Today we're welcoming Lauren G. Isom (05C), CLU, ChFC, CLTC, to Ask the Expert. Lauren is a financial planner and partner at Griner-Isom Financial Strategies in Columbus, Ga., specializing in retirement planning and legacy solutions. She is also a certified long-term care advisor, trained in extended care planning regarding longevity and its consequences on her clients' families and finances. Lauren holds a bachelor's degree in finance from Berry College. She is a member of Berry's Planned Giving Council and the Berry Heritage Society.
What are the greatest concerns retirees and pre-retirees have about their retirement savings?
Making sure they don't outlive their money! With the volatility of the stock market, people are worried that they will have to take a distribution to supplement their social security which could cause their retirement income to decrease more quickly than it should. They are looking for guarantees to help them ride out the market. Making sure you can enjoy your retirement is a balancing act of using your assets wisely without spending too fast.
In these times of economic instability, we often hear the advice to "stay the course" in terms of our investments, but what can those nearing retirement do to help safeguard their nest egg?
We have no idea what the future holds, what the economic picture will look like, but we still need to be as prepared as we can. I advise my clients to make sure they have some kind of money buffer asset, so their investments are not all in the stock market. What you want to do is make sure there is balance.
If you can, you need to have assets set aside to get you through a rough period in the economy. This gives you permission to ride it out with some peace of mind because you know you have money set aside for that purpose. And you do need to stay in the market because of inflation and people living longer. In terms of retirement income, social security is guaranteed but it's not enough. You must provide a supplemental income for yourself, preferably something that gives a guaranteed paycheck, like an income annuity. That will give you permission to stay the course in the stock market when it is volatile.
You mentioned an income annuity, is a CGA (charitable gift annuity) considered an income annuity? How does a CGA work?
Yes, a CGA is an income producing financial product that also is used to support a charity such as Berry College. CGAs work well if you have highly appreciated stocks or cash. This gives you the opportunity to donate the stock to charity, minimize or even avoid capital gains tax, and in return, receive a paycheck for life. It's a win-win for the charity and the donor.
The American Council on Gift Annuities (ACGA) uses government data to set the gift annuity rate of return to the donor. The income a CGA will generate is based on the amount of money donated and the donor's age. The greater the donation to establish the CGA and the older the donor, the greater the income payout will be. CGAs often give people the opportunity to make a more significant gift than they would have been able to otherwise.
At what age is someone eligible to create a charitable gift annuity?
While anyone 55 and older can establish a CGA, most people wait to create them until they reach retirement age and need the extra income. It's ideal for retirees for this reason.
What is the minimum amount needed to create a CGA?
Berry's minimum for establishing a CGA is $50,000, but the greater the gift, the greater the income stream will be.
In addition to cash, what other assets can be used to create a CGA?
The best assets to use to fund a CGA are highly appreciated stocks which allows you to avoid capital gains tax. If you've been holding on to stocks because you don't want to pay the taxes, a CGA is a great option. You can give the stocks to your favorite charity, like Berry, and receive a lifetime income.
What are the payout rates and how does that work?
Annuity payment rates are set by the American Council of Gift Annuities and are scaled by age. The rate times the gift amount equals the annual annuity payment to the donor.
In addition to helping a charity you care deeply about, what are the other benefits of establishing a CGA?
For people in retirement, it can provide supplemental income beyond Social Security income. When the stock market is down, it's not the best time to take your money out, but by purchasing a CGA, you will have that guaranteed income and you don't have to worry about the volatility of the stock market anymore.
How can someone determine whether a CGA is for them?
1.
They need to have a charity in mind that they care
deeply about.
2.
They need the income or want a "playcheck."
3. They should have highly appreciated stocks or other assets they can use to fund the CGA and avoid the capital gains tax.
These are the three elements that must be present for funding a CGA to make sense.
What else should we know about CGAs?
If you want to support a favorite charity you have a few options. You can give them an outright gift, you can name them in a bequest, or you can establish a CGA. Only one of those options creates an income stream — the CGA.
Also, once you establish a CGA, you cannot add to it, but you can establish multiple CGAs to create multiple income streams.
