Annuities the Bear Slayer

When the world is chaotic, as it is right now, we can only focus on the things over which we have some control.    Wall Street can be fickle, in fact it is manic-depressive. Most recently, there has been two market crashes in 2000 and 2008 and today there is widespread financial crises, all damaging retirement dreams.

If a salamander is cut in two, the front part of its body runs forward and the other runs back. Too often men and women fail to become secure because they habitually split themselves into mediocre pieces.

The same can be said about the market meltdown exacerbated retirees’ essential conundrum – they’re blessed with longer, more active retirements, but have to stretch their wealth accordingly.  They must confront and counter the threat of running out of money.

There is a good chance that we are in a lot more turmoil, there are reasons to suspect that the sudden plunges of the past few weeks may be unhappy omen of what is to come.  Stocks lurching wildly, up by triple digits one day, and down the next.  The Dow Jones Industrials, The Nasdaq, and the Standard and Poors 500-stock index are all in the red for the year.

The fear is that Wall Street could fall by half, or worse, over the next four years before this bear is finally slain.  Wall Street has spent too many years overvalued, from 1994 through 2008, and could be as much as 50% overvalued.

Too many investors are still running with a bull-market playbook:  Take a risk; stay full invested; buy the dips; equities always outperform.  Maybe it will work again, if we have another bull market.  Are you willing to bet your retirement on that happening?  Many investors who were “pedal to the metal” before are much less risk tolerant now, and much more concerned about capital preservation.

T-bill returns in 2009 was 0.1%; for the past 10 years, it’s been a paltry 2.8%.  In this low-yield century it will be necessary to tap principal in order to pay retirement expenses.  Since the meltdown many retirees’ are willing to forgo growth potential for safety.

The great difference between those who succeed and those who fail does not consist in the amount of work done by each, but in the amount of intelligent work and building safety of principal and growth is just common sense.

Safety which annuities offer in spades. All fixed annuities have guaranteed rates, making sure that no matter what happens in the market, your money is safe. If participating in the gains of the stock market is attractive to you, however, equity-indexed annuities offer the potential to participate in the gains, yet still be protected against the losses of the stock market – your premium stays safe, you continue to earn a minimum guaranteed rate, but market performance guides your potential gains.

Because life insurance companies offer annuities, state law and the financial strength of the insurance industry protect your money. The insurance companies that issue them are legal reserve companies, and as such are required by law to maintain substantial reserve funds to meet all their contractual obligations.

These companies are also continually scrutinized by third-party companies and rated for safety by trusted names like Standard & Poor’s, Moody’s, and the industry’s leading rating service, A.M. Best, so you can quickly assay the historical stability of a particular company to enhance your peace-of-mind. In many states, annuities often enjoy enhanced protection from creditors, as well.

Creating a margin of safety can help control some of the emotions that plague decisions, protect you when things don’t go as planned and propel you to the place you need to be to meet your objectives. The traditional approach to reducing portfolio risk is to hold fewer stocks and more bonds.  However, with interest rates at historically low levels, bonds have their own risk in this market place. 

Today as baby boomers enter retirement they are more concerned about having a reliable, steady income stream.  As interest rates fell it is difficult to live on investment interest alone.  If individuals want to assure they won’t run out of money, they might put their money into lifetime annuities.  Income annuities can add value if they are included in a retirees’ portfolio because they create an “income floor” that ensures that basic needs are met for life.

The purpose of an annuity is to help you accumulate money for future income needs. An annuity isn’t a savings account and shouldn’t be used for short term purposes. The most appropriate use for income payments from an annuity is to fund your retirement.

An annuity is a bond alternative that can be just the retirement planning tool you need instead of the same old pension schemes.  What many people like about Fixed Index Annuities is that your principal is protected unless you take all your money out early.

The magnetic needle of a compass does not point in any and all directions to focus on many stars, it points to one central North Star. This single focus has directed countless beings to safety and security over many centuries. Knowing your own central focus will bring the same serenity to your life.

