Many publicly traded companies initiate stock splits or buybacks based on the market and the performance of their company’s stock. Investors who currently hold those stocks generally don’t have to take any action when a stock splits or a company engages in a stock buyback. Whether these changes will have a positive or negative impact on your holdings depends on the situation, but they are often viewed as opportunities for investors. 

A stock buyback is when a company buys a large number of their own shares. They then either cancel these shares or transform them into treasury shares. You can see the effects of a buyback on a company’s “outstanding shares.” 

For example, if a company with a million outstanding shares initiates a 100,000-share buyback, they will only have 900,000 outstanding shares left available. This has a direct impact on the book value per share (BVPS). BVPS can be determined by subtracting preferred stock valuation from stockholder equity and then dividing the difference by the number of outstanding shares. 

$10,000,000 stockholder equity minus $2,000,000 of preferred stock divided by 1,000,000 shares would equal an $8 BVPS.

$10,000,000 stockholder equity minus $2,000,000 of preferred stock divided by 900,000 shares would equal an $8.89 BVPS. 

A stock split or stock divide does the opposite of a buyback. A common example is a 2-for-1 stock split wherein every single share is now two shares. If you have 50 shares of a company that does a 2-for-1 stock split, you’ll immediately have 100 shares, each of which will be worth half of what the full share was worth. If your 50 shares are worth $500 ($10 per share) your 100 shares will still be worth $500 ($5 per share). 

Increased trading liquidity is often a motivating factor for companies who enact stock splits since a single share becomes more affordable. An investor who might not buy at $500 per share might be less reticent at $100 per share after a 5-for-1 stock split. 

A company may be tempted to engage in stock splitting if a single share of their stock costs significantly more than competitors in their sector. This perceived affordability may also result in a temporary boost in stock price since more cost-conscious investors will see an opportunity to buy in. 

A reverse stock split is essentially the same procedure but in reverse. If you had a $500 investment in 50 shares ($10 per share) in a company, and the company engages a 1-for-2 reverse stock split, you would have a $500 investment ($20 per share) with 25 shares. 

Many stock exchanges have a minimum price per share requirements for listed companies. Reverse stock splits are sometimes used if a company’s share value is decreasing, and they are at risk of being delisted from their exchange. 

Companies may also engage in a reverse stock split to discourage speculative trading, which becomes riskier with a higher share price. This may have the added benefit of reducing a stock’s volatility.

If you have an uneven number of shares and a stock does a reverse split, you may either be given a fractional share or cash in the value of the fractional share you would have received. 

Which Is Better for Investors, a Stock Split or a Stock Buyback? 

Stock splits may initiate greater interest in a stock, which could be good news for current investors. A stock buyback may also temporarily increase the value of each share since there will be fewer shares available to trade. 

A company’s motivations can have a significant impact on how a buyback or split is viewed and the long-term effect it has on a stock’s valuation. A buyback may be used to improve the appearance of some metrics even though it doesn’t impact how a business is operated. Investors aren’t ignorant, and the market may see through efforts of manipulation, which could have long-term negative consequences for a company’s valuation. 

Whether a stock split, reverse split or buyback is good or bad for investors depends on the company, their industry and market variables. If you’re concerned about company decisions that may affect your holdings, it may be in your best interest to consult with an investment manager about your options. 

Get Help With Your Retirement Investments 

Are you looking for ways to grow your retirement savings? The team at Fullerton Financial Planning helps investors grow their wealth and safeguard their savings. Call us at (623) 974-0300 to speak with a financial advisor today. 

 What Is a Stock Buyback or a Stock Split? 

What do you want from your retirement? The answer to that question should play a significant role in guiding your retirement savings decisions. 

Many people are homebodies, live near their children and grandchildren, aren’t huge fans of traveling and enjoy relatively affordable hobbies. They might want nothing more than to maintain a comfortable lifestyle while living in their current home.

Other retirement planners might be passionate about travel and adventure. They may be looking forward to downsizing to a condo in a ritzy resort-style senior community and using that residence as a home base from which they will regularly jet off on international adventures. 

There are literally thousands of people in Phoenix who fall into one of those two categories or somewhere in between on the spectrum of retirement dreams. The resources one couple might need to purchase an RV and drive around the country during Phoenix’s hot summers might be entirely different than the resources jet-setting world travelers will require. 

Envisioning what you want out of retirement, especially when you’re still young enough to save accordingly, can be hugely beneficial. It may help you better budget your retirement savings account contributions and give you ample time to research various retirement living opportunities. 

