Lifetime Income – Build Your Own Pension

Build Your Own “Pension Plan” with a Guaranteed Lifetime Annuity

At the age of 65, an individual can expect to live about 25 years in retirement (a bit longer if married).

Annuities generally provide at least several of the following benefits:

• A guaranteed income for life you can never outlive

• 100% principal protection (0% floor, i.e., your money will never go backwards due to negative returns in the stock market)

• Positive, tax-deferred gains (often pegged to one or more stock indices) are locked in every year (but no stock dividends) (in deferred annuities)

• A guaranteed return in the form of a “bonus” credited to the accumulation value, in a range of 5% to 10%, depending on the product

• Inflation protection

• Peace of mind

• Certainty of covering basic needs (or more), allowing riskier investing with greater potential upside

• Guaranteed minimum death benefit for heirs

• Long-term care and/or chronic illness benefits

Does a wealth-building wealth-preservation tool with some of the above-mentioned features interest you? It should if you want a safe, happy, secure retirement.

Retirement presents numerous financial risks:

Market Risk – As one approaches retirement age, whether that is age 50, 65 or 75, the risks associated with significant downturns in the stock market become greater and more critical. Think about the dot-com crash 2000-2002, the financial crisis 2007-08, the market “corrections” occurring now in 2022, and today’s general economic uncertainties. When one is younger and still earning money in the “accumulation” phase of retirement planning, one may be relatively confident that the markets will bounce back or crawl back over the long term (i.e., over a 10-15 year time span). When one is approaching or has already reached retirement, however, there is no time for a portfolio to recover.

Sequence of Returns Risk – Sequence of returns risk is related to market risk, but it is more insidious. A market downturn and corresponding decrease in portfolio value during initial retirement years can have a devastating effect on the durability of retirement savings. A market downturn in early retirement years, means the retiree must consume principal to pay retirement expenses. As a result, there is less principal for growth when the market finally picks up again. In contrast, upside growth in a bull market during early retirement years means portfolio gains can fund initial retirement and the portfolio can actually grow. Thus, even if the market grows an average of 10% over a 20-year retirement period, a retirement portfolio might run out of money (or not) depending on what the market was doing in the initial years.

Withdrawal Rate Risk – Years ago, when bonds were paying higher interest rates, the conventional wisdom said a retiree could safely withdraw 4% a year from a typical conservative retirement portfolio over the long run. Because safe, fixed income investments (e.g., bonds) now pay low interest, 3% might now be considered safe, but more realistically only 2% withdrawal of portfolio value can be recommended.

Inflation Risk – Official government data say inflation is currently (June 2022) about 9%, the highest in 40 years. Honest economists say the real number is closer to 15%. In any case, a conventional, conservative retirement portfolio containing fixed income vehicles can hardly keep pace with inflation.

Longevity Risk, a risk multiplier – Longevity risk is the risk of outliving your retirement income. The longer you live, the longer your retirement savings need to go to support you. Problem is, nobody (except the terminally ill and the suicidal) knows how long he/she will live. Do you spend down your retirement savings as if you will live 10 more years, or 30 more years? Furthermore, longevity risk is a risk multiplier – the longer one lives, the graver are the other risks mentioned above.

Two Types of Annuities

Basically, there are two types of annuity policies, (i) immediate, and (ii) deferred.

An immediate annuity’s primary purpose is to provide guaranteed income. Typically, a lump sum policy premium is paid, and then annuity payments begin immediately or within 12 months (although some companies allow deferral of income up to 40 years). Income is guaranteed for a fixed time period (e.g., 10 or 20 years) or for a lifetime (or a couple’s lifetime).

A deferred annuity is used primarily for saving and investing. A deferred annuity does not begin payments immediately; instead, it allows money to grow over time while avoiding exposure to market downturns. Importantly, taxation on gains is deferred until distributions are taken. A deferred annuity can be “annuitized”, that is, a lifetime income stream can be turned on, or income can be turned on and off (called “systemic withdrawal”). Although a deferred annuity can be annuitized, depending on various factors, it often makes more financial sense to exchange a deferred annuity for an immediate lifetime annuity to get higher payout rates.

As with most annuity products, withdrawals or annuity payments made before age 59-1/2 are generally subject to a 10% penalty in addition to income tax, unless one of certain exceptions apply.