For many retirees’ and near-retirees’ sleeping at night has become a valued commodity after the turmoil of the past two years.  Retirees’ and near-retirees’ are embracing a better solution than bonds, by putting more of their assets into annuities.

Annuities Are the Great Fortune Maker

Everyone wants to retire with personal and financial peace of mind. But the question is always: will there be enough money to fund a comfortable lifestyle?  What seems like a clear stream might lead to a muddy river. 

The first thing that a man should learn to do,” says Andrew Carnegie, “is to save his money. By saving his money he promotes thrift, – the most valued of all habits. Thrift is the great fortune-maker. It draws the line between the savage and the civilized man. Thrift not only develops the fortune, but it develops also, the man’s character.”

Some people who spend every cent of their income are heard complaining about the fact that they have never become rich. They pick out some other man who is known to have made a fortune and speak of him as being “lucky”.

Before the 2008 market crash, very few baby boomers had retirement plans, but millions had retirement expectations. The bull market and strong economy that preceded the downturn had created a fantasy world of wealth.  In the wake of the meltdown, investors are trying to recoup losses in their portfolios while also struggling to recover emotionally from the experience.

In a shockingly brief period, people’s homes went from being their most significant asset to their greatest financial liability.  The housing boom gave millions of Americans a daily reminder of their investing savvy and created a widespread sense of overconfidence.

The housing market collapse dealt a devastating blow to the egos of many investors who made the mistake of viewing their homes as a retirement fund. Letting emotion dictate our actions can lead to bad financial habits that perpetuate a dangerous cycle of overspending and rising debt.

The resulting loss of confidence can bleed into the rest of their financial decisions.  One of the primary elements of thrift is to spend less than you earn, to save a regular portion from the salary received in an effort to plan for future comfort and opportunity.

If you had saved but had your retirement pot emptied by the recession, maybe it’s time to consider the advantages offered by an annuity rescue program, by addressing every conceivable concern—about setting up a sound plan for retirement.  

You can annuitize your 401k and IRA investments, in other words, you can have the funds from the investment dispersed to you throughout different pre determined time periods.  You can choose to have them dispersed for life, 20 years, 10 years, or 5 years etc.  In very simple terms, an annuity could be said to mean income. Taking it deeper, an annuity can be defined as income from capital investment paid in a series of regular payments.

A reasonably healthy couple, each of whom is 65, will likely be around for quite a while, and one member of the couple could easily live 20 years or more. Much of this has changed because of improved treatments for heart disease, stroke and other diseases has expanded life spans and have extended individuals ability to remain active.   Therefore, retirement planning needs to account for a potentially long life span.

But longevity has its price. The fear of running out of money ranks as the top concern many of us have about retirement. Adding the 2008/2009 market meltdown and the trauma it left in its wake among investors you’ll find a high level of anxiety – as many sold assets at the worst possible moment. What can you do to rebuild your own retirement and to make sure you won’t run out of money.

If you are going to invest for yourself then you have to invest lots of time and energy in learning to handle your assets properly. Peering into the future to estimate investment returns is as much art as it is science. So be conservative in your assumptions. Be careful “this time is different” are perhaps the four most dangerous words in investing.

A safe estimate in the past has been to follow a 4% withdrawal rate from your portfolio.  That is, if someone has a long-term portfolio, then he or she should be able to withdraw 4% per year (increased for annual inflation) from that portfolio without drawing it down to zero over the course of a normal retirement.  However, you still can run out of money. 

A better plan that has built in safety and also has a larger payout is an annuity.  You can put a certain percentage of your retirement money into an annuity and draw off of it to help cover your monthly living expenses, while the remainder of your money continues to earn a return on your other investments. 

If you’re looking for principle protection, while maintaining the potential for additional interest credit, you may benefit from a fixed indexed annuity with an income rider. A fixed indexed annuity, commonly referred to as an FIA, is a product that offers this and much more.

So what exactly is an FIA? It’s a product with insurance benefits such as minimum guarantees and death benefits along with interest-crediting based, in part, on the performance of a market index. It can include index caps, index spreads and participation rates, so it may not receive the full increase of a market index.

