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Bulletproof Your Retirement

One of the biggest challenges of retirement planning is ensuring that your savings won’t dry up if you live well past retirement age. For most Americans, the math for a comfortable retirement may never add up.

Why are so many Americans struggling right now?  Well, there’ no doubt the Great Recession of 2008 cut a swath through a lot of people’s savings. Millions lost their jobs and had to rob from their savings to just make ends meet. I sincerely hope that didn’t happen to you… It may be time to bulletproof your retirement income.

Longevity risk, or the risk of outliving one’s assets, is a concern of many retirees. Everybody is interested in solving for longevity risk and transfer-of-risk strategies in general…and simplistic annuities could be a logical solution.

To hedge against longevity risk many retirees employ a variety of tools. One of the most common is to purchase an annuity that guarantees lifetime income. These pure transfer- of-risk lifetime income products are the most efficient way to combat outliving your money. These annuity structures are easy to understand, have ultralow fees, and can combat inflation with attachable cost-of-living increases built into the policy.

Fixed Indexed and Rate Guarantee Annuities are like a bank CD, in that they have zero expenses charged against the principal, and equity index annuities have next to none unless you add income riders to the contract; the “cap” on the index annuity crediting method assures no principal losses. Sales commissions are NOT paid by the client-all money goes into the contract.

The simplest annuity form is an immediate fixed annuity (IFA) where the annuitant “trades” a lump sum of cash for a stream of lifetime income guaranteed by the annuity company. Guaranteed income for life is a big time benefit, but it comes at a cost. The first concern is that you are giving up access to your money in exchange for the income stream. For this reason, if you are going to invest in an immediate annuity, it would be prudent to do so with only a portion of your total portfolio.

When you set up an annuity, you can choose to receive income payments for a specific period, such as 20 years, or for an indefinite period, like the rest of your life. Buying an annuity that lasts for life is a way to make sure you’ll still have income rolling in regardless of how long you live.

Whether you’re planning for retirement, nearing retirement or already in retirement, we have annuity products that can help you achieve financial security and accomplish your financial goals.

  • Few other financial products offer a guaranteed return—or the greater control of your financial planning—than a fixed annuity.
  • An annuity is the only financial product available that transfers the risk of not having income from the individual to a private insurer

To ensure that they have guaranteed retirement income for the remainder of their lives, many consumers are turning to annuities with an income rider as a type of longevity insurance.  Many retirees like to use an this kind of annuity to cover their fixed costs, and describe it as similar to having a salary to meet regular expenses.

What is an Income Rider? It is an optional benefit that can be attached to an annuity for an additional annual fee, and will provide a lifetime income stream that you can turn on in the future.  An income rider on a fixed or fixed indexed annuity allows a retiree to build a secure retirement income and will allow access to the principal throughout.

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.

Income Riders should be used for what I call “target date income planning.” For example, if you need to turn on a lifetime income stream six years from now, you can use an Income Rider to guarantee a contractual growth rate that you can use for income at your planned income starting date.

More retires now realize the importance of secure retirement income and an income rider attached to a fixed or fixed indexed annuity accomplishes this goal. The insurance company guarantees a paycheck for the life of the owner, and bears all of the investment risk and longevity risk as well.

The best income riders also provide double payouts in the event of home health care or nursing home care, further sheltering the annuity owner from long term care risks. Finally, the investor retains the ability to access the principal at any time during the contract, and benefits from the yearly interest credits to the annuity’s value as well.

Annuities are provided by insurance companies.  What happens when an insurance company you purchased your annuity from fails?  Will you lose everything, or will your money be safe.

There are three important things you need to know before you purchase an annuity from an insurance company.

State guaranty associations protect your policy.  There is no federal program in place that protects consumers from insurance company bankruptcies similar to the Federal Deposit Insurance Corporation (FDIC) that protects consumers against bank failures.  However, each state does have an insurance guaranty association that backs up insurance company policies in the event of the insurance company’s bankruptcy.

Your state’s guarantee association is funded from the assessments it charges every insurance company that currently does business in your state.  This money pays for the obligations of any failed insurance company that had been approved by your state’s guarantee association.

As with FDIC insurance, there’s a limit to the amount of insurance protection offered by the Guarantee Association.  This limit varies by state and from $100,000 to $250,000 for annuity contracts.  Annuities are backed by the state-specific guarantee funds (see a list of those funds at

State life and health insurance guaranty associations provide a safety net for their state’s policyholders, ensuring that they continue to receive coverage even if their insurer is declared insolvent. Working together through NOLHGA, the guaranty associations form a national safety net, protecting insurance consumers all across America in their time of need.

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Tuesday, April 2nd, 2013 Wealth Distribution, Wealth Management Comments Off on Bulletproof Your Retirement

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