While the resources retirees need can vary dramatically based on their own personal preferences, there are some potential costs that could affect anyone in retirement, regardless of their goals. Those costs include things like assisted living, at-home care or memory care for you and your spouse. Medical emergencies and health complications can impact any retiree, and it’s important to have contingency plans and the funds necessary to tackle those complications. 

Your retirement savings won’t be the only thing that matters if the need for something like memory care arises. A well-planned estate, trusts and Medicare planning may help you and your spouse or partner mitigate the financial impact of unexpected health complications.  

 is one of the many services Fullerton Financial Planning offers to retirement savers and investors in the Phoenix metro area. We can help you understand the many factors that may affect your Medicare eligibility and the types of supplemental plans that can help insulate you from changing medical costs. 

People’s interests can change over time, but many people know themselves well enough in their 40s and 50s to envision their ideal retirement in their 60s. Understanding what you want out of retirement enables you to establish cost baselines. 

Recent events have demonstrated the eroding power of inflationary pressures, and it’s served as a good reminder to keep inflation in mind when budgeting for the future. While nine percent inflation is far from the norm, you should budget for some degree of inflation. Compound growth of your retirement investments can help offset inflationary pressures, but you should still assume that the cost of your hobbies or travel plans will cost more in 20 or 30 years. 

Even today, you should be able to formulate a rough idea of what those things will cost you. Having a general idea of your potential retirement expenses should help inform your overall retirement investment strategy. 

You may also have opportunities to put money down early on certain high-cost expenditures. For example, some higher-end retirement communities offer pre-opening deposits to people who want to buy into future developments. Those developments may not be opening for five or 10 years, but you may be able to lock in some of those costs at today’s prices by putting money down in advance. 

Many funeral homes also allow people to pre-pay for funeral and burial expenses in today’s dollars, so your family won’t have to pay the higher costs 20 or 30 years in the future. 

Steps to Take Early to Prepare for Your Retirement 

Envisioning what you want out of retirement is a useful exercise when you’re middle aged. It may also be an effective tool for providing personal inspiration and motivation. It’s easier to work hard towards a goal when you can envision and look forward to it. 

Fullerton Financial Planning is here to help you on your journey. Meet with our financial planners or retirement planners so we can help you establish a plan to reach your retirement savings goals. Call (623) 974-0300 to get started. 

 How Envisioning Your Retirement Helps With Creating a Plan 

Your nest egg doesn’t stop growing the second you stop working and making contributions to your 401(k) or IRA. Your wealth can continue to grow if your retirement savings and assets are wisely invested and properly managed. 

There are a few different tactics that will allow you to continue building wealth after retirement. Many retirees (especially recent retirees) can maintain wealth generation through a combination of things like: 

If you’re at peak wealth the day after you retire, why should you immediately start worrying about your budget? The fact that your retirement savings need to last you for 20, 30 or even 40 more years isn’t the only reason you should be thinking about budgeting. Maintaining a significant pool of resources that you don’t need to touch for living expenses gives you extra bandwidth for investing and post-retirement wealth generation. 

If possible, you should consider leaving certain assets untouched for the foreseeable future so they can continue delivering income. These include things like high-dividend stocks, rental properties and bonds. 

Retirees who want to continue building wealth can attempt to plan their budget around more liquid assets or regular 401(k) and IRA distributions combined with their Social Security.

Every retiree’s situation is unique, which is why some may not have the option of maintaining a diverse portfolio that includes more aggressive investments. However, if you do have the financial bandwidth to continue pursuing more aggressive investment opportunities, like equities, it may be in your interest to do so. 

Consider speaking with a financial advisor to learn about ways you can diversify your portfolio without incurring undue risk.

There are many ways in which retirees can earn supplemental income after they’re no longer bringing home regular paychecks from an employer. Investment properties are one popular option. How many investment properties you can afford will likely impact how much supplemental income you can expect to earn during retirement. Retirees who own three or four rental properties may be able to fund their current lifestyle solely off regular payments from tenants. 

Other common types of supplemental income include dividends or interest payments from fixed income instruments. 

Earning supplemental income through work might also be part of the retirement you envision. Many individuals with valuable skills retire every year. It’s not uncommon for those retirees to do some light consulting work to maintain some supplemental income. Whether you can live off that supplemental income depends on your situation and expertise. 

Not every retiree is content with an entirely work-free life. Starting a small business or consulting might be a way to stay engaged while still maintaining control over exactly how much effort you must expend on “work.”

