Golden Touch For Retirees’

Retired life can take on a new meaning if it is planned well. This is the best time to enjoy all the pleasures of life. When thinking about your retirement, which is the first stage in planning and investing for it, in the end, retirement needs to be a moment which you get pleasure from.

Make sure you save sufficient money to last you for many years after retirement as you could live a long, fruitful, healthy life. Ensuring that you’re taken care of during old age or possible illness are the kind of decisions you want to make when you’re planning for retirement. 

Stressing about money is not something you should have to do while you are older and no longer working.

The Wall Street Journal ran a piece this week on the psychology of gratitude. According to scientific studies, people who are grateful “earn more money, sleep more soundly, exercise more regularly and have greater resistance to viral infections.

The Golden Touch:  Knowing how to make money, knowing what to do with money once you have it, knowing how to keep people from taking your money away from you, knowing how to keep your money for the long term, and knowing how to make your money work for you- is of vital importance in the quest to achieving financial freedom.

Most retirees really like having the security of solid financial plans in place, so are grateful there’s a good likelihood that they won’t be a burden on their family.  However, adequate funds have to be set aside so that you are able to cover all expenses during the retirement age, when there is no source of income.

Making decisions based on a calculation of the amount you’ll need to live after retirement is what should be involved in a financially secure retirement, however the recent recession has presented obstacles in achieving that goal for many retirees and near retiree’s. 

The economy has been very unstable lately so there has been some uncertainty as where to invest your money. Unless you’ve got a plan for the future, this economy has made it almost impossible to retire.  Let’s review!

What is an “economy,” anyway?

Loosely stated, an economy is all the activities involved with the production and distribution of goods and services in a geographic area. There are many moving pieces, some more important than others. For investors, there are six primary factors to understand:

• Employment
• Personal income
• Retail sales
• Consumer confidence
• Government spending
• Monetary policy

Employment: “I have a job.” One thing that we have learned from this recession is just how valuable it is to have the ability to earn a stream of income for decades to come. For people in their 30s and even 40s, their employability is arguably their largest economic asset.

For this reason, employment is the single most important variable in the health of any economy. Jobs are the engine that drives economies. Jobs provide the monetary source (employee compensation) that keeps all the other parts moving. We evaluate employment by measuring its inverse—unemployment. When unemployment is low, economies expand.

Personal income: “I get paid.” People with jobs get paychecks. The buying power of these cumulative paychecks is tracked as personal income. Personal income transfers the power of employment to the rest of the economy. When personal income increases, the economy tends to expand.

Retail sales: “I go shopping.” Buying power from personal income translates into spending power, which can be measured by retail sales. When retail sales increase, the economy tends to expand.

Consumer confidence: “I feel optimistic about the future.” Consumer spending represents two-thirds of U.S. economic growth, so knowing how likely consumers are to spend their personal income is an important forward-looking indicator. This is measured by the consumer confidence survey. The importance of consumer attitudes has never been more evident than in this sluggish recovery. Losing your job, or being worried that you will lose your job, can put a damper on all but the most necessary spending.

Government spending: “Uncle Sam goes shopping.” When we get paid, Uncle Sam gets paid with our taxes. If the government wants to spend more than it raises in taxes, it borrows money by selling bonds. We are currently seeing a high level of government spending to try and compensate for the continued lag in consumer spending. Government spending is probably the “squishiest” of all the data points, but in a broad sense, if the current deficit is growing, then the government by definition is spending more than the tax revenue it brings in.

Unlike the government, when it comes to financial retirement planning, it’s mostly common sense.  Some of the most important decisions of your life are the decisions you make when planning for retirement. You could end up having a comfortable retirement or you would depend on others for your well-being and not being able to afford proper health care.

As you approach retirement you will need to make sure that your finances are in good shape – check that your financial portfolio still suits your plans and your attitude to risk. There are numerous choices available to you when you wish to save for your retirement plan, but some of them are perfect alternatives regardless of what your goals are. 

Creating a retirement strategy includes where you’re going to place investments and for what period of time. It is critical that you ensure you’re making an investment in something that’s a relatively safe and trustworthy investment.