Building Wealth with Fixed Index Annuities (FIAs)

A fixed index annuity (FIA) is a type of deferred annuity for building and preserving wealth. It provides pretty good growth potential, no downside risk (e.g., “0% floor”), and various features that make it an excellent tool for retirement planning.

Account growth of an FIA is tied to the performance of one or more market indices and credited periodically (e.g., annually).

With proper asset allocation using FIAs as a wealth-building tool, the pain of recent stock market crashes and corrections could have been significantly mitigated. Unfortunately, the vast majority of advisors giving stock and mutual fund advice do not use FIAs to help their clients. As a result, stock market downturns take a heavy toll, financially and mentally, on most US investors. FIAs can also offer more liquidity and higher lifetime income rates than some immediate annuity policies.

Fixed Annuities

A traditional fixed annuity account grows at a set, guaranteed rate (e.g., 3.5%) and provides certainty and security by paying a regular (e.g., monthly) distribution to the annuitant(s) for the lifetime of the annuitant(s). This type of annuity still exists and is still useful. Fixed annuity policies have various payout features and options, such as a guaranteed minimum payout to beneficiaries if the annuitant dies early.

Variable Annuities

A variable annuity is deferred annuity that is both an insurance product and a security, and Shoreview LLC is currently not qualified to sell or give advice on specific variable products. In a variable annuity policy, the account funds are invested directly in the market (typically in “insurance dedicated funds”, IDFs). As such, the policy account is subject to the ups and downs of the market. A variable policy provides potential for considerable upside growth, but with considerable downside risk. With the advent of risk-free fixed index annuities (FIAs), described above, the allure of variable annuities has faded.

As mentioned above, an annuity can also be owned inside an IRA or a qualified employee retirement plan (e.g., 401(k) and 403(b) plans) to protect account values against market downturns.

Inflation protection

Some lifetime-income annuities provide a limited degree of inflation protection through riders that increase payouts each year, for example, by 1%, 3% or even 5%. Another available approach is to schedule annual payments to be low initially and to increase gradually over time. Additionally, FIAs (as well as other annuities) can provide the financial security and peace of mind to make other portfolio investments that would otherwise be too risky closely before or during retirement. Such “portfolio optimization” using riskier, inflation-sensitive investments (e.g., commodities, real estate, stocks) can then match or outpace inflation. (Of course, some of the profits can then be used to purchase more guaranteed income annuities!) Similarly, since the periodic crediting rate of an FIA is based on the overall change of one or more market indices (e.g., S&P 500) over the crediting term (e.g., one year), and because market prices usually track inflation, the policy crediting rates will generally rise with inflation, although usually with a lag. Also, the fixed, guaranteed crediting rates in deferred annuity policies also track the prevailing bond rates. Bond/interest rates and inflation often correlate. As interest rates increase, the yields of bonds held by an annuity carrier also increase (with a lag), allowing the carrier to increase the periodic policy crediting rate. Any retirement planning should also address potential long term care needs (LTC costs are always inflating), which can quickly destroy an individual’s or couple’s retirement, as well as any legacy intended for children.

Lifetime Income

Different variations of annuities can provide guaranteed lifetime income; for example, Single Premium Immediate Annuity (SPIA), Deferred Income Annuity (DIA), some FIAs.

Taxation of Annuities

The account balance in an annuity grows tax deferred. If the annuity was funded with post-tax money, then the earnings portion of every distribution corresponding to growth is taxed as regular income when distributed, while the basis portion corresponding to paid-in premium is not taxed. If the annuity is owned inside a qualified retirement plan funded entirely with pre-tax money (e.g., 401(k) or IRA plan), then all distributions are taxed as income.

Access to Funds – Random Withdrawals

Immediate lifetime income annuities are not illiquid, as some people claim; rather, an owner of a lifetime annuity could generally request a lump sum payment from the policy. A deferred annuity policy typically allows withdrawal of up to 10% of account value annually, without “surrender” charges. Usually after seven to 10 years, withdrawal (surrender) charges no longer apply. Tax penalties may apply, however, when an individual makes a withdrawal before age 59½ (except in special cases, such as death or disability, first-time purchase of a home, or as part of a life-income option plan with fixed payouts). Taxation of withdrawals is done under LIFO (last in, first out) rules, which mean that earnings are presumed to be the last monies to enter the account. Therefore, earnings are considered to be withdrawn from the account balance first and taxed as ordinary income. After all earnings have been withdrawn, additional withdrawals are treated as basis and are not taxed. (In contrast, annuitized payments are taxed as explained above).