There’s a time and place for nearly every financial tool, but reverse mortgages have a particularly complex history. If a retiree has no children and no family members to whom they want to bequeath an inheritance, and they’re worried about being able to make ends meet, a reverse mortgage might make sense. However, if you do want to leave something behind for your children or grandchildren, relying on a reverse mortgage for supplemental income might not be the ideal course of action. This is especially true if family members currently live with you. 

Do You Want to Continue Building Wealth After You Retire? 

Wealth management and retirement planning are core services offered by our financial experts and fiduciaries at Fullerton Financial Planning. Many Phoenix retirees and soon-to-be retirees contact us to learn more about ways in which they can continue to grow their nest eggs in retirement. 

Building wealth, even after you’re no longer working, is a realistic option for many retirement savers. Wise investments and holding certain asset classes can help you reach your goals. 

Call us at (623) 974-0300 to learn about your options. 

 How to Build Wealth After Retirement 

Wise investments with valuations that trend parallel with increasing consumer costs are the ideal way to protect your wealth from inflation. Unfortunately, your retirement savings efforts can be greatly hindered when markets or your investment portfolio is trending downward while inflation nears double-digit rates. 

If you’re concerned about your current retirement investment performance and want a professional second opinion, call Fullerton Financial Planning. One of our investment managers or financial planners  would be happy to provide options on how you can better protect your retirement savings returns. 

Inflation is when the purchasing power of a currency decreases, causing the price of goods and services to “inflate.” 

The cause of inflation is hotly debated, even among experienced economists. Too much access to cheap money through low-interest financing can inject excessive liquid capital into the economy. Supply chain issues have constrained the supply of products. The government also pumped quite a bit of money into people’s pockets and various industries during the pandemic. This has led to more dollars chasing fewer products, which naturally leads to increased prices (or demand-pull inflation) as consumers compete against each other.

There’s also cost-push inflation, or inflation caused by increased production costs, which can have similar root causes to demand-pull except on a business/manufacturing side instead of the consumer side. The country may also experience “built-in” inflation which has more to do with rising costs of living leading to wage growth, which leads to further price increases as businesses must charge more for services and goods to pay their workers more.

Arguments can be made that the U.S. is experiencing all three types of inflationary pulls at the same time. 

There are a handful of asset classes that are widely believed to protect investors from inflation. If you’re serious about insulating your household from inflationary pressures, it’s likely in your best interest to speak with an investment advisor.

How diversified your portfolio should be will likely depend on the size of your retirement savings accounts and your age. Young people focused entirely on growth might eschew some traditional inflation-protected assets for the aggressive growth offered by equities. Older savers may have their assets heavily weighted toward bonds and other stable and reliable investments with comparatively low returns. 

Both of those investment strategies can potentially be problematic during times of high inflation unless the saver is adequately diversified. Bonds are fixed, meaning the purchasing power of the dollars you have sunk in those bonds will decrease while the bond principal and their interest rates remain the same (except for TIPS bonds). Equities usually increase with inflation over time, but during a bear market, equities may move inverse to inflationary pressures. 

Diversification is often the best way to avoid either of those pitfalls. 

The prevailing wisdom among investors has long been that gold is a “hedge against inflation.” Gold has intrinsic value many other investment options can’t replicate. Some even consider gold an alternative currency. 

No inflation hedge is perfect in every circumstance. Gold doesn’t pay yields, which means you could be missing out on the potential investment upside of rising interest rates. However, if you’re looking for opportunities to diversify to shield your assets, some gold may help. 

Other commodities can also be a hedge against inflation since their price rises along with production costs. The increases in consumer food prices are partially tied to the increasing cost of commodities like oil and grain. If your money is invested in those types of commodities, it may grow at rates similar to inflation. 

Be warned – commodity markets are notorious for their volatility. If you’re unfamiliar with commodity markets, it may be in your best interest to speak with an investment advisor before jumping in. 

Real estate is another asset that will likely increase in value in part due to inflationary pressures. 

Real estate is not impervious to other market pressures. However, real estate values tend to trend upward as the purchasing power of the dollar goes down, effectively adjusting for inflation. 

As a broad generalization, REITs are often helpful inflation insulators since rental incomes tend to reliably increase due to inflationary pressure. Plus, they generally pay out fairly sizeable dividends compared to other equities.   

These special U.S. Treasury Bonds are indexed to inflation for the specific purpose of mitigating inflationary damage. The principal of the TIPS is adjusted based on current inflation rates, and the TIPS pays out at a fixed rate twice a year. This effectively ensures the interest you’re being paid is adjusted for inflation. 

