DOL extends comment period on fiduciary duty proposal (www.futurityfirst.com)

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The Labor Department has extended by 15 days the comment period for a controversial proposal that would raise investment advice standards for brokers working with retirement accounts, acquiescing to demands from members from both parties in Congress for more time to respond.

In a letter sent Friday to several Democratic senators, Labor Secretary Thomas Perez said the initial comment period would last for 90 days instead of the original 75. The deadline had been set at July 6.

Mr. Perez said the total comment period may be more than 140 days. After the first round of comments, the department will hold a public hearing during the week of Aug. 10. Following that event, the comment period will reopen for an additional 30 to 45 more days.

Mr. Tester and eight other Senate Democrats wrote to Mr. Perez last week asking for a 45-day extension, or a total of 120 days in the initial comment period. House Democrats penned a similar letter. Leading Senate Republicans followed suit this week with the same request.

The lawmakers said that the rule, which would require brokers to act in the best interests of their clients in 401(k) and individual retirement accounts, is too complex for comments to be filed in 75 days.

Wall Street was not satisfied with the additional 15 days.

“While we appreciate the extra two weeks, federal regulators should further extend the comment period,” Francis Creighton, executive vice president for government relations at the Financial Services Roundtable, said in a statement.

It remains uncertain whether the Obama administration can finalize the rule. The longer the comment period goes, the greater the chances it will fail, said an advocate for the measure.

“It’s pretty clear [the industry] is trying to delay it to kill it,” said Micah Hauptman, financial services counsel at the Consumer Federation of America.

The Obama administration says the rule will protect workers and retirees from conflicted advice that generates high fees and eats away at their retirement nest eggs. The financial industry has argued that the proposal would significantly increase brokers’ regulatory and liability costs and price middle-income investors out of the advice market.

“DOL Extends Comment Period on Fiduciary Duty Proposal.” Web log post.Investment News. N.p., n.d. Web. 18 May 2015.

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Millennials flock to 401(k) plans (www.futurityfirst.com)

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Youngest employees stand to benefit the most from participating in retirement plans as they have the longest time frame to allow their investments to grow before they need them. But, historically, they’ve been the least likely to participate.

That may be changing.

A whopping 64 percent more employees between ages 18 and 34 started contributing to 401(k) plans last year compared to 2013, according to a new Bank of America Merrill Lynch analysis of the 2.5 million people participating in the retirement plans the company administers.  The increase helped boost overall participation to nearly 80 percent among American workers with access to plans, up 2 percent from the previous year.

Some of the growth might be explained by improvements in the economy and job market. “Millennials are feeling a little more stable post-financial crisis,” said Steve Ulian, BofAML’s head of institutional business development.

But the rise of auto-enrollment programs and new streamlined sign-up processes have also played a big role in drawing in young workers.

Research has found participation rates jump overall after companies adopt auto-enrollment programs, but the difference is particularly dramatic among younger employees. One report published this spring by BMO Retirement Services, for example, found participation rates among workers 25 to 34 years jumped 22 percent in plans with an automatic-enrollment feature. And for workers under 25, participation in auto-enrollment plans was more than double that in voluntary enrollment plans (29 percent versus 68 percent).

Bank of America Merrill Lynch found that 64 percent of clients offered retirement plans in 2014 that not only had automatic-enrollment features but automatic annual contribution increases as well, a 25 percent jump from 2013.

Here’s what you should be saving for retirement

“Millennials are reaping the benefits of these plan designs,” said Geno Cufone, senior vice president of retirement administration at Ascensus, which provides administrative and record-keeping services for retirement and college savings plans that cover 6 million people. “They have everything at their fingertips. They can enroll in their 401(k) and change their contribution rate on their smart phones.”

That’s leading many to enroll earlier than their predecessors did: The average millennial starts investing in a retirement plan at age 22 compared with age 27 for the average Gen Xer, said Cufone.

Financial education at the workplace has also helped boost retirement plan participation, said Ulian. And retirement is a hot topic across generations, as concerns grow about Social Security funding and rising health-care costs. Ulian noted that calls from plan participants of all ages to Bank of America Merrill Lynch’s retirement help center increased by nearly 18 percent between 2013 and 2014.

