longevity annuity involves an up-front premium with payouts that begin in the future. For example, an age-85 longevity annuity can be purchased at age 65 with payouts commencing only when and if the purchaser reaches age 85.

Longevity annuities are better than immediate annuities because they "maximize the insurance benefit per premium dollar." Scott compares the cost of securing that future spending with bonds vs. with a longevity annuity. He finds that "the future spending that costs $1.94 to secure in the bond market costs only $1.00 in the annuity market. Thus, every annuity dollar allocated to finance spending at age 85 frees up 94 cents for additional spending."

What do you think? Is this something your clients should consider?


_________________
Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.

Retirement at risk, but can be saved, says researcher Alicia Munnell

Most Americans won't have enough income for a comfortable retirement. However, individuals, employers, and the government can take steps to improve the situation, said Alicia Munnell in her presentation on "Retirement 'At Risk': The Changing Landscape of Retirement in the U.S." to the Boston Security Analysts Society on February 14. Munnell is Peter F. Drucker Professor of Management Sciences at Boston College Carroll School of Management and director of B.C.'s Center for Retirement Research

A three-legged stool of Social Security, employer-sponsored pensions, and individual savings used to support retirement better than it does today. The situation is only going to get worse because:

• Social Security will replace a smaller percentage of income in the futur
• The shift to 401(k)s--and individuals' bad decisions about them at every step of the process--is not working as well as it could
• Individuals save virtually nothing outside employer-sponsored retirement plans

As a result, 43% of households are at risk of not maintaining their standards of living in retirement. That's according to the National Retirement Risk Index, which you can read more about in "Is There Really a Retirement Crisis? An NRRI Analysis," a paper co-authored by Munnell.

To improve Americans' outlook for retirement, Munnell called for:

• Individuals to work longer, to save more through 401(k)s and IRAs, and to consider tapping their home equity in retirement
• Employers to revise personnel policies to encourage older workers and to make 401(k)s more effective through automatic provisions
• Government to redefine what's old (in other words, no early retirement at 62) and to help individuals to save more, possibly by introducing a new tier of funded, privately managed retirement savings

I was intrigued by Munnell's suggestion that the government require that some percentage of 401(k)s should default into an annuity once the account holder begins withdrawals.

You can learn more about research by Munnell and B.C.'s Center for Retirement Research.

By the way, that 43% statistic might prove useful for starting a retirement savings conversation with your clients.

----------------

Feb. 16 update

Research from the Urban Institute supports Munnell's advice about individuals working longer. It found that:

• On average, working an additional year increases annual retirement income about 9 percent (figure 1).
  
• Working an additional five years boosts annual retirement income about 56 percent.
  
• The impact is even larger for people at the lower end of the income distribution.

I read about this in the Feb. 16-17 Wall Street Journal.

_________________
Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.