In the long term, TIPS tend to underperform regular U.S. government bonds, especially when inflation is low. The Consumer Price Index (CPI) the U.S. government uses to adjust for inflation may also understate inflationary pressures, meaning you might not always get the exact payment you need to make up for the impact your household is feeling. 

The price of TIPS is also not guaranteed, meaning they can experience price fluctuations during times of market volatility. 

Fullerton Financial Planning Is Ready to Help Phoenix Investors

If you’re looking for ways to shield your investment portfolio from historic inflation rates, Fullerton Financial Planning is here to help. Our advisors can provide ideas on ways you can safeguard your nest egg. Call us at (623) 974-0300 to get started. 

 How to Protect Your Assets From Inflation 

It’s a bad idea to buy a fixed immediate annuity when interest rates are low. 

This can be a complicated issue for some investors, but as with all things in retirement planning, your choices should primarily be dictated by your needs and goals. In an ideal world, you would purchase a fixed immediate annuity when interest rates are at their peak to ensure maximum principal growth. 

However, interest rates aren’t the only factor to consider. Ultimately, your total payments over the life of an annuity may have far more to do with your longevity than the interest rate you were able to get when you first opened the annuity. 

Many soon-to-be-retirees also don’t have the luxury of waiting for interest rates to increase. You may be better served by doing what’s in your best interest today than waiting for a specific target rate. Speaking with a retirement planning professional may help you decide which course of action is ideal for your situation. 

You don’t need to think about annuities until you reach retirement age. 

Although many annuities are designed for retirees and people nearing retirement age, there are many different types of annuities. Some annuities are specifically designed to function as long-term savings vehicles. Deferred variable and fixed annuities are both types of annuities that are great for younger people saving for retirement since their tax-deferred benefits are similar to those of an IRA or 401(k). 

Deferred variable annuities are similar to 401(k)s in that the money can be placed in various mutual fund or investment options, while deferred fixed annuities are more akin to a CD or bond. 

Not all annuities are made equal, and your choice of insurance company may have an impact on your variable investment options and fees or the fixed annuity interest rates available to you. 

The fees associated with your annuity will vary significantly depending on several factors, including your contract options, whether you’re seeking a guaranteed living benefit annuity (in which case your age and health will matter), the amount you’ll be investing and more. 

If you’re worried about the cost of an annuity, you should discuss their fees and how they compare to alternative investments with a skilled investment manager. 

My family could lose a lot of money if I die before the annuity pays out. 

Many modern annuity products have different types of death benefits available to prevent beneficiaries from losing out on all the funds left in the annuity. For example, a guaranteed minimum death benefit may even result in your spouse or other beneficiaries receiving the full annuity value (if you pass away prior to annuitization). 

Some annuities also offer spousal benefits that will allow your spouse to continue receiving the lifetime payments, although there are certain fees you should be aware of prior to choosing those contract options. 

The type of annuity you receive and the options in the contract will have a significant impact on what happens to remaining funds after your passing. It is important not to go blindly into an annuity without understanding the ramifications it may have on your estate. 

I can replicate an annuity with my existing retirement savings accounts. 

There are some retirement investors who have built up large nest eggs and have air-tight estate plans in place to shield themselves and their families from long-term care costs and other potential hurdles of retirement. Not every retiree or working senior is that fortunate. 

Annuities fill an important niche in retirement savings in that they can provide a guaranteed stream of income for life or a fixed period. Some types of annuities also won’t be impacted by changes in the market, which could drastically impact the value of your 401(k) or IRA savings. 

Annuities may not be necessary for every retiree, but they offer some unique benefits for many. 

Index annuities and variable annuities may result in much higher taxes. 

Annuity funds that are invested in the market are tax-deferred until the money is paid out. It’s not dissimilar from a 401(k) or IRA where you’ll eventually need to pay income tax on the money you’re paid from the account. You shouldn’t need to pay tax on withdrawal of the principal of an annuity if you are investing post-tax dollars into it. 

Annuities offer more tax flexibility than other retirement savings accounts because you can decide when you begin accepting payments. This may also offer estate planning benefits, like being able to pass on annuity funds to a beneficiary who is in a much lower tax bracket. 

Learn the Facts About Annuities From Trusted Phoenix Retirement Advisors 

The team at Fullerton Financial Planning is here to help you learn about retirement investment products, including annuities. Speak with our retirement and financial planners by calling (623) 974-0300.

