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Pros and Cons of Fixed Indexed Annuities

The pros and cons of any product are directly related to how you use that product.  With fixed indexed annuities it all depends on your goals and whether this type of annuity can help you meet those goals.

And when it comes to solving retirement problems, in every case there exists a “best” way to get things done.  Sometimes you need to disprove conventional knowledge to find it.

There is a way that 99% of the industry prefers to sell fixed indexed annuities.  That works for some people but most often it is not the “best” way to solve your problems.

A better way…

When you run the numbers, many annuity strategies decrease your net worth over your retirement years.  For many people it’s a necessary evil because it’s too risky to go without guaranteed income.  What if you can have the protection you want but get it in a way that allows you to increase your net worth through retirement?

For those of you who have saved enough to retire comfortably you will notice this is based on a few basic asset management principles.  You can eliminate the two biggest complaints about annuities and receive more benefit than you will get from any other strategy.  I don’t care who you saw on TV that says otherwise!

This is the beginning of a safe and flexible strategy that allows you minimize the cost for protection and in turn maximize the output from your portfolio.  You can check it out now using the link below.

Click here to learn more about this smart, flexible annuity strategy.  

Or, continue reading if you’d like to start with the basics and learn what you can expect from fixed indexed annuities.  You owe it to yourself to make an informed decision.  Whether you use an annuity or not is a decision that needs to be made based on facts.  

PROS AND CONS OF FIXED INDEXED ANNUITIES:

Each of the individual components of a fixed indexed annuity can be seen as a pro or a con, depending on your expectations and goals.  Let’s look at each of the major components and the positive vs. negative attributes of each.

Safety:

Pro- You will never lose money.  The insurance company invests your premium in a portfolio of safe investments and backs it up even further with substantial company reserves giving your money the protection and guarantee that you need.

Con- This isn’t good enough for some people.  The cost for safety is limited growth and there are those that don’t mind risk in return for unlimited growth potential.

Earnings Guaranteed:

Pro- Once interest is credited to your account it is also guaranteed against loss.  Protected principal and earnings is a powerful benefit that pays off when markets are volatile.

Con- Most interest is credited once per year, although there are options for two and three year crediting as well.  This means your earnings potential depends on how the market finishes on a single day.  A significant drop in the market at the end of your crediting period can wipe out expected gains.  That can be positive as well but it’s important to not place all your expectations on a single year.

Caps, Participation Rates and Spreads: 

Pro- You get a risk-free option to track performance of a stock market index.  Option costs dictate how much of that gain you receive.  Specifics go deeper but the benefit is that you will experience yields that are far greater than any safe asset.

Con- Again, it all speaks to expectations.  If you think you can buy your own options and do better then go for it.

Surrender Periods: 

Pro- This is all relative to other safe money options.  CDs and Bonds have some long commitments as well but the annuity comes with access to funds and protection from interest rate risk.

Con- Many supposed experts tell you not to lock money up for extended periods of time.  It all depends on your plans for the money so if the annual free withdrawal is not enough to meet your needs then an annuity is not right for you.

Indices and  Crediting Methods:

Pro- Considering the entire annuity market, you have an overabundance of indices to choose from and crediting methods to use so no matter what your preference, there is an option available that will work for you.

Con- This can be seen as fairly complicated given all available options and strategies.  If you start by looking at this then you may as well just give up.  Start with how the annuity will help you reach a goal and decide on this last.

Now- The Basics of How Indexed Annuities Work

The Pros and Cons of Fixed Index Annuities

The AST Flex Strategy helps you understand the pros and cons of fixed index annuities.

Index Annuities, Fixed Indexed Annuities, and Equity Indexed Annuities, all mean the same thing. These are all the same insurance product with different labels, but the correct name is a ‘Fixed Indexed Annuity’.

Fixed Indexed Annuities are nothing more than fixed annuities with a different method of crediting interest. With a fixed annuity, which is a lot like a CD, the contract owner receives a stated rate of interest each year.

But with an Index Annuity, the appreciation rate is calculated based on growth in an outside market index, like the S+P 500 or the Dow Jones index.

The beauty of Index Annuities is that if the market index goes up, the contract makes money. But if the index goes down, the principal is protected and the contract does not lose value.

Index annuities give consumers a partial participation in the markets, but offer a principal guarantee.

How Insurance Companies Make This Possible

How can insurance companies make a guarantee that your Fixed Index Annuity may go up, but will not go down?

Insurance companies in general use the premium they bring in to invest in safe assets in the general account.  Think of it like a large pool of conservatively invested money.

In a Fixed Indexed Annuity, the insurance company uses your premium to invest in bonds, mortgages, and other instruments in the safe, core general account.  This produces an annual rate of return, often known as the ‘general account’ yield.  The insurance company expenses are subtracted from this to create the yield you can expect to see with a fixed annuity.

But with an indexed annuity, instead of accepting this ‘general account’ fixed rate, the insurance company uses the interest earned from the conservative portfolio to purchase an option position in a market index.

If the market goes up, the company will exercise the option and realize a gain that is credited to your annuity account value.

If the market moves sideways or down, the option expires worthless and no interest – or gain- is available for crediting, but most importantly no loss of principal is realized.

Potential for Gain with No Risk of Loss

When talking about the pros and cons of fixed indexed annuities, the biggest positive is that index annuities truly offer you the potential for gains based on market appreciation, without the risk of loss to your principal.

Your principal is not at risk, rather, it’s only the earnings from your principal are invested in potentially higher yield options. Thus, an indexed annuity is a safe asset with upside potential.

This explanation also gives you a good idea why these are called “Fixed Indexed Annuities”. Income from the FIXED account growth is used to buy options in a market INDEX for potential gain.

 Using Fixed Index Annuities

Fixed indexed annuities are a great alternative to bonds and are a core, safe money holding often used to make sure principal is safe, and to preserve assets and options for later.

But far too often, the fixed indexed annuity is sold with income or long-term care benefits that add more cost and take away from the real benefits you need.

Additional cost is fine for additional benefit but you need to look at it from a different angle to see if if it truly gives you more money.  Most times it does not.  The key to getting the most out of an annuity is to use it so that the annuity allows you to get the most out of your total portfolio.  There is a