Perhaps the virtually all vital factor to consider when you are considering making an investment for retirement is that you will get more than one chance to invest your money. In case you lose everything, then you have got to start completely back at square one.  You don’t want to retire with most of your funds in the stock market only to see a big portion disappear in the event of another downturn in the market.

In order for you not to find yourself short of funds when you retire many retirees are choosing to put some of their retirement funds in an annuity.  The interest rates around for an annuity are a lot larger than available with current account from most high street banks, meaning they can offer you a chance to maximize your investment.  Annuities are one of the most important and inevitable and lucrative policies for the welfare of the elderly of America.

A Fixed Index Annuity is not an investment in the stock market. Rather, it links your interest to a percentage of the growth of a major market index (not including dividends), typically the Standard and Poor 500 Index, Nasdaq, or Dow are the common indices that are used.

At the end of the year, a Fixed Index Annuity will credit you with all of the growth of the index up to a pre-determined limit. That ceiling might be an annual or a monthly cap, or a percentage of the growth of the index. In other words, if the annual cap were 9% and the index grew 12%, you would be credited with 9% interest for the year and that interest would be added to your annuity and would “lock in”; guaranteed never to be lost, providing that you stick with the terms of the contract.

Your principal is guaranteed against market risk from day one and your interest gains lock in each year on your contract anniversary and cannot be taken away in future market downturns. In other words, you can participate in a percentage of the upside of a major market index, but you are never exposed to any of the downside market risk!

At the end of the year, you will never lose money in the market, because a Fixed Index Annuity is not a stock market investment, but rather it is a fixed financial product backed up by an insurance company with interest gains linked to a percentage of a market index. They are not designed to “beat the market” but to give you a better than average opportunity for a better than average rate of credited interest on your money.

Most importantly a equity indexed deferred annuity provides you with the option to convert your account to a stream of payments that can last for your entire life. Known as annuitization, this gives you the option to receive periodic payments (e.g., monthly, quarterly, or annually) from your annuity for a fixed period of time, such as ten years, or for the rest of your life.

Category 4 Economic Hurricane

One reason more future retirees fear they will not be able to live comfortably in retirement may have to do with the impact of recent economic trends on their financial well being.  Following a period of economic boom, a financial bubble—has now burst.

Plummeting stock markets have wiped out 33% of the value of investments. Alarming front-page headlines tell about the destruction of $2 trillion of wealth held in individual retirement accounts that may have left 43 percent of households without sufficient future income.

The last couple of years have been rough on everyone, but those who already traded a paycheck for retirement are particularly vulnerable to volatile stock markets, inflation, and other economic events.

For many Americans, retirement is a lot more elusive than it was a year ago. The bedrock upon which their plans were based — a 401(k) that keeps growing and a home with a nice chunk of equity — has crumbled beneath them.  The uncertain market and shrinking returns on retirement funds make retiring a difficult prospect.

The effects of the recent financial crisis reach into nearly every home and touch average citizens in ways they seem to have little influence on. One group particularly hard hit includes many retirees, and those close to retirement. The economic turmoil of the past few years has taken a major toll on the retirement dreams of those age 60 and older.

Once upon a time, retirement was referred to as the “Golden Years.” Today, with the economy struggling to emerge from recession and equity markets limping along, the promise of retirement as a time of relative comfort, leisure and prosperity has evaporated in the eyes of many Americans near retirement age.

This year is supposed to be the beginning of a “silver tsunami.” That’s because the first wave of the 78 million people in the baby boomer generation can start collecting Social Security benefits.

Surprises also come in the form of stock market losses, high inflation, or a decline in home values. To weather these surprises, having an investment plan is important. Your plan should, at a minimum, include diversification, asset allocation, and liquidity.

We humans really don’t like change and typically resist embracing it.  If you’ve been mauled by a bear, how do you get someone back in the woods?  “People are growing more concerned about outliving their resources

What is the gap between your monthly income from guaranteed sources (Social Security, pension, annuity payments) and your expenses?

One favorite sayings is, “Money doesn’t grow on trees.” By the time this is over, people will be saying, “Money doesn’t sprout from credit cards.”

There is all kinds of personality types. One of the most troubled have been the serial spenders… deluded individuals that simply can’t help but buy all that their hearts desire, no matter how much pain results from their debt-financed spending.