Millennials may also be influenced to contribute more to their 401(k)s by their baby boomer parents, many of whom haven’t saved enough for their own retirement, Cufone said. “More millennials know zero savings is not acceptable,” he said. “And anything above zero is a good first step toward retirement.”

Anderson, Tom. “Millennials Flock to 401(k) Plans.” Web log post. CNBC. N.p., n.d. Web. 13 May 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Investors spend 475 hours a year worrying about money (www.futurityfirst.com)

One hour and twenty minutes. That’s how long investors spend on average each day thinking or worrying about money, according to a recent Legg Mason survey.

That adds up to nine hours each week and 475 hours over the course of one year.

“People are spending on average 20 full days each year worrying about money,” said Matthew Schiffman, global head of marketing for Legg Mason, in a statement.

And that’s just on average. According to Legg Mason’s survey, 10 percent of all investors spend two to three hours each day – or between 730 and 1,095 hours annually – thinking or worrying about money.

That’s a lot of time and a lot of stress, which is why we encourage investors to share their concerns with their financial advisors and create a financial plan that anticipates their needs both now and in retirement,” Schiffman said in a statement. “Having a plan could give investors the peace of mind they need so they can worry less. Imagine what they could do with the 475 extra hours they’ll get back each year.”

This data focuses on the U.S. portion of the Legg Mason Global Investment Survey, which was conducted online from November to January among 458 affluent investors with a minimum of $200,000 in investable assets, not including their home.

The average age of investors surveyed was 58, and they reported an average of $385,000 saved in defined contribution retirement plans – which may be causing some of their consistent worries.

“Given their ambitious goals,” Schiffman added in a statement, “investors hopefully have considerable savings elsewhere, such as significant equity in their home or other investment accounts, where their asset allocation is designed to help them achieve their long-term goals.”

The majority (72 percent) of investors surveyed said their primary goal of investing was to “maintain my current lifestyle later in life.”

When asked if they were making progress toward this goal, Legg Mason found that 38 percent said they were not doing well or only doing “somewhat well” at best, and 40 percent said they were “very confident” in their ability to “retire at the age I want to,” while 60 percent were either not confident or “somewhat confident” at best.

Legg Mason narrowed down investors’ worries to three issues that they fear could prevent them from living the lifestyle they want later in life.

These top three issues are:

1. “Having a catastrophic event (for example, illness or injury) that uses up my retirement funds.”

2. “Living longer than my retirement funds last.”

3. “My income won’t keep up with inflation.”

“Despite low levels of inflation, the challenges of generating income in an uncertain rate environment are weighing on investors,” Schiffman said in a statement.

Legg Mason found that having income-producing investments is a priority for more than 80 percent of investors. And, according to Legg Mason, most invest in equity income funds, investment grade bonds and high-yield bonds to meet their income needs.

To help alleviate investors’ concern regarding generating income,  Schiffman recommends “that investors look beyond traditional fixed income and equity asset classes to enhance the diversification and resilience of their income-producing assets.”

Zulz, Emily. “Investors Spend 475 Hours a Year Worrying about Money.” Web log post. LifeHealthPro. N.p., n.d. Web. 11 May 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

 

Retirement Saving for Optimists (www.futurityfirst.com)

Chances are, save for retirement has a near-permanent spot on your to-do list. You know saving for retirement makes sense, but deep down, your retirement plan is to live off (or sell) the business you are busy building today. As a serial entrepreneur, I get it. Saving for retirement is more of an insurance plan than a core strategy.

If that sounds like you, then the Roth 401(k) is ideal. It differs from a traditional 401(k) in that you do not get a tax deduction on contributions. But it also differs from a traditional plan in that you do not pay tax on your investment returns. And it gets better, especially for entrepreneurs: With one easy maneuver, you can eliminate the obligation to ever take distributions from it.

The retirement-account giant Vanguard says that nearly half of the 401(k) plans it handles offer a Roth option, but fewer than 10 percent of folks have signed up. My educated guess is that the pickup is equally slow among entrepreneurs. I think that’s a big missed opportunity.

Roth Rules of the Road

Though there are income limits on who can make direct contributions to a Roth IRA, there is no such hurdle with the Roth 401(k). That provides a front-door opportunity for high-income entrepreneurs to create a tax-free income flow in retirement.

