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Safety Net For Retirement Funds

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Stock markets are off to a historically bad start for the year, and the S&P 500 has officially plunged into correction territory. With weaknesses in the commodity and emerging markets weighing on investors’ minds, it’s possible that stocks could continue to decline, even from today’s depressed prices.

This is a warning to investors to wake up to the idea that rising risks of a recession could send the stock market over a steep cliff.  But it can be hard to fight the urge to do something – anything – in the face of economic uncertainty.  Most investors are in a bearish mood and are unwilling to expose their savings further to traditional stock and bond market investment.

This is when Fixed Indexed Annuity (FIA) comes to prominence as a safer alternative to traditional financial investment.  The FIAs are ideal for people who are nearing retirement. FIAs, in essence, work like a social security or 401k plan. They provide reliable periodic payments all the while guaranteeing the principal amount.

The reason for their popularity lies with the fact that FIAs offer benefits of stocks, bonds, and 401k investment instruments.  Fixed Indexed Annuities have emerged as the most popular financial instrument for investors who are risk averse and want a guaranteed return on their investment.

The increasing demand for low risk investment instruments has fueled popularity of these FIAs. They are ideal for investors to secure their retirement savings and provide a guaranteed lifetime income that prove invaluable during their retirement phase.

FIAs offer very unique features to you, like:

  • A locked-in interest: An FIA’s indexed interest is locked in each and every year by a feature called annual reset and can never be lost due to a market downturn, on the contrary to your other investments. That means, any interest you earn is protected and therefore your principal too.
  • Timing: Whether or not you know exactly when you will retire, you cannot predict how the markets will be performing at that time. For example, many investments had a negative return multiple times over the last ten years. What if your wish to retire was at the end of those negative years? With an FIA, the accumulation value will never be lost due to market ups and downs.
  • Lifetime income: One of the most important features of an annuity that no other retirement planning vehicle can do is to provide a guaranteed lifetime income. An annuity is the only retirement vehicle that will guarantee that you will never be able to outlive your retirement savings.
  • GUARANTEES. Many people live with historically low interest rates to get FDIC protection for their certificates of deposit. When you learn more about the guarantees an annuity can give you, with much higher interest, you may well be more comfortable. See, the issuing company (an insurance company or an annuity company) guarantees your principal. In a deferred fixed index annuity, the company also guarantees the interest you earn.

Is this guarantee worthwhile? There are at least a couple of reasons you can rely on the guarantee of a company that issues an annuity.

First, your State’s Insurance Commissioner regulates the companies that offer annuities. This includes audits and other oversight. They also regulate how annuities are sold to you. The Insurance Commissioners do not want long-term annuities sold to people for whom they are not suitable. Rules help guarantee (or at least influence) that you do not make an unwise purchase in that case.

Second, Insurance Commissioners demand that an issuing company has enough reserves set aside to pay its obligations to you and other annuity and life insurance contract owners. That means if the company goes under in its general finances, your money is set aside and safe.

Third, if a company does go under, the tradition is that other companies come in and buy up the contracts that are still outstanding to contract owners. The benefits get paid one way or the other.So, with all these protections, the contractual guarantee of a life insurance or annuity company is very strong.

FIAs promise protection of principal over the tenure of the investment. The FIAs provide higher returns as the returns are linked to performance of a specified stock market index. Moreover, the returns on the FIAs are tax deferred. IRS does not tax the returns until you take them out from the FIA account.

If Safety is chief on your mind. The guarantees of regulated companies provide comfort. Index interest can provide more than other interest bearing investments; a lot more than Certificates of Deposit under current rates. They enjoy the protection from creditors. Most important, the deferred fixed index annuity offers growth without market risk, and lifelong income after the payment stream starts.

The deferred fixed index annuity is an important tool to guarantee we have a comfortable retirement; especially if we are fortunate to live a long time.