Buying Annuities within an IRA or 401(k) or other qualified retirement plans. Money grows tax-free in retirement saving plans, but it can still be exposed to the market. A big, sustained drop in the markets close to or during retirement could cause irreparable harm. Why not buy an annuity inside a retirement plan to protect principal (with a “0% floor”) and to guarantee income? Payments from a guaranteed lifetime income annuity can actually exceed the required minimum distributions (RMDs) otherwise paid from an IRA or a qualified plan.

If you would like to learn more about annuities and other insurance products for building and protecting wealth, contact Shoreview LLC or call 303-442-3100.

Copyright © 2022 Shoreview LLC

Disclosure: This information is intended for educational use only. No client or potential client should assume that any information presented or made available on or through this article or linked websites may be construed as personalized planning or advice. Personalized insurance planning and advice can only be rendered after engagement of the firm for services. Please contact Shoreview Insurance for further information.

Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained herein (including attachments and links) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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The Missing Calculation in Valuing Tesla Stock

In most discussions regarding the valuation of Tesla (TSLA) stock, the pundits debate whether or not Tesla is a tech stock, an auto stock, or a combination of both.

Recently, for example, on MSNBC’s TV show “Fast Money Halftime Report,” guests argued that Tesla (TSLA) is a “car” company and that it should be valued in comparison with car companies like Ford (F), General Motors (GM), Toyota (TM) and other “car” companies.

The fact is, the only thing in common between Tesla and the “car” companies is that all of the companies manufacture cars. Other than that, they have completely different business models and the fact that GM and other manufacturers will be producing more electric vehicles (EVs) does not change the nature of their companies.

In this article, we are setting aside the fact that Tesla may also be a tech company, in that, among other things, it is a developer and producer of charging stations, solar panels, solar glass tiles, batteries, self-driving and other software products.

And we are setting aside the fact that, in the tech world, Tesla is on the cutting edge of technology with those items. For example, Tesla was working on Level 3 charging stations when the car companies were working on Level 1 charging stations.

In weighing the value of Tesla as a company against other car manufacturers, of great significance is the fact that Tesla has no dealer body.

What does not having a dealer body mean?

First, not having a dealer body means that the billions of dollars in profits earned by the dealers who sell the vehicles for the established manufactures, such as Ford (F), General Motors (GM) and Toyota (TM) would go directly into Tesla’s coffers, and not into the coffers of dealers.

If one wanted to match apples to apples, instead of apples to oranges, perhaps it would be more appropriate to add a portion of the values of new car dealerships’ stock to Tesla’s value, instead of comparing Tesla to a single purpose manufacturer.

As of this writing, GM was selling in the neighborhood of $35 per share, Ford (F) $12 per share, and Toyota (TM) $135 per share, while the stock of companies representing dealerships selling vehicles to the public was selling for much higher values. For example, AutoNation (AN) was selling for $108, per share, Group 1 (GPI) for $179 per share and Lithia Motors (LIA) for over $200 per share. (In 2021, the dealers of those three car companies grossed over 12 Billion Dollars.*)

Second, the lack of a dealer body means the omission of several layers of management. The car companies all have National Managers, Regional Managers, District Managers, Area Managers and a plethora of support staff, to interact with their dealers. Tesla has a multi-million dollar edge by not having to support a dealer body.

The California New Car Dealer Association (CNCDA) represents nearly 1,300 franchised new car and truck dealers throughout California. Those dealers represent over 60 brands, from Acura to Volvo.

Using Toyota as an example, in 2022 Toyota had over 140 dealerships in California. Tesla only had three locations.

For the first eleven months of 2022, Tesla had more retail sales than all but one (Toyota) of the 60 car brands being sold in California.