Older workers’ portfolios have fared especially poorly in the downturn. The typical account balance for workers older than 55 with more than 20 years in the same job has fallen more than 18 percent since 2008.

When investors are bent on avoiding short-term volatility (read losses) and park their entire savings into low-risk bonds, CDs or money market funds, they run into another potential pitfall: that they will outlive their money. Or, in other words, that inflation will eat up their savings. “The biggest risk in retirement is longevity. That the cost of things you want will go up and that you’ll be buying them for a long time.”

Can the average person do something to help stabilize the situation, and bring security and comfort to his or her own financial picture?

If you are approaching retirement and have the majority of your portfolio invested in stocks, you may want to take a lower-risk approach for the portion you expect to cover your shorter-term cash flow needs. “Taking a certain percentage of an equity portfolio and liquidating for cash needs could be a good way to average out a portfolio.  Many people simply want a retirement plan that lets them sleep at night.  

With such great advances in medical technology today, many people will live 20 or more years in retirement. While this is wonderful news, it does bring about one dilemma – what to do about the possibility of outliving your savings. The longer you expect to live, the more an immediate income annuity makes sense. So if you think there is reasonable chance you will have a longer than average life span, never running out of income is a great benefit.

Suppose each year you spend more of your investments than you should. You are at risk of running out of money in five to ten years. Protect yourself from yourself. Take some of your assets now and buy an immediate annuity so you if you spend the rest you have at least secured a minimum amount of guaranteed income.

By having guaranteed minimum income benefit you will have peace of mind and not worry about finances anymore.

An annuity provides a guaranteed income. For an individual with a 401(k) plan or other savings, An income annuity not only adds to their total income, but makes it less risky to continue investing in stocks into retirement. This is critical to keeping pace with inflation in later years.

An Equity indexed annuity with an income rider is a contract  that is based on a dual-design and is between you and the insurance company that provides:   1) Guaranteed return of principal.  2) Returns linked to the S&P 500 index.

The guaranteed income rider allows the investor to make withdrawals for life while retaining access to principal. This annuity features a guaranteed lifetime withdrawal benefit with a guaranteed increase of the payment usually is 5-6% or in some cases 7 % in returns even if the market is down percent every year. Now, this benefit provides a higher value to your annuity, which you cannot obtain if you cash-out your annuity, but provides a much greater value to calculate the payments that your lifetime income is based upon.

The accumulation value is the “Real Dollar Value.”  If you invest $100,000 in an indexed annuity, its growth is attached to a specific index (S&P, Dow Jones etc) and subject to all applicable modifiers (caps, spreads, participation rates, averaging.)  At death or walk-away, the client or beneficiary receives the annuity’s accumulation value.

The other value is the rollup amount, (a Phantom Number) which increases at a guaranteed percentage (typically ranging from 5% – 8%).  This is the value that is used to calculate the client’s income.  On a $100,000 investment, a 10 year rollup at 8% compounded would result in a rollup amount of $215,892.  The client’s income stream is based on an annual percentage of that amount and their age. 

This  Contract Value is a “Income Only Bucket” and is a separate account and is credited by the company with 5% -8% per year until income is desired. (i.e. You tell the company that you want to start receiving income).  When the income is desired the company will look to this value (or whichever is higher between the “real” value and the “phantom” value) and pay out a percentage of that value for life.  The percentage payout is based on age.  Once established the income does not change. 

One of the biggest obstacles for potential clients to buy an immediate annuity used to be fear of losing control of their mone.  Today it’s not an all or nothing decision. Two thirds of the contracts allow annuitants to convert a portion of remaining payments to cash, if necessary.

This stability gives investors the freedom to use other resources more freely and aggressively in stocks with potential for higher long-term returns as the fixed index annuity safely covers basic income needs regardless of the portfolio’s yearly return.

Reliability of Income

There is no one size fits all solution to every income need.  Today’s baby boomer generation has another, perhaps greater financial worry, which is living too long (aka “longevity risk”).  

Planning doesn’t guarantee perfection, but not planning virtually guarantees failure.  