Whether the market is up, down or flat, an FIA gives you protection of principle (minus withdrawals and surrender charges) found with a traditional fixed annuity along with potential for additional interest credit linked, in part, to the performance of a market index.

You can protect your retirement savings from future market dips. An annuity can help. With fixed indexed annuities, an unpredictable market isn’t so intimidating.

Fixed index annuities allow you to manage risk while you take advantage of opportunities. With a fixed index annuity, you can:

• Protect your principle from market fluctuations
• Take Advantage of potential growth from indexed interest
• Benefit from tax deferral

Thrift involves self-denial and frugal living for the time being, until the prosperity which grows out of thrift permits one to indulge more liberally on that which is desired. Only after wealth is built, can one afford the man-made luxuries of life.  A Fixed Indexed Annuity with an Income Rider can be the thriftest plan of all.

Annuities Take the Mystery Out of Retirement Income

A stream cannot rise higher than its water source.  We already had a retirement crisis before the meltdown, what we have now is a real mess.  Last week the three major market averages retreated between 2% and 3%. 

For many Americans, retiring in this century is a mystery. Earlier generations of workers could rely on employer-provided pensions, but now many workers will need to rely on their own work-related and personal savings plus Social Security benefits. These savings have to last longer because Americans are living longer, often into their eighties and nineties.

When the bottom dropped out of the economy and our financial markets in latter part of 2008, it became clear that traditional retirement planning didn’t work for millions of Americans whose retirement security is at risk.  The financial crisis has caused many people to do irrational things with their money and make emotional decisions that may have been detrimental to their retirement plans.

The tradeoff for aiming for higher returns is taking on more risk, including the risk of losing money.  I do not know of  anyone personally who has “never lost” any money in the stock market. Security prices can fall, as we saw with stocks in 2000, 2001, and 2008. The difference between uncertainty and certainty; overspending, taxes, the housing market and healthcare — where the meltdown has had a significant impact on investors’ psychology and, ultimately, their retirement readiness. Corporate America is beginning to try the patience of some investors.

For today’s investor there are all kinds of venues to pursue. You have the choice of stocks, bonds, mutual funds, property investing, and many categories of each of these in between. One thing that I do know is whether you’re an optimist or a pessimist about interest and rates of return, being conservative in your estimates is safer; it is better to have extra money than too little.

One of the great mysteries in retirement planning is whether your spending will go down, go up, or stay about same.  Are you more optimistic about the future cost of living or have you resigned to a humbler lifestyle once the paychecks stop coming. Fear and anxiety are quite common emotions to experience when handling funds that will have such a profound effect on your future and that of your family. 

Women especially, need to be concerned.  One reason women need to get their finances under control is because no one will do it for them.  Whether they’re facing divorce, widowhood or caring for an aging parent, women have a much greater chance of being the lone provider and fending for themselves at some point in their lives. The days of just sitting back and letting your husband take care of the checkbook and living off his pension are long gone.

The origin of the word thrift means the grasping or holding fast to the things that we have. It implies economy and carefulness, as opposed to waste and extravagance. “He can who thinks he can, and he can’t who thinks he can’t.” This is an indisputable law of mankind.  Never allow anybody or any misfortune to shake your firm belief in yourself. You may lose property, reputation or even your good health; but there is always hope for you so long as you maintain a strong faith in yourself.

The miracles of civilization have been performed by men and women of great self-confidence, who had an unwavering faith in their power to accomplish any task they accepted.

Our world would be centuries behind what it is today had it not been for their grit, their determination, their persistence in finding and making real the thing they believed in. There is no law by which you can achieve success in anything without expecting it, demanding it, assuming it. There must be a strong, firm, self-faith first, or success will never come.

There is little room for chance in nature’s world of system and supreme order. Everything must have a specific expectation. No matter how great the ability; how large the genius; or how splendid the education, the achievement will never rise higher than the man or woman’s confidence.