Brand / Dealerships / Retail / Fleet

Toyota / 141 / 254,399 / 24,987

Tesla (Locations) / 3 / 162,894 / 12,875

Ford / 175 is / 132,250 / 42,375

Honda / 130 / 116,301 / 4,616

Chevrolet / 155 / 101,402 / 24,674

Mercedes-Benz / 50 / 69,073 / 10,563

Nissan / 110 / 62,365 / 12,788

Hyundai / 77 / 56,657 / 1,685

Subaru / 57 / 56,247 / 1,741

Source: Dominion Cross Sell Report, November 2022

Third, the lack of a dealer body means that Tesla does not have to build cars for markets where Electric Vehicles (EVs) would be less acceptable to the public.

Other manufacturers have dealers in every state throughout the U.S.

GM, for example, has to build cars for over 4,000 dealers throughout the U.S., and Ford has to build cars for about 3,000. All 50 states have GM and Ford dealers, in over 2,300 US cities. (Source:

Tesla, on the other hand, builds vehicles only for markets and customers that want Tesla, plus Tesla keeps 100% of the profit on the sale of those vehicles, instead of the dealer profits from mark-ups, holdbacks and incentives going to a dealer body.

Unfortunately, for those manufacturers, California is not a reflection of America, except, perhaps, for the fact that neither California, nor any of the other states have the infrastructure to support a large number of EVs.

It appears that, except for Toyota, manufacturers are entering the EV market as though the demands of the general public emulated those of the California market.

Akio Toyoda, President of Toyota Motor Corporation, has been warning the industry of that fact for months. See the December 19, 2022 Wall Street Journal article entitled “Toyota Chief says ‘Silent Majority’ Has Doubts About Pursuing Only EVs; . . .” quoted in part below:

The world’s biggest auto maker has said it sees hybrids, a technology it invented with the debut of the Toyota Prius in the 1990s, as an important option when EVs remain expensive and charging infrastructure is still being build out in many parts of the world. It is also developing zero-emission vehicles powered by hydrogen.

“Because the right answer is still unclear, we shouldn’t limit ourselves to just one option,” Mr. Toyota said. Over the past few years, Mr. Toyoda said, he has tried to convey this point to industry stakeholders, including government officials – an effort he described as tiring at times.

The Bottom Line

For now, if one had to venture now which of the car companies will be flush with cash at the end of 2023, and which will be strapped for cash, the best bets would appear to be that Tesla and Toyota will be flush, while companies like GM and Ford will be strapped.

*Three dealership groups that sell the cars the “car companies” produce:

• The total gross profit of AutoNation in 2021 was around five billion U.S. dollars

• The gross profit of Lithia Motors 2021 almost 4.3 billion U.S. dollars

• The total gross profit of Group1 in 2021 was around 2.5 billion U.S. dollars

Disclosures: The author is neither an investment broker, nor a financial advisor. The inspiration for writing this article began with the author explaining to a friend why he recently purchased Tesla stock.

John Pico is managing partner of Advising Automobile Dealers LLC, a firm that consults with dealers and lenders regarding most car dealership issues: out-of-trust, valuations, business plans, buy-sells and litigation support. Over the last 50-years he completed thousands of transactions, published several books and numerous articles.

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No Doc Loans from Private Lenders

Unlike banks, No Doc Loans from Private Lenders or hard money is supplied by private money lenders. The term hard money implies that it is secured by real assets, such as a property. Hard money loans are generally easier to obtain as compared to bank loans. But they come up with huge cost and risk to the borrower. Many startups or new entrepreneurs go for this option when they fail to get any bank loans. Let’s discuss some of the important concepts attached with a private money lender.

Private Lenders

Private Lenders are any individuals or firms that has an amount of money to lend to a borrower. Some hard money lenders have a large amount of cash available which a small number of people or businesses tend to borrow. Other lenders are large firms who have hundreds to thousands of clients in small businesses or individuals. These lenders are normally merchant cash advance providers that lend money to businesses on the condition of receiving a share in their future earnings.

How process works?

Hard money lenders loan money to small businesses and individuals and secure the loans as a share in the borrowing party’s returns. Obviously there are certain limitations in this process. Lenders tend to pick up only those businesses who have a solid security to offer, for example, a house which will be taken over by the lender in case of non-payment. However, another option lenders go for is asking a share in the business’s future earnings. A percentage of the business’s credit card transactions is automatically deducted in this process to provide the lenders their share of return on loan provided.

