Volume 13, Issue 2



we all want more money. Many of us would also like to work less. While this may seem like a dilemma, there may be a solution. The best way to increase money without increasing your hours is to avoid excess spending in the first place. Some people call this a budget, but you could just as easily call it a spending plan. Here are ten tips to help you maximize and stretch your hard-earned cash:
  1. Create a spending plan. Many people resist
    the idea of a budget and associate it with hardship. Instead, look at it in a positive way. Create a monthly "spending plan" for your fixed and discretionary (optional) expenses. When you plan your spending, you may find you spend more wisely because you're taking control.
  2. Pay yourself first. Put savings at the top of your spending plan. If you wait until the end of the month to save any leftover cash, you may find yourself without a nest egg when you need it most. A good general rule of thumb is to save at least 10% of
    your income before spending the rest.
  3. Track your spending. Record your expenditures for a month, especially for small optional items. You may be surprised to discover how easily purchases costing only a few dollars can add up. At the end of the month, review your expenditures and adjust your spending plan accordingly. Once you see where your money is going, you may want to make different choices about your spending.
  4. Live within your means. Many people feel they never have quite enough to live on, yet they probably know people who manage successfully on less. Spending is relative. If you live within your means, you will never overspend.
  5. Shop for value. Look for opportunities to get more value from each dollar spent. Join a warehouse or shopping club and buy in bulk. Purchase clothing, furniture, and household goods when they are on sale. Consider buying used cars and appliances. Big-ticket items like these often depreciate substantially in the first one or two years.
  6. Minimize debt. Keep your debt level low. By reducing debt, you also minimize interest and finance charges. When you are tempted to charge a purchase, remember that you are committing yourself to pay for it from income you have not yet earned.
  7. Eat in. Restaurant dining can be expensive, since you are paying for service as well as food. Tips and meal taxes can add 20% or more to the bill. Liquor and desserts (which you otherwise might not eat at home) can boost the tab even higher.
  8. Reduce housing costs. Housing is a major fixed expense. Consider reducing this cost by buying or renting a smaller place, or one with fewer amenities. If you rent and plan on staying in an area for more than a few years, consider buying. Owning a home is often more expensive than renting at first, but the costs are usually lower in the long run. Remember, a house is an investment that generally appreciates over time.
  9. Trim transportation costs. Transportation is another large expense for most families. Many households now own more than one vehicle. The more cars you own, the higher the costs for insurance, repairs, fuel, and parking. Use public transportation or carpool, if possible. The savings in vehicle-related expenses may offset any slight inconvenience. Also, consider buying a used car. A good used auto will get you where you are going as well as a new one, and it will likely cost much less.
  10. Set aside a cash reserve. Having a cash reserve can help you stick to your spending plan and help keep you out of debt when emergencies, such as a major car repair or short-term disability, arise.

Cutting back on excess spending does not have to be difficult, nor does it mean that you must continually deny yourself many of life's simple pleasures. You will find that when you live within your means, and pay yourself first, your debts will decrease as your savings grow. A personalized spending plan can provide that "extra" income, and following one may be a wise financial decision. 20/20


Running out of retirement income is a major concern for many Americans. Annuities that offer a guaranteed fixed rate of return and tax deferral on earnings, as well as income that can last for life, can be an appealing money management option for present and future retirees with a low risk tolerance and/or a need to diversify assets.

When you purchase a fixed annuity, you receive a guarantee that your money will earn interest at a specified rate and that your return (the money paid back to you) will occur on a set schedule in fixed amounts. There are two payment options: single premium (one lump-sum payment) or multiple premiums (payments made in installments). Payouts to you can begin immediately or at a future time, but they are usually scheduled for retirement and can last for your lifetime or another scheduled length of time.

Retirees often favor immediate annuities, which can begin to provide income at regular intervals as soon as a single lump-sum premium has been paid. Deferred annuities, often favored by those saving for retirement, accrue premium payments (your contributions) over time (the accumulation period) with the payout scheduled for a future date. In both cases, earnings on premiums are tax deferred.

Favorable Tax Treatment

Because annuities help people save for retirement, they receive favorable tax treatment. Tax deferral allows your potential earnings to enjoy compound interest without immediate taxation, which can significantly impact the value of your savings. Consider the following hypothetical example, which assumes earned interest at 6%, a 30% combined state and federal income tax rate, and no inflation. Compare the value of saving $100 per month for 30 years in a taxable instrument to a tax-deferred instrument.

After 30 years, savings in a tax-deferred instrument could be worth $28,518 more than those in a taxable instrument receiving the same rate of return. This attests not only to the power of tax deferral, but also to the positive effect time can have on your long-term savings.

Unlike some qualified retirement plans, annuities are not subject to income or contribution limits. Annuity premiums that are not part of a qualified retirement plan are paid with after-tax dollars. Your principal contribution will not be taxed again, but interest earnings are taxable. The Internal Revenue Service (IRS) determines the amount not taxable using an annuity exclusion ratio, which accounts for your principal contributions and life expectancy, as well as the annuity's expected return for the life of the contract. The total amount you may exclude from income is limited to the total amount of premium you put into the annuity.

When you reach the point where you have fully recovered your initial premium, the remaining payouts are fully taxable. If payouts cease prior to the date the premium has been recovered, the amount not recovered is allowed as a deduction to you for your last taxable year.

The tax benefits of fixed annuities do come with a restriction: Payouts must begin after you reach age 59½, or earnings may be subject to a 10% federal income tax penalty. Furthermore, if you withdraw funds during the accumulation period, the issuing company may levy withdrawal charges. If you cash in the full value of the annuity, you may incur surrender charges.

Income for Life?

How much you receive from an annuity generally depends on your age when you begin to receive payments and the amount of money available (gender may also play a role). Once you own an annuity, you'll need to select a payout option when you reach the annuitization date, usually at retirement. Most annuities offer a number of different payout choices. Here's a brief overview of the basic options:

Life Only. This option provides income for life and generally provides the largest benefit of all the options. You can receive payments monthly, quarterly, semi-annually, or annually. Note that after you die, all payments stop.

Life with Term Certain. With this option, you'll receive income for life. If you die before a stipulated time (the term certain), usually 5, 10, 15, or 20 years, the payments will then continue to a beneficiary for the remainder of the term certain.

Joint and Survivor Life. Under this arrangement, two individuals receive annuity payments for both their lives. When one dies, the other continues to receive income, or some portion of it, for the remainder of his or her life.

Installment Refund Life. With this option, if you die before you have received at least as much as your original premium payment(s), the balance will be paid out to a beneficiary in installments.

Unit Refund Life. This option is similar to the installment refund life option, except that the beneficiary receives the balance in a lump sum.

Payments for a Specified Period. With this option, payments are made for a pre-specified term, generally ranging from one to 30 years, and then continue to a beneficiary if you die before the term ends.

Fixed annuities can be an important part of your overall savings and income strategy, helping to meet diverse financial goals and objectives. If you are currently saving for retirement, a fixed annuity can help supplement your existing long-term vehicles, such as a 401(k) plan or an Individual Retirement Account (IRA). If you are a retiree, a fixed annuity can provide you with a regular income stream during your golden years. Remember that in order to plan for the future, you must consider it before it occurs. 20/20

Note: Fixed annuities are neither insured nor guaranteed by the FDIC; they may decline in value if surrendered prior to maturity. Guarantees are based on the claims-paying ability of the issuing company


One of the more important decisions you must make when writing your will is the selection of an executor. Ideally, an executor should combine the tact of a diplomat with the administrative skills of a professional executive. The person should also be close enough to you and your family to do as you would wish, yet be able to act without being swayed by emotions if conflict breaks out among family members.

Almost any person you trust can be your executor. For most people, the best choice is a spouse, close friend, or associate, who may also be a beneficiary. Large estates may require two executors—a personal representative to interpret your wishes and a professional representative or institution, such as your attorney or a bank, to make business or financial management decisions, pay taxes, and keep records.

Duties of an Executor

What exactly does an executor do? An executor's job is to "wrap up" your financial affairs. The individual must identify and determine the value of the assets that are part of your estate. (Trusts, life insurance policies, pension plans, and some types of jointly owned property may fall outside the executor's authority.) Certain assets necessitate hiring an appraiser, whose fee generally comes out of your estate's assets, as do expenses for lawyers, accountants, and other professionals. An executor is also responsible for paying all your remaining debts, filing tax returns, and distributing whatever remains to your heirs.

Throughout this process, careful records must be kept. Most probate courts will demand a full and detailed accounting of all money received, spent, or held by your estate.

If You Die Intestate. . .

If you die without a will (intestate), the court will appoint an administrator to perform the executor's duties. When no relative or beneficiary is able to take the job, the appointee is likely to be a civil servant or even a creditor.

Administrators and executors usually receive fees of 3% to 5% of an estate. However, when family members serve, they typically waive the fee. Administrators must post a bond to safeguard the financial interests of your heirs, although in some cases the heirs may consent to waive the bond. The cost of the bond premium also comes out of the assets that would otherwise go to your heirs.

Making the Right Choice

When choosing an executor, objectivity is essential in order to make the proper decision. Be sure whomever you select is willing to accept the responsibility. In addition, it is also wise to choose an alternate executor to serve in the event your initial executor is unable to do so. If you have not yet selected your executor, consider choosing one now to eliminate any potential complications in the event of an untimely death. 20/20

The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel.
The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. The publisher is not engaged in rendering legal, accounting or financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is published by Liberty Publishing, Inc., Beverly, MA, COPYRIGHT 2007.