Besides, even if you are eligible to contribute directly to a Roth IRA (which means a modified adjusted gross income below $112,000 for individuals and $178,000 for married couples filing a joint tax return), the maximum you can set aside this year is just $5,500 if you are younger than 50, and $6,500 if you are older.

You can invest much more in 401(k)s. The base contribution limit to a 401(k) is $17,500 this year; anyone at least 50 years old can tuck away $23,000. Those are the same limits as with a traditional 401(k). Entrepreneurs under age 50 without employees (other than a spouse) can contribute as much as $51,000 this year in a special breed of these retirement plans called a Solo 401(k) or Individual 401(k). That’s a whole lot more security building than $5,500.

The Later-Year Payoff

Come age 70 and a half, you must make annual required minimum distributions, or RMDs, from traditional retirement accounts, and those distributions are treated as ordinary income. That’s going to boost your adjusted gross income, which could push your marginal tax rate higher. This year, as I probably don’t have to tell you, the top marginal tax rate bumped up to 39.6 percent.

This is where the Roth 401(k) can be a great advantage for entrepreneurs. Let’s say everything does play out as you expect, so you don’t need to tap your retirement savings. With a traditional 401(k), you’re out of luck. There’s no way to get around those RMDs. But with a Roth 401(k), all you need to do is transfer the money into a Roth IRA before you reach age 70 and a half–there will be no tax bill for this move–and you completely circumvent the RMD issue.

That not only avoids unnecessarily boosting your adjusted gross income in your retirement years, but it also becomes a nice backdoor estate-planning tool. The money can keep growing untouched–and untaxed–for your heirs.

There is, of course, a big tradeoff. If you’ve been contributing to a traditional 401(k) or a SEP-IRA, the tax deduction on those contributions has been reducing your adjusted gross income, which plays into all sorts of other tax breaks. If you opt for the Roth 401(k), your adjusted gross income will rise, and that can potentially have a cascading effect on your current tax bill.

Having a trusted tax pro run some scenarios for you is vital. You may find contributing to both traditional and Roth accounts is a good compromise of short-term and long-term tax-planning goals.

Harris, Bill. “Retirement Saving for Optimists.” Web log post. Inc. N.p., n.d. Web. 7 May 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Annuity Sales Rose 3% in 2014 (www.futurityfirst.com)

AnnuitySales

According to LIMRA’s Fourth Quarter 2014 U.S. Annuity Sales Survey, the news looks good for the industry. Total U.S. annuity sales in 2014 rose 3% to $235.8 billion, with indexed and income annuities leading the way.

“Despite interest rates falling nearly a percentage point in 2014, indexed annuities and income annuity sales – fixed immediate and deferred income – topped record sales levels,” said Todd Giesing, senior business analyst, LIMRA Secure Retirement Institute. “The performance of these products certainly propelled overall annuity sales to increase in 2014.”

Some highlights from the report:

* Total annuity sales in the fourth quarter were $58.1 billion, a 6% dip compared with the fourth quarter of 2013.

* Indexed annuity sales hit $48.2 billion in 2014 – $9.0 billion higher than prior year – a 23% increase from 2013.  “For the first time, indexed annuities held more than 50% market share of all fixed annuity sales in 2014.”

* Immediate income annuity sales spiked 17% in 2014, totaling $9.7 billion.

“In the run up to the fourth quarter of 2013 interest rates were trending upward, reaching over 3% at year-end,” Giesing noted.  “Quite the opposite occurred in the fourth quarter of 2014, where interest rates dropped a third of point, falling to 2.17% at the end of 2014.”

More highlights:

* Deferred income annuities (DIAs) experienced record growth in 2014, reaching $2.7 billion, a 22% jump from 2013.

* Sales of fixed-rate deferred annuities (Book Value and MVA) were 1% higher in 2014, compared with 2013 sales, to reach $29.7 billion.

* Overall fixed annuity sales were $95.7 billion in 2014, improving 13% compared with 2013.

* Variable annuity (VA) sales fell 4% in 2014, totaling $140.1 billion, the lowest annual VA sales since 2009.

Williams, Daniel. “Annuity Sales Rose 3% in 2014.” Web log post. Think Advisor. N.p., n.d. Web. 5 May 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Thomas Bugbee

Futurity First Insurance Group

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