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Friday, February 5th, 2016 Wealth Preservation Comments Off on Safety Net For Retirement Funds

Shaky 2016 Start For Retirees

The economic storm clouds are gathering and it’s looking like the U.S. is in for some tough financial weather.  In recent weeks the financial markets have been in utter turmoil.  It has also been the worst-ever start to a year for U.S. equities, as both the S&P 500 and the blue-chip Dow Jones industrial average have posted their steepest losses for the first eight days trading of a year.  Almost $3.2 trillion has been wiped off the value of stocks around the world since the start of 2016.

The current economic backdrop is: the lowest interest rates in a generation, volatile and uncertain markets for equities & bonds, political gridlock preventing economic solutions, an unstable global banking industry and emerging economies challenging America’s dominance.

Investors shouldn’t try and time the market and that downturns tend to be followed by swings higher, eventually.  Market timing only works if you not only make one good call at the top, but also the second good call at the bottom.  The only sure way to successfully grow your investments is to have an asset allocation plan that you stick to and continue to contribute over a long period.

Retirement is a time to keep what you’ve got rather than speculate in hopes of making more. If you have your retirement money in a risky place like the stock market and there is a meltdown, you’ll probably suffer a significant loss with no way and no time to make it up.  In fact, if you lose your retirement money because you gambled in the market and lost, there may not be a second chance…

When the economy goes into a tailspin and investments sink like a rock thrown into a lake, wall street and its army of brokers go into battle mode because their commissions hang in the balance.  Stocks, bonds, mutual funds, and diversified portfolios are now recognized as risky and not for the faint of heart. Many retired investors have reviewed their risk tolerance and found their losses have greatly exceeded what they thought – and were told by their broker and Wall Street – were possible.

Standing tall and proud above the fray is the fixed indexed annuity that has experienced no loss and has retained the potential for gain should the markets recover.  Fixed Indexed Annuities offer those approaching retirement, in retirement, and the risk averse a safe harbor to protect their hard-earned retirement money from market and interest rate uncertainties.

Index-linked annuities offers the opportunity for a higher rate because the interest rate they pay depends on the movement or growth of a stock/bond market index like the S&P 500 … but if the market nosedives you don’t because the worse you can do is the minimum return guaranteed by the insurance company.

Lastly there is the income annuity which guarantees you a period certain or lifetime income in exchange for depositing with the insurance company all or some of your retirement money. The income annuity can give you what employers once guaranteed their retiring employees: a lifetime income you can’t outlive — even if you live to be 125.

Insurance companies which are among the world’s largest, strongest and oldest financial institutions are willing to guarantee you a lifetime income you can’t outlive if you’ll deposit with them some of your retirement money.  They will take the risk associated with the markets, stocks losing value, real estate crashing and other unforeseeable developments that can erase your retirement money. You’ll still be left with taxes, inflation, health issues and non-investment risks but you’ll not be able to outlive your money.

The smart saver that rejected the “wisdom of Wall Street” and chose the fixed indexed annuity is without loss – money or sleep – and without cracks in their retirement nest egg.

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Thursday, January 14th, 2016 Wealth Management, Wealth Preservation Comments Off on Shaky 2016 Start For Retirees

Affordable Long Term Care

Presently 60% of those over 65 will need long term care at some point.  Medicare only pays for short term nursing care. Medicaid, on the other hand, will pay for long term nursing. But you must use an approved service provider. In addition, Medicaid will only accept people with very low incomes and very few assets. In order to qualify for Medicaid, you have to deplete your income first.

If you want to preserve your wealth, you would want to look for another option. There are some financial and insurance products that can be adjusted to serve double duty. They are purchased for a primary reason, but may also used to provide some backup protection against the rising cost of nursing care.

With Nursing home Cost’s running $4,000 to $6,000 a month and outpacing inflation, it is a small wonder that most seniors cannot afford the Long term Care insurance premiums. There are low cost Alternatives available for seniors who just can’t afford the rising cost of these Premiums.

