According to a recent article featured on CNBC business blog written by?Wendy Waugaman,?CEO & President, American Equity Investment Life Holding Company, Americans have lost over $2 TRILLION in retirement planning and investment savings over the last 3 and a half years. From a recent survey this loss of funds has caused an estimated 42% of Babyboomers to delay or suspend their retirement plans.?
The good news is that on average, people are living longer and enjoying a better quality of life. The bad news is that many company sponsored defined contribution plans such as 401(k)?s or 403(b)?s have lost their value due to market risk exposure and are underfunded as a result. This means that those instruments will not be able to provide the long term income options necessary to secure the required income during post-retirement years.?This presents the dangerous cocktail of long life with dwindling income.?
Personal savings and investments directed toward many of the same types of investment vehicles as company sponsored plans, have either fared no better and in some cases done worse. The general public cannot afford to continue to risk hard earned and valuable retirement income accumulations to potential market swings which may or may not materialize during the required income years. This is why a post retirement strategy has never been more important. A diverse array of planning strategies are essential as there is no ?one size fits all? approach to?retirement?planning.?
Dunamis certainly has a strategy and approach to retirement planning and preservation of?retirement?income and funds. Two products that should be considered a solid part of the modern retirement planning portfolio are Fixed Indexed Annuities (FIA) and Charitable Gift Annuities (CGA). Since we?ve already discussed the benefits of the FIA?s in our previous article, we?ll discuss some of the benefits of the CGA here. ?
What is a CGA??
A charitable gift annuity (CGA) is a contract (not a ?trust?), under which a charity, in return for a transfer of cash, marketable securities or other assets, agrees to pay a fixed amount of money? to one or two individuals, for their lifetime.
A person who receives payments is called an ?annuitant? or ?beneficiary?. The payments are fixed and unchanged for the term of the contract. A portion of the payments are considered to be a partial tax-free return of the donor?s gift, which are spread in equal payments over the life expectancy of the annuitant(s).?
A CGA can be either, immediate (where income is paid out in a short period after the annuity has been funded) , deferred (where income is paid out a certain future date), or flexible (where income start date is not fixed, but chosen by the donor at any point in the future) ?in the methods of payout.?
Various states have varying regulation?governing?CGA?s. All of the organization?s assets must be available to back the CGA promise to pay. Reinsurance can also be obtained by the charity to cover obligations.
Benefits of a CGA:?
There are multiple benefits to a CGA.?
1- Immediate income tax deduction for a portion of the gift. Since CGA contributions are considered to be present interest gifts to a charity, deposits qualify for a corresponding income tax deduction.?
2- Lower taxable monthly income. Much of this is established by the IRS?rules found in Section IRC ?72.?Depending upon age, a person could not be subject to income tax on as much as 50 to 60% of monthly income payments.?
(Contact US after seeing how this is done or for any questions)
3- Asset protection. Assets transferred to charity by CGA are exempt for a person?s estate and therefore are protected from individual creditors,?judgments,?liens?etc. When combined with a Wealth Replacement Trust, the value of all assets could be realized 100% tax free and bypass probate.
4- Reduction or even elimination of Capital gains taxation. Highly appreciated assets are the ideal asset for a CGA. (Please consult a tax advisor for the regulations regarding this)?
5- Lowered estate taxation. Because the CGA is a gift of an asset to a qualified charity, there is not only a corresponding tax deduction, but a charitable contribution that removes contributed assets from a persons estate right away. (Please see a tax advisor for limitations and restrictions)
6- Lifetime Income: Because the CGA is an annuity, and annuities are designed to pay over either the lifetime of a single individual or two individuals in other words the object is to provide income that cannot be outlived. [These payments are backed by the assets of the charity. There is a pitfall. If the charity isn't financially sound there could be a problem. The Wall Street Journal has documented such]
7- Satisfaction of giving to a charitable cause. The CGA allows donors to give to organizations that impact ?causes that a person believes in. When combined with other strategies, one can give to a charity and receive certain economic benefits in return.
Conclusion:
A CGA is not the end all be all of planning and it must be for the right person, the right situation and the right asset type. Wilth all the benefits of a CGA, there is no reason that a CGA cannot be a part of the right retirement plan. The only way to determine if a CGA is right for you is through a thorough asset and suitability analysis.
Call us at (877)677-6599 or email Dunamis1@netzero.com for additional information and for a complete analysis of your situation. ? ??
Resources:
Source: http://dunamisadvisors.blogspot.com/2011/05/retirement-planningtake-stability.html
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