The longer you live the longer you are likely to live.  When you hit 65, you have a 50% chance of living another 20 years.

Which means one will want to have planned for at least that amount of time and probably more.  When planning for retirement, and not understanding and/or underestimating life expectancy is a potentially disastrous miscalculation.

The retirement security of boomers and others will likely depend more on individual savings and returns on such savings. This is due, in part, to the decline in traditional pensions that provide guaranteed retirement income and the rise in account-based defined contribution plans.  

There is a standard rule of thumb that… your spending needs in retirement will likely amount to 75% to 85% of your pre-retirement salary. However…many retirees said their financial needs equal or exceed their spending during their working years.

The combination of: a) living longer; b) skyrocketing health costs; and c) uncertainty surrounding entitlement programs such as Social Security and Medicare make longevity risk an important area for individuals to address.

Insurance companies have done pretty well with baby boomers over the years. When baby boomers were in mid-career, financial institutions rose to the occasion and marketed a variety of products for boomers to build nest eggs.

Now that boomers are starting to move into a new phase of their lives (retirement), these same institutions are creating new products to once again help you on the route you want to go. At some point ROI will mean “Reliability of Income” to each of us, not just “Return on Investment”.

Depending on a variety of factors, annuities might be a prudent aspect of your financial planning. Then again, so might switching long distance carriers, getting aluminum siding on your house, or rid your home of “housitosis”.

Just because someone is pushing them on you doesn’t mean they are right.  However, individual financial security in retirement faces enormous uncertainties with regard to Social Security and rising health costs. The best advice is – Select products that create “Reliability of Income”.

There is one asset that is directly tied to your living: “Longevity Insurance”. Annuities can be difficult to evaluate. One reason is that longevity is very difficult to predict–especially over a long time period. Will there be medical advances that cure cancer, Alzheimer’s, pneumonia, etc.

Products with some equity participation with no risk to principal are smart choices. Otherwise, extended bear markets can devastate assets, regardless of the best laid plan.

Indexed annuities with an annuity income riders are designed to provide safety of investment, predictable, guaranteed, lifetime income and peace of mind to people who are worried about running out of money in retirement. One attractive advantage of this rider is that you can present a dollar amount for the guaranteed payout for life.  You don’t have to speculate your income.  This gives you guaranteed numbers that will never go down or go away. Real Lifetime Income!

A Fixed Indexed Annuity is such a very hot investment option these days because they provide benefits unmatched by other investment options, such as fixed annuities, variable annuities, and certificates of deposit.

This type of investment utilizes the stock market, which can provide very high returns. You are also guaranteed a rate of return from the insurance company. This factor makes the indexed annuity similar to the fixed annuity, but the added bonus of stock market capabilities makes this tool much more attractive. Essentially, you will make money when the stock market rises, but not lose money when it falls. So, this type of annuity is very safe.

Since this type of annuity is tied to the stock market (typically the Standard and Poor’s 500), it is somewhat similar to a mutual fund. Most managers will invest very conservatively especially if the economy is down, like today’s market.

The one thing to keep in mind when discussing the stock market’s role in this investment is that you are not investing in individual shares of stocks per se, you own an insurance contract.  There are some complicated parts of the contract that the policyholder needs to understand.

An equity-indexed annuity is a type of annuity that grows and earns interest based on a formula related to a specific stock market index.  Returns are typically figured by tracking common indexes such as the S & P 500 using a variety of crediting methods. 

A Fixed Indexed Annuity allows you to still participate in a portion of the market gains, which are locked in every year, as well as guarantee you will not lose any of your principal if held to maturity. Annuities can also offer flexible payout options to help retirees meet their cash-flow needs. 

EIA Common Terminology
Although EIA contracts share the same objectives, they can vary a great deal. Here a important terms to help you understand your options: 

Term: The length of time of a penalty period or the time an investor has the option to renew. Typically a term is a period of three to seven years.  After the first year you can access up to 10% per calendar year penalty free.

Participation rate: Also known as the index rate, the percentage rate reveals how much a contract will grow. For example: “75% of the Standard and Poor’s index increase for the calendar year” means that if the Standard and Poor’s 500 index increases 10% for the year, the contract receives a 7.5% increase in credit. Often, the rate is 100%. The insurance company can change the participation rate. 