Until recently, consumers had few choices when it came to long term care insurance. Traditional policies, which provided a certain amount of selected coverage, were the norm. Policies could be designed to cover care expenses for a few months, or much longer, even providing benefits for the insured’s lifetime.

For example, consumers could purchase coverage that would provide $100 a day in benefits for a period of three years. When calculated, the $100 daily benefit multiplied by 365 days in a year for 3 years would create a $109,500 “pool of money” available for care. This pool of money would pay for care in a nursing home, assisted living facility, adult day care, or in the personal residence of the policyholder once certain criteria had been met.

When the pool of money was depleted, the traditional policy would provide no more benefits. However, if the policy was never used, the owner would lose the investment of his or her premium payments. Thus, some seniors opted not to purchase these policies, deciding instead to rely on their families or current savings in the event that care became necessary.

With the cost of health care rising rapidly, and a single day in a nursing home costing $175 or more in major cities, self insuring is a risky proposition. Relying on family is an alternative, but not necessarily a viable one. Unfortunately, most families do not have the time, resources or ability to provide around the clock care to a loved one.

The Introduction of Hybrid Policies

The insurance industry realized that consumer needs were not always being met with long term care policies. While traditional policies were satisfactory for some, many others wanted more guarantees in the event their policy was never used.

In response to customer and agent demand, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long term care contract. With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries.

The Long Term Care Annuity

The newest addition to the hybrid marketplace is the long term care annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit.

Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted. For example, a policyholder with a $100,000 annuity who had selected and aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.

The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less benefit is needed. Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary.

These scenarios are only basic examples of how hybrid policies work. That is to say, the coverage will be different from person to person depending on age, health, gender, premiums and benefits requested. In order to get an accurate proposal, an illustration would be required from the insurance company.

These innovative products can meet consumer demands and provide more guarantees by combining traditional long term care insurance with the advantages of annuity policies. Thus, consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan.

In my experience, over half the people who shun long term care insurance do so because they feel they will never need it. It is difficult to visualize going to a nursing home. Statistically, half of these people will be right.

However, there are a number of scenarios where the person may need some kind of assistance but never see the front door of a nursing home. In fact, most people who need long term care can receive care without ever leaving their home.

When you stop and think about it, the decision not to buy long term care insurance is a decision to self insure. This can be costly and possibly devastating.

The average cost of a nursing home today is $80,000 per year and rising. At that rate, it doesn’t take but a few years to grind through a modest estate. If both the husband and wife need nursing home care, the time to dissipate an estate is cut in half.


These new products, long term care annuities, provide the option to receive long term care benefits only if they are needed. There is no separate long term care insurance policy, no premiums and generally little or no underwriting.


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Friday, July 24th, 2015 Wealth Preservation Comments Off on Affordable Long Term Care

Baby Boomer Retirement Anxiety

Concerns over the stock market volatility, low rates of returns on savings, and loss of company-funded pension plans in favor of worker-funded 401(k) pension plans certainly are fueling baby boomers anxiety about having enough money to retire in comfort.  A 401K is the typical retirement plan offered to employees by most companies and is funded by employee contributions that are deducted from your paycheck.

In a defined contribution plan, all risk rests with the participants who have no say in the design of the plan or the economic arrangements entered into with and among providers of services to the plan.  Generally participants pay most, if not all, the costs associated with the plan and their investment results depend upon the performance of service providers chosen for them.

The optimal time for change would have been long ago—before the collapse of thousands of corporate pensions, severe public pension underfunding and the failure of 401(k)s to deliver retirement security as promised. For sure, paradigm shift in retirement planning is long overdue.

The 401K plan has many advantages but it does have a couple of disadvantages as well. One disadvantage is that it is not easy to withdraw money prior to age 59 ½. There is a large penalty unless it is for education or emergency. Another disadvantage is that they are not insured by the Pension Benefit Guaranty Corp.