“Nothing else will so assist you to accomplish great things as to believe in your own greatness.”   - Mirabeau

Do not worry too much about putting your money in one place. You can split it up so that you are investing into more than just one idea. This will help you earn more money and give you more income for when you retire. You will also notice that some of the investments that you are taking part in go up and down. This is normal.

You should not panic when you see that something is falling in the stock market. Usually it will go back up within a short time. All you have to do is keep an eye on it and make sure that it is not falling anymore than usual. This is a retirement planning secret that many people get all worked up about even though it is going to happen.  By putting a portion of your investments into a guaranteed income annuity, you are building a safety net that takes some of the mystery out of wondering if you will have enough to cover your expenses for your lifetime, Guraranteed!!! 

By putting only a small portion of your assets into an income annuity, (safety net) of income  you may generate more income than you could on your own. Plus, you can help manage market fluctuations and receive a guaranteed stream of income that you can use to cover basic expenses for the rest of your life. This could free up other financial resources, so you can do more of the things you enjoy.

An income annuity (sometimes called a longevity annuity) is a way to maximize your retirement assets. You can purchase one with a small portion of your assets…and get significant lifetime income payments at a specific time later in life. With an income annuity, you know how much income you’ll receive and when it will begin.

You can think of an income annuity as life insurance in reverse. With life insurance, you make a series of payments to an insurance company and eventually, your beneficiary receives a lump sum payment when you die. With an income annuity, you do the opposite. You make a single premium payment and either immediately or at some point later in life, you receive a series of payments that can last as long as you live.  Because of that, you are guaranteed to receive lifetime income and you may get more income than you would if you’d tried to invest it yourself.

If you have a qualified annuity, all of the principal and earnings you withdraw will be taxed at ordinary income tax rates. If you have a non-qualified annuity, just the earnings portion of the payments is taxed as ordinary income.

Each non-qualified annuity payment you receive will be a combination of taxable and non-taxable income. This is a good way to help manage your taxes on an ongoing basis.

Overcoming The Retirement Road Blocks – Income Annuities

Becoming educated about your finances will play a major role in your financial future. Knowledge is a very powerful tool and therefore you should strive to enhance it to the best of your ability.

Many people ignore or just think they know everything there is to know, and this is where failure begins, so the better your financial knowledge is, the easier it will be to get there. 

You need an overview of investments such as what a bond is, how savings accounts work, and how the stock market functions. 

In the 1990’s it was the dot-com bubble, yet in the great crash of 2000 -2001 the technology heavy NASDQ stock index dropped 70 percent.  The housing bubble crashed in 2009 and once again the market tanked.

Basic economics:  When speculation gets out of hand, prices cannot be sustained.  Fortunes are made on the way up, but with so many people willing to buy, the sellers arrive. 

The bubble bursts, prices hurtle down, and tens of thousands of people lose their life savings.  It is like a bunch of dominoes laid out on their ends, you tip the first one and they all go down. This bubble bursting has caused an financial emergency with retired and near retirees.

In any emergency, the arrival of a man or woman who is prompt and quick to decide a course of action, will most assuredly change the face of everything. Look for what is and what can be. There is an old expression, “Ask yourself what isn’t, then ask yourself why not?” You have to do with your investments like real estate developers did with land: Buy it by the acre, and resell it by the square foot. 

Those who have left their mark upon their century have been men and women of great and prompt decision. In contrast, an undecided person is one who is always struggling between two differing opinions; forever debating which of two courses to pursue.

The man who is thoughtful, yet quick to decide, does not submit to circumstances or events – he makes them submit to him. The power to decide instantly the best course to pursue, and willingly tackle every obstacle that gets in the way of that pursuit, is one of the most potent forces in winning success.

To hesitate is sometimes to risk losing. In fact, the one who is forever twisting and turning, backpedaling, weighing and balancing over every tiny possibility in order to extinguish any bit of risk – will never accomplish anything.

Some minds are so weak that they are bewildered and dazed whenever a new option is presented to them; they have a fear and dread of having to decide anything.