Cap rate: The annual maximum increase in percentage allowed. For example, if the contract’s cap rate is 7% and the chosen market index increases 15%, then the increase is limited to 7%. The insurance company can change the cap rate and some contracts do not have a cap rate. 

Floor: The minimum guaranteed amount credited to the contract, typically in the two to three percent range. Gains you earn are locked in annually and your principal is protected from market downturns.

Reference or contract value: The amount the investor is entitled to. For example, the greater of the current account value less any remaining surrender charges.

Anniversary date: The date that marks the beginning of the term used to measure how much the annuity contract has grown.

Other factors:

Guaranteed death benefits: If annuitant (contract owner) dies before the annuity begins paying, some contracts pay the named beneficiary the greater of the investment (less withdrawals) or the contract value on the death date. The contract balance transfers at death penalty-free to the designated beneficiary.

Regulation: Even though the stock market influences the EIA, the laws that regulate securities, such as stocks and bonds, do not currently apply to an EIA.  The States regulate the sale of these products and as a result are covered under your states guarantee regulations.  States have guaranty funds to help pay the claims of financially impaired insurance companies adding a level of guaranteed financial security.

Contract fees and charges: Even though EIA’s do not have any fees associated with them. Make sure you know what you are buying. There are some disadvantages to the indexed annuity. The first disadvantage is that the indexed annuity is complex, based on the number of factors that are involved, the methods of interest calculation, and the unpredictable stock market.

Second, you may incur surrender charges if you withdraw the earnings before the policy term is complete. This charge is typically a percentage and may be imposed yearly across the length of the term of the policy. This charge is to cover the insurance company in case the market takes a turn for the worse and the policy loses money. However, some contracts will allow you to take out part of your money once or twice during the year.

Third, the contract usually has a vesting schedule, which is the amount of earnings the policyholder receives in case of early withdrawal. The percentage generally rises as the term approaches the end and is always at 100 percent at the end.

Surrender charges can range from 0 to 15% and decline over time. Surrender charges result in a redemption that’s less than the principal amount invested.

Taxes on Annuity Payments:

All gains are tax deferred until withdrawal, although there could be tax penalties if the gains are withdrawn before 59 ½.

How payments from an annuity may be taxed varies, depending on the life cycle of the annuity. Based on federal law, generally the following rules may apply: Before annuitization: Any funds withdrawn from an annuity contract prior to annuitization (before payments begin) are considered to be from interest or other growth. These earnings are taxable just like ordinary income.

If the annuity owner is under age 59 ½ at the time of withdrawal, the earnings are also subject to a 10% IRS penalty. If earnings are completely withdrawn and the payments are made from the owner’s initial investment, the withdrawal is treated as recovery of capital and tax free. Changes to the annuity contract, including loans, collateral assignments, and changes in ownership may be taxed.

After annuitization: Annuity payments are treated a part earnings and part capital return. The earnings portion is taxable. Once the owner has completely recovered his or her investment, all remaining payments are fully taxable as income.

Exchange Your Annuity:  Another option you may want to consider is switching one annuity for another. You can do this without paying taxes. Exchanging one contract for another is a 1035 exchange (named after Section 1035 of the federal tax code).

In a 1035 exchange, you can exchange one life insurance policy for a completely different life insurance policy, an annuity for another annuity, or a life insurance policy for an annuity without paying taxes; however, you cannot exchange an annuity for a life insurance policy without paying taxes on the gains in your annuity contract.

The solutions to your income needs are a reflection of you, and your commitment to your well being.  Rather than follow blindly the lead of flashy marketing, formulate your own educated position to better understand when a product makes sense and when they do not.  

Benefits of fixed income annuities

When you place part of your savings into a fixed income annuity, you:

• Receive guaranteed payments to help cover your expenses during retirement.
• Reduce the risk that you’ll outlive your savings.
• Take one step closer to a more secure retirement.

Stock Market Plummet Vs Annuities

The stock market plummet has cut many Baby Boomer’s nest eggs by as much as 50% with no recovery in sight.  Since the explosion of cable TV and the incessant coverage of all things financial, you have been bombarded with economic terms and statistics that only PhDs use in everyday conversation.