There is a federal government agency, the Pension Benefit Guaranty Corp (PBGC) that is an insurer of corporate pension plans, i.e. companies pay a premium to PBGC to insure their pension plans — the more risky the company, the higher the premium. The 401K is not insured by the PBGC (Pension Benefit Guaranty Corp).

When they existed, pensions provided guaranteed income during a person’s golden years.  Individual Retirement Accounts (IRA), 401(k)s, and 403(b)s were meant to provide income for the retiree, but too many people see them as a means to passing wealth to the next generation.  This is not the intention of these qualified plans, they were designed to generate income for the holder during their retirement years.

Longevity risk is the risk of populations living longer than expected. One half of Baby Boomers will likely live beyond age 90, while the trailing edge probably can add 10 years or more to that life expectancy if biotechnology and gene therapies fulfill even a fraction of their promises.  Overwhelmingly, the biggest risk is the risk of outliving your money.

We have been conditioned our entire lives to build that nest egg, and now baby boomers need to scramble it. If you end up living well into your 80s (a real possibility if you’re 65), the benefits of never running out of money, and never having to worry about running out of money, can be enormous.

Stock market losses can seriously reduce one’s retirement savings.  Stockmarket risk is the scenario in which you’ve amassed a healthy portfolio of stocks and bonds only to see it plummet in value because of a market crash or other disruption to the global financial system.

For example, U.S. stocks fell, wiping out gains for the year this week.  The S&P 500 retreated 1.3 percent to 2,051.75 at 12:00 p.m. in New York, falling below its average price for the past 50 days for the first time since Feb. 9. The Dow Jones Industrial Average lost 264.45 points, or 1.5 percent, to 17,731.27.

Because shares of stock don’t have a fixed value but reflect changing investor demand, one of the greatest risks you face when you invest in stock is volatility, or significant price changes in relatively rapid succession.

Sequence Risk is the risk of receiving lower or negative returns early in a period when withdrawals are made from the underlying investments. The order or the sequence of investment returns is a primary concern for those individuals who are retired and living off the income and capital of their investments.  Poor returns early in retirement are much more harmful to one’s retirement prospects than poor returns later in retirement.

However, most investors feel that the bull market in stocks is not over. The current bull market is not going to end simply because ‘stocks have gone up too much’ . We head into 2015 bullish for the 3rd straight year.  The S&P 500 has risen 200% since the bull market began in March 2009 — not unprecedented by historical standards.

Given the combination of improving economic conditions and rebounding earnings growth, everyone believes 2015 will represent another year of solid gains for US stocks. Yet, Investors have become “sick of giving back all of their gains every time the market goes down.  With the current market instability, “investors need more to be able to navigate the volatility.

Since the early 1980’s, interest rates have been steadily declining. Using the US 10-year Treasury note as a general proxy, interest rates have been declining to the present day rate of 1.68% at the time of this article. This has been detrimental to savers, whose paradigm was to invest in bonds for income.

The bottom line is if you need to make your money last longer, you’ll need the extra growth potential that continuing to invest in a mix of stocks and bonds can provide. Although that may seem to contradict the apparent logic of not taking risks with your money once you hit a certain age, relying on certificates of deposit, money-market accounts and cash could be far riskier, and may mean your retirement income won’t keep pace with inflation.

Many people with a retirement plan are asked to choose between receiving lifetime income (also called an annuity) and a lump-sum payment to pay for their day-to-day life after they stop working. An annuity provides a lifetime steady stream of income while a lump sum is a one-time payment.

A Deferred Income Annuity (DIA) 55/65 might be used to reduce investment risk in the years leading up to retirement. You put money in a DIA at 55 and you know what your income will be at 65 instead of taking the risk that what’s you’ll have at 65 depends on the stock market. With an annuity you will receive a steady income for the rest of your life, like keeping a part of your paycheck for life.  In addition, you may be able to provide a lifetime income to your spouse or to another beneficiary.

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Tuesday, March 10th, 2015 Wealth Preservation Comments Off on Baby Boomer Retirement Anxiety

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