“Of all the sad works of tongue or pen, the saddest are these:  It might have been.” John.G. Whittier

Most people are so focused on doing that we neglect the mental work that comes first.  You don’t despair when there’s a brick wall in your way, you go through it, over it, or around it.

Investing is a big job and to win you have to do a lot of research and learn everything you can about the companies you are buying. However, since the 1970’s a chain of events have been occurring in that the majority of new businesses in America have come from small “LifeStyle” businesses that are aimed at putting food on the table and keeping roofs over our heads.  Meanwhile Fortune 500 companies have been steadily declining.  Yet these are the companies that people are investing in.

We all have to remember that the purpose of business is to create customers.  The world of big business all require manufacturing, financing, accounting, and selling components and are all locked together like a jigsaw puzzle. Integrity of many of our CEO’s is a thing of the past.  The three C’s – Collateral, Credit and Character are three most important criteria in the business world. But what has been the actual experience with these Fortune 500 companies, it is my belief they have forgotten those important C’s. 

I think that we all need to invoke the “FUD” factor:  Fear, Uncertainty and Doubt about any decision regarding investing in these companies.  You need to spot “Fault Lines” in order to recognize when times of change are occurring, but also, that it’s in times of change that the greatest opportunities arise.  Not one person lost one dime when invested with an insurance annuity during the past two bubble bursting crisis. Today, annuities are even more in demand.  Why?

Insurance Companies have dusted off an old concept, Defined Benefit Pension Plans and are re-introducing them to the public.  You buy insurance to guarantee your income.   The guaranteed payouts on fixed indexed annuities that have an income rider offers insurance against the kinds of rocky times investors have been weathering of late.

These annuities are insurance contracts that convert your cash into a preset stream of income that can last the rest of your life.  For many retirees, that sounds especially good against the backdrop of, first, a shaky stock market and, second, concerns that bond yields are so low that whenever interest rates rise—and prices fall—they will be hit with losses.

Given that we’re in a pretty low interest-rate environment you might not want to lock in your entire amount. One strategy is to put money into annuities in several lumps over time, rather than all at once. That would allow an investor to get the annuity guarantees on some portion of the money while, hopefully, capturing the better returns whenever interest rates rise in the future. The remaining money can be held in cash or, depending on the time frame, placed in an investment that will hopefully grow at a higher rate of return than can be earned in the annuity.

Insurance firms are well aware of the hesitation to commit to an annuity in a low interest-rate environment. So in recent years more have been offering immediate annuities that adjust for inflation.  Some annuities will raise the payout based on changes in the CPI while others offer contracts where the payout is increased by a fixed amount — such as 2% or 3% — every year for life. Some companies offer both options.

Income riders provide consumers with a guaranteed income for life (similar to what annuitization provides), but without having to give up access to remaining principal — a feature that caused many consumers to shy away from annuitization in the first place.

By purchasing an income rider on a fixed indexed annuity, the consumer benefits from the income rider while also being protected from investment risk.  An income rider on a fixed or fixed indexed annuity allows a retiree to build a secure retirement income. The issuing insurance carrier guarantees the payout provided by the income rider for the life of the annuity owner, as well as bearing all of the investment and longevity risk on the guaranteed payout — which means that the consumer is completely protected from these risks.

While taking these withdrawals, the retiree is provided with two very valuable guarantees.

1. Although the annual withdrawals are deducted from the accumulation value, the additional interest (declared or indexed) continues to be credited to the accumulation value, and the retiree retains access to the remaining accumulation value at all times.
2. Even if the annual withdrawals ultimately deplete the accumulation value, the issuing carrier must continue making the annual payments as long as the retiree lives.

Much of the growth in the stock market came from the introduction of the defined contribution pension program called 401k’s.  People were put in charge of providing the retirement funds themselves and as such millions of dollars flowed into mutual funds again causing a market bubble. 

Most of these baby boomer investors will now be retiring and will be taking that money out of the market by the millions, thus causing a burst in the market.  Do you want to chance losing your retirement funds?