Risks associated with Private Lenders


One major advantage that money providers get after giving loans is to work along with small businesses. The loans are very easy to apply and can be received within a few days of application. Another major benefit for businesses is that they do not have to provide a proven sales or business record to loan providers. This is especially helpful for start-ups.


Due to the high risks associated with borrowing money from a lender for any startup, you need to thoroughly check the lender’s profile and lending history. Try to approach other borrowers who have worked with this lender and get to know their experiences. You can also check your local Better Business Bureau to see if there are any complaints lodged against the lender.

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Grades of Engine Oil: Demystifying What They Mean

Every manufacturer has a specific recommendation or minimum requirement for the type of oil a given engine will use. You might wonder, what’s the difference between different weights, grades, and viscosity? What is the difference between 5W-30 and 10W-30? What do all of these numbers mean? Can’t you use any oil in your car or does it really matter?

Deciphering the Oil Code

Terms weight, grade, or viscosity are commonly used interchangeably and basically mean the same thing. They refer to the thickness or how easily the oil flows. Using a multi-grade 5W-30 oil as an example, this type is very commonly used in millions of vehicles. The first number followed by the “W” indicates the viscosity (or thickness) for cold weather temperatures. The “W” stands for winter. The lower this first number is, the less viscous, or thinner your oil will be in lower temperatures. Though it may seem trivial, the number is of major importance.

When engines first roar to life after turning the ignition key, the oil pump tries to push the oil from the low-lying oil pan to the top of the engine, to lubricate all of the moving parts (such as pistons, camshaft, etc.) Cold starts are the time of the hardest wear-and-tear imposed on the engine. The heavier (or thicker) the oil is, the harder the oil pump works and the longer it will take for the engine to receive the crucial oil lubrication it needs to prevent metal-on-metal friction upon start-up. So, a 5W- oil will flow faster and more easily than a heavier weight oil which would have a higher number like 10W- or 15W- oil.

The second number found after the “W” specifies the viscosity in hot temperatures. The higher the number means the thicker the oil will be at the optimum temperature. In older cars it was common to switch to different weights of oils depending upon the season. It’s a practice not as common today due to manufacturers building lighter-weight engines and using different engine materials than yesteryear. It is always recommended to follow the manufacturer’s fluid specifications found in your vehicle’s manual. Using a different weight of oil than what is recommended will likely result in decreased fuel economy or greater engine wear.

Are There Exceptions to the Rule?

The occasional exception to the “follow the manufacturer’s recommendation” rule comes into play when an engine has aged, and when the moving parts may have larger clearances between components. Thicker oils can sometimes improve performance and protection in such conditions, but for most vehicle owners, stick with the vehicle manual’s specifications.

What do the Manufacturers Say?

Some manufacturers will list a range of different types of engine oil dependent upon the climate where the vehicle will be used. A heavier-weight oil would likely be recommended for vehicles in southern arid areas such as Scottsdale, Arizona, while a lighter-weight oil may be better in cooler climates as can be found in Rapid City, South Dakota. Oil in South Dakota will obviously be subjected to colder engine start-up conditions during winter months than oil in Arizona during the same timeframe.

What is Straight Oil versus Multi-Viscosity Oil?

You should never use straight oil (SAE30, SAE40, SAE50, etc.) in a system designed for a multi-viscosity oil. Straight oils are used for smaller engines or older car engines manufactured before multi-viscosity oils were created. Even though snowmobiles, ATVs, and motorcycles have smaller engines than most passenger cars and trucks, straight oils are not to be used in such vehicles. Even regular automotive oils may not be appropriate due to specific engine designs, such as two-cycle versus four-cycle motors.

Take Care of the Engine You Depend Upon

All things considered, using the proper oil grade and changing your vehicle’s oil at regular, prescribed intervals are two of the most important preventive maintenance tasks you can do for your vehicle. Failure to do so can result in oil depletion, ultimately causing a seized engine. Most repairs related to improper or negligent oil management are both preventable and expensive. It is better to invest in good automotive service practices now than pay a painful repair bill later. Knowing the correct oil to put in your vehicle (and why) makes a good first step towards taking care of the engine you depend upon.

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