When the economy is firing on all cylinders, there is a danger of overheating, which is a cause of inflation. 

When the economy appears to be overheating, the Fed will often remove money from the system and increase interest rates.   

When the economy is faltering, there is a need to stimulate it.  When the economy is sluggish, the Fed will often inject money and lower interest rates.

Not only are we crushed by the sheer volume of data, but the various talking heads draw vastly different conclusions from the same set of ever-changing numbers. How does anyone make any sense of this? 

When investors can’t comfortably assess the danger and don’t know how to evaluate whether it is getting better or worse, it is not surprising that so many have become stuck in the perceived safety of cash and Treasuries.

Have you ever been so afraid of failing at something that you decided not to try it at all? Or has a fear of failure meant that, subconsciously, you undermined your own efforts to avoid the possibility of a larger failure?  Yes, we are in uncharted waters. Yes, many different forces came together to create a perfect storm of economic collapse.

Many of us have probably experienced this at one time or another. The fear of failing can be immobilizing – it can cause us to do nothing, and therefore resist moving forward. But when we allow fear to stop our forward progress in life, we’re likely to miss some great opportunities along the way.

Don’t you wish building a nest egg could be simple and straightforward?  It seems like everywhere you turn, there’s new and contradictory advice about investing. If you followed every emerging trend, you’d never be ready for retirement. 

Seniors are facing an even tougher financial crisis at a time when they’ve been duped by their stock market investments in their 401k plans; Social Security is issuing IOUs; Medicare is just a fraud; and healthcare is up for grabs.  Whether this could have been predicted or prevented is not really the issue for you now. Too many have fled to the sidelines to wait it out.

Saving for retirement might not be easy – meeting any financial goal requires planning, effort, and discipline.  But it doesn’t have to be mysterious and complicated. 

The trick to any successful portfolio is coming up with a variety of different types of investments that fit within your personal comfort zone and work together.

The purpose of writing this isn’t to portray the annuity as the “perfect investment” or say every single client should have one. It’s meant to show when it’s part of a well thought out, balanced portfolio annuities can serve in an excellent capacity.

Annuities can be purchased through a series of contributions or in one lump sum. The money put into the annuity contract is allowed to grow for a period of time. Then, at a future date, the contract is annuitized and annuity begins paying an income through periodic payments over a specified period of time or for a lifetime. The interest or growth in a “deferred” annuity is not taxed until the annuity is actually paid and received by the owner.

A Short Guide To The Fixed Annuity

The fixed annuity is similar in many ways to CDs issued by a bank, but the difference is that they are intended to fund the buyer’s retirement. These are for the most part very low in risk and can be converted to cash much easier than a typical CD as well. Their earnings may be deferred for tax purposes and they will generally provide a higher yield than CDs or bonds.

They can be classified as either immediate or deferred. The former begins making payments immediately until the interest and premium is spent and the latter does not begin making payments until the end of the term agreed upon.

A fixed annuity will typically feature the following:

* One single upfront premium.
* The contract will lock onto one guaranteed interest rate for a certain number of years, just like a CD. * Offer a low risk because the money invested can only be lost in cases where the issuing financial institution becomes insolvent.
* Are the perfect solution for generating a solid income for retirement.
* Offer pretty solid returns for their low risk.
* Are offered for either short, medium, or long term durations, with the longer terms offering higher yields.
* Incredibly easy to use and feature no hassles. Simply sign the contact and make the required premium in order to start collecting.

Unless you terminate your fixed annuity contract early you can expect to receive a guaranteed investment with plenty of opportunity for growth. When these annuities are deferred you can expect the tax-deferral to compound as well which will earn you much more than a CD or money market account. In addition to receiving a steady income for life, you can count on receiving allowances for withdrawal without penalties, death benefits, and probate insurance.

These annuities are the perfect investment for anyone who is interested in finding a low risk investment; particularly those who have just retired and are looking for a way to protect their retirement fund from the volatility of the market.

Although one does not stand the same high rate of return as the variable alternative provides, they will provide a steady stream of income with very little risk. However, it is good to keep in mind that successful annuities will include more than one investment, so diversification is key.