 Misconceptions About Annuities 

There are many different types of annuities, but most fall under the umbrella of one of four primary categories:

Immediate annuities,  sometimes referred to as income annuities, start paying out quickly – typically no more than a year after purchase. This type of annuity can even be funded by a retirement account in order to provide a steady stream of retirement income. 

Deferred annuities can be purchased at a fairly young age but won’t start paying out until the holder reaches retirement. Any growth of the money invested into the annuity will experience tax-deferred growth, similar to a 401(k). 

When it comes time for the annuity to start paying out, the holder usually gets to decide for how long they want the annuity to run. The length of the payout will directly correlate to the amount of regular income payments. For example, your monthly payments will be twice as high if you decide to receive payment for the next 10 years instead of the next 20 years.

Immediate annuities can also be used as a replacement for a pension and provide a moderate stream of income for the remainder of the owner’s life. The total amount of each monthly payment will be based on factors like health and projected longevity. 

One of the downsides of annuities is the money you invest into a lifetime guaranteed annuity may be less accessible than some alternative savings options. 

Some lifetime annuities offer the option of having payments continue to a spouse or dependents for a specified amount of time after your death. However, those extensions will impact the amount of income you receive while you live. 

Fixed Annuities Versus Variable Annuities 

Annuities are typically sold by insurance companies, even though they are technically investment or savings products. Fixed annuities are more like a bond or certificate of deposit (CD), while variable annuities are more like investing in a 401(k). 

The money you invest in a fixed annuity earns a guaranteed rate of interest for a specific length of time stipulated in the contact. The guarantee period can vary greatly and range from as little as a year to the full length of the annuity. 

For retirees who are worried about market volatility and how it may impact their retirement savings and income, fixed annuities may make a lot of sense. Your money won’t be affected by market downturns, although your purchasing power may still be impacted by inflation. 

Variable annuities are not entirely dissimilar from 401(k)s. The money you put in the annuity is invested into specific funds. The valuation of a variable annuity will be directly tied to the market, meaning your savings will be significantly impacted by market changes and volatility. 

People invested in variable annuities sacrifice safety for the potential for far more growth during the life of the annuity. Retirees who chose fixed annuities sacrifice growth potential for stability and are insulated from potential market downturns. 

Annuity purchasers must also choose an appropriate annuity payment period length. A lifetime annuity will guarantee a stream of income for the remainder of your life. The good news is you can rely on that money entering your bank account until you die, providing some peace of mind in retirement. However, the insurance company will pay you significantly less each month than they would with a fixed-period annuity. 

This reduced payment is to insulate the insurance company from the risk that you live a lot longer than expected. If you had enough saved for 20 years but you live for 30, the insurance company will end up paying out far more than you put in. To counter that risk, insurance companies pay less income each period. Insurance companies will consider your health and life expectancy when deciding on the payments you’ll receive. 

With a fixed-period annuity, the money in the annuity will essentially be divided out by the number of pay periods. You’ll be paid more each month if you choose a fixed period of 20 years instead of a fixed period of 30 years. If you choose a fixed-period annuity, your age and health will not factor into your payments each period – payments will be determined based on the money you have in the annuity. 

Are Annuities the Right Retirement Income Solution for Phoenix Retirees? 

For retirees who are looking for a retirement savings solution that doesn’t cap investments but still maintains some of the features of an IRA or 401(k), variable annuities may be a great idea. Retirees seeking guaranteed income for as long as they need it may want to consider lifetime annuities. The best option will depend on your situation. 

Talk with our retirement planning team about annuities and whether they make sense for your plan. Call (623) 974-0300 to learn more. 

 What Are the Four Primary Types of Annuities? 

Determining how much you should have saved for retirement at different points of your life can be difficult due to income fluctuations and the inherent subjectivity of expectations and lifestyle preferences. 

Some people look forward to simple retirement living in their current home for as long as possible. Others plan on setting up a home base in a pricey senior living community and traveling the world. Those two retirement dreams require significantly different retirement resources. 

Your retirement savings potential will be based on your income and expenses. Families raising children may have less savings bandwidth in their budget while a couple with significant household income and no children may be able to put aside a considerable portion of their income each year. 

Retirement advisors have differing opinions on what your retirement saving thresholds should be at certain ages. 

One rule of thumb is to have the equivalent of double your annual salary in some kind of retirement savings account by the time you’re 35. If you’re making $80,000 a year in your mid 30s, you should have $160,000 in your 401(k)s and IRAs. Some retirement advisors recommend lower multiples, like one and a half times your annual income saved at 35. 

It’s not uncommon for retirement advisors to recommend graduated levels of multiples, like: 

While the dramatic increase in multiple towards the end of your working years may feel intimidating, it’s not as painful as it might initially appear. When retirement savers invest wisely, their money can grow at a significant rate each year. 

Consider the above example with the 35-year-old who has saved $160,000 for retirement. Imagine they managed to maintain a healthy return of eight percent over the next 30 years. That initial $160,000 would grow to nearly $1.07 million by the time the saver reaches their 65th birthday. 

Of course, most retirement savers don’t stop saving at the age of 35, so additional yearly investments will similarly have a chance to grow. Hitting 10-times or 15-times your annual income in savings at the age of 65 is not at all unattainable when you’ve been putting money away in well managed retirement accounts for several decades. 

However, starting early is absolutely key since you’ll be relying on compound growth to a significant degree. You’ll also need to maximize your compound annual growth rate (CAGR) if you want to make the most of your early retirement investing funds. 

What About Economic and Market Downturns? 

Investors in 2022 have been given a harsh reminder that equities can experience dramatic fluctuations. Everyone, including retirees, are also coping with some of the highest inflation rates in more than 40 years. 

Now more than ever you might be grappling with the fact that your CAGR isn’t set in stone. However, you shouldn’t lose perspective on long-term retirement investment growth rates over the long term. There will always be good years and bad years in the market. One year you might see a 15 or 20 percent growth rate and the next you experience stagnation or even losses. Over the long term you should ideally see retirement savings growth average out to a healthy rate. 

Not every sector is impacted equally by the current economic challenges the world is facing. For example, tech companies have seen significant drops while some energy companies have managed to stay in positive territory. 

Not every investment is the same, and different industries and asset classes experience varying degrees of hardship depending on a number of complex variables. 

The average retirement saver who runs a business or works 40-plus hours a week while raising children may not have loads of free time to analyze the market and micromanage their retirement savings accounts. That’s why companies like Fullerton Financial Planning exist.

 are particularly important during difficult economic times. We strive to protect not only the principal investments of our clients but also the returns they’ve secured over the years. 

Learn how we can help protect your nest egg by calling us at (623) 974-0300.

 Ages 35, 50 and 65: How Much Should I Have Saved? 

Although annuities may be one part of a comprehensive retirement savings and estate plan, they’re not primarily intended to function as an alternative to life insurance. Annuities are ideal for paying you either a lump sum or a stream of income while you’re still alive, while a life insurance policy is solely intended to pay a predictable amount of money to your beneficiaries at the time of your passing. 

Do Annuities Pay Anything to Beneficiaries? 

It depends on the annuity and the terms stipulated in your contract. If the contract includes death benefits, then the annuity holder can name a beneficiary. Some annuities will pay out the balance of the annuity to a named beneficiary. However, beneficiaries are often not paid the full value of the annuity, especially if the annuity didn’t have a finite pool of money. Instead, many annuity contracts include a guaranteed minimum payment for beneficiaries.

There’s also a difference between bequeathing an annuity that has or has not matured. 

For example, deferred income annuities go through “annuitization” wherein the annuity is converted into income payments. A surviving spouse or beneficiary may receive a lump-sum payment equal to the value of the annuity if the holder dies before annuitization, or they’ll receive a series of payments if the death occurs after annuitization. Conversely, depending on the contract, the beneficiary might receive spousal continuance if the holder dies before annuitization or nothing at all if the spouse dies after annuitization. 

Can I Replace Life Insurance With an Annuity? 

The death benefit rider on an annuity is key when judging the usefulness of an annuity as a way to pass wealth on to a beneficiary. The basic idea of an annuity is to provide income for the remainder of your life, not necessarily the remainder of your spouse’s life (unless they are a co-owner). 

There are many different types of annuities and annuity policy options, some of which do provide for post-death payments. Investors who are interested in the potential for annuities as a tool for wealth transfer should learn about enhanced death benefits. 

Annuities often feature one of two types of death benefits: a lump-sum payment or a percentage of continued annuity payments to the beneficiary. 

Some death benefit provisions will stipulate a minimum guaranteed payment. In those cases, the beneficiary may either receive the remaining money in the annuity or the guaranteed minimum, depending on which is greater. 

Beneficiaries may also have different payment options. They can either receive a single distribution or have the payout spread over five years to dilute the tax burden. Some annuities also offer “nonqualified stretch” benefits, which means the beneficiary continues receiving reduced payments for the remainder of their life. Some spouses may also have the option of becoming the new annuitant. 

Are the Annuity Owner and the Annuitant the Same Person? 

Not necessarily. The annuitant is the person whose life expectancy is the basis of the annuity. If a couple are co-owners of an annuity, they may choose the younger of the two to be the annuitant to stretch out the projected payments and reduce the tax burden each year. 

How Are Annuities and Life Insurance Policies Similar? 

There are quite a few parallels to be found between life insurance and annuities. Both pay out funds to holders or beneficiaries; the difference is based on when those funds are paid out. Both can serve as investment vehicles in which the money you put in either accrues interest or is invested in equities or indexes to grow over time. In the case of annuities, payments may end when you die, whereas payment on a life insurance policy won’t begin until you pass away. 

Both have premiums based in part on your life expectancy, but the pricing is flipped. People with a short life expectancy or those with significant health risk factors may have to pay high life insurance premiums, while someone who is healthy and has a long life expectancy will have to pay high annuity premiums. 

Annuities are primarily thought of as a retirement savings policy, while a life insurance policy is more closely associated with estate planning. 

Should You Have an Annuity or Life Insurance? 

For many Phoenix retirees and those looking into setting up an estate plan, having both annuities and life insurance polices may make sense. They are not mutually exclusive savings and estate planning tools. 

If you’d like to learn more about annuities and life insurance, consider scheduling a consultation with the investment advisors and retirement planners at Fullerton Financial Planning. Give us a call at (623) 974-0300 to get started. 

 What’s the Difference Between Life Insurance and Annuities? 

Annuities are unique retirement savings tools. The basic goal of an annuity is not all that different from other retirement savings options like a 401(k) or IRA. You invest money today that you’ll be paid (often in increments) when you retire. That’s about where the similarities end. 

You pay the insurance company for an annuity, and they agree to pay out either a single lump-sum payment or an income stream at some future date. 

You will usually need to pay premiums to keep the annuity active and to fund it. How much you’re paid in the future will depend on how much money you put in at the start, the premiums you pay and how well the funds are invested. 

Variable Annuities Versus Fixed Annuities 

There are several types of annuities. Some are similar to investment accounts while others resemble fixed income investment products like a CD or bond. 

For a fixed annuity, you generally pay the insurance company a lump sum (known as a premium payment) and they will either pay you interest on your premium payment or they will pay you out an income stream for a set period, or potentially the rest of your life. Whether you receive interest, an income stream, or both depends on the type of fixed annuity and whether you have elected to convert the cash accumulation value to a series of payments. 

There’s a variation of fixed-income annuities known as deferred income annuities. These earn interest until a specific date, after which the annuity starts paying an income stream. The years of deferral is what’s known as the accumulation period, because the annuity accumulates interest during that time. In many cases, annuity holders can add more money in during this accumulation period and treat it like a high-interest savings account. 

Variable annuities are similar to other retirement accounts where the money you pay into the annuity will be invested and the future income stream of the annuity will be entirely based on how the investment performs. This tax-deferred investment option that may be attractive to people who either don’t have a 401(k) or IRA or to retirement savers who want to invest more than their annual contribution limits in those other savings plans. 

One of the key features of annuities are their estate planning features. The standard death benefit for the majority of annuities is at least cash value. Many even offer the premium payment as the minimum guaranteed death benefit.

Insurance companies offer clients dozens of professionally managed variable annuity investment options, providing investors options to help them balance their risk of loss with their growth potential. Fund categorizations will generally be familiar to anyone who invests in a 401(k) or other retirement accounts, with various small, mid and large-cap funds, growth funds, market-specific index funds, and other options. 

Another type of annuity is an index annuity, or fixed-index annuity as it is often referred. Index annuities are a type of fixed annuity that provides investors with interest crediting strategies tied to one or more market-based indexes. While the index annuity policy holder will not be invested directly in the market represented by the index, their returns will vary based on the performance of the designated index. The amount of interest credited to the policy holder will depend on the performance of the index as well as the interest crediting methodology being used. 

Some index annuities offer policy holders interest based on the percentage of the return of the index, (e.g. interest equal to the percentage return of the index, up to a cap), during the period; while others offer policy holders a defined percentage of the returns of the index, called a participation rate. Similar to traditional fixed-deferred annuities, index annuities generally offer policy holders a minimum account value and the option to convert their annuity into an income stream. 

Some investors wonder what the point of annuities is. They may attempt replicate the effects of an annuity by investing in fixed income savings products like bonds or CDs or by investing in other retirement plans like a 401(k) or IRA. 

One feature many soon-to-be retirees appreciate is the income stream. There are a variety of reasons why having a guaranteed income stream in retirement is valuable. You might have a significant nest egg saved up, and you may even be confident it will last you for decades. However, people are living longer, and unexpected costs can arise in retirement, like a medical emergency or needing specialized memory care for yourself or your spouse. 

If other retirement savings run low, an annuity may continue paying a reliable income stream indefinitely (depending on the type and the payment period stipulated in the contract). There’s virtually no other retirement savings product – other than Social Security and, for some people, a pension – that will be guaranteed to pay you for as long as you live. 

The one caveat to the money-for-life benefit of annuities is it assumes the insurance company stays in business. While in current times it’s rare for major insurers to go under, it could happen and could negatively impact any guarantees offered by the insurance company. However, all fifty states maintain guarantee funds aimed to protect policy holders from insurer insolvencies. (For example, the Arizona Department of Insurance and Financial Institutions has the Arizona Insurance Guaranty Funds.)

The benefits that annuities offer is not free. Some annuities may come with steep fees that may be pricier than other retirement savings alternatives. Examples include:

And, with any risk-mitigating investment option, there is typically an opportunity cost associated, especially fixed annuities. You might earn better returns by investing in other alternatives. 

Every investor’s situation is different, which means there’s no one-size-fits-all solution. For some investors, holding annuities in a diverse retirement savings portfolio may make sense. 

Call us at (623) 974-0300 to speak with a financial advisor at Fullerton Financial Planning about annuities and whether they’re right for you. 

 What Are Annuities and How Do They Work? 

According to the Arizona Commerce Authority (ACA), there are more than 550,000 local small businesses in the state. They employ 44.5 percent of Arizona’s workforce. Those businesses have a significant impact on our state’s economy and the well-being of the families and communities who run them.

The Small Business Administration (SBA) was created in 1953 to recognize and encourage entrepreneurship in the United States. The formation of the SBA has enhanced the small business community and provided Americans with the financial support they need to kickstart and maintain their businesses.

The SBA is comprised of programs intended to benefit small businesses. One of those is the Small Business Investment Company (SBIC) program.

The SBA and SBIC have been instrumental in financing small businesses across the country for the last several decades.

What Is the Small Business Administration (SBA)?

The SBA is an independent agency of the federal government that protects the interests of small businesses and helps maintain the nation's economy. Since its inception in 1953, Americans have had the backing of the SBA anytime they go to start, build or expand their businesses. They assist small business owners with loans and even offer free counseling services.

From small loans to enabling significant equity investments, the SBA continues to provide the support small businesses need at various stages of their growth.

While the SBA is a key player in small business investment, it does not directly invest in the businesses themselves. It instead partners with programs like the SBIC to help businesses obtain financing.

What Is the Small Business Investment Company (SBIC) Program?

Originally known as the Small Business Investment Act of 1958, the SBIC program is comprised of privately-owned investment companies that provide equity and debt financing for small businesses looking for startup capital.

It stimulates and strengthens the economy by offering the sound financing small businesses need for their growth, expansion and modernization. The SBIC can offer unique and safe financing opportunities for small businesses because it is licensed by the SBA.

When the SBIC is ready to invest in a small business, they go back to the SBA for debentures (i.e., guaranteed loan obligations) to strengthen their funding. Although the SBA does not provide direct loans to small businesses, they do back loans offered through a lender like the SBIC.

The SBIC does not require taxpayer funds to operate, but some public funds are used for administrative costs that keep the program running effectively.

SBIC funds are typically for small businesses that can't get bank loans due to a lack of assets or inadequate credit. If a business doesn’t have the necessary cash flow to qualify for a conventional loan, SBIC funding may be an alternative way to obtain financing to start or grow the business. While these loans offer flexible financing options for businesses, they do come at a higher interest rate.

In order to be considered for an SBIC investment or loan, a business must:

Looking for Retirement Investment Advisors in Arizona?

Fullerton Financial Planning serves Arizona residents and small business owners looking for advisors to 

 portfolios. Our skilled retirement investment advisors and wealth management team are ready to help you with financial planning and strategy. Call us at 623-974-0300 to 

 Why the SBA and SBIC are Important for Small Businesses 

A key aspect of estate planning is your trust. How you decide to structure it can make all the difference. A trust allows a third party (a trustee) to manage assets on behalf of a trust fund’s beneficiary.

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