Don’t Sit on Old Annuities and 401(k) Accounts

Categories : Financial, News
July 26, 2023

Comprehensive personal financial planning begins with just plain getting organized. The best way to start is to prepare a Personal Net Worth Statement. Conceptually, that is as simple as listing all your assets, and subtracting from that total all your liabilities (debts). This produces a snapshot of your financial position at one point in time, called your Net Worth, or your wealth. In corporate accounting, the equivalent process produces a Balance Sheet.

In financial media and politics, wealth is often mis-defined using income. A millionaire has a Net Worth of $1,000,000+, but too often the term is applied to someone with a Million Dollar annual income. Many wealthy Americans have low incomes, because they own assets that do not provide income, preferring assets with a good chance of increasing in value (growth assets). Conversely, many high-income Americans have a low (or even negative) Net Worth, because their assets are burdened with mortgages or other liabilities. Wealth refers to Net Worth, whether individual or corporate.

A reasonable goal when entering into a Comprehensive Financial Plan is to establish a Net Worth target. Whether working with a competent financial advisor, or simply playing the home game, deciding on a target is vital to beginning a plan to achieve the goal of Financial Independence.

Problematic for many people is identifying and valuing all assets. Home values change over time, bank accounts and brokerage accounts fluctuate, and many forget to count items such as life insurance and annuity contracts. Others have old 401(k) accounts they left behind and rarely think to include those values as assets. Competent financial planners will remind clients to dig through everything to find forgotten assets. Old insurance policies, annuity contracts, and 401(k) Plans may be valuable, and must be included.

Thanks to various pension reform legislation, accounts can generally be rolled over into self-directed IRAs, to be invested in a manner consistent with reaching defined goals. In our “day jobs” as Certified Financial PlannersÒ, we have assisted many clients in finding and regaining control of forgotten (or even ignored) assets. Annuities are classic examples, as most underperform market-based portfolios over time. Depending on the individual annuity and the nature of the ownership, most can be incorporated into a comprehensive investment plan.

Every retiree needs a level of lifetime income, which can include Social Security, pensions (public or private), and annuities. Loads of annuities have been sold over many decades to unsuspecting Americans who do not need them. Many of those can be converted to more productive uses. We can help.

Van Wie Financial is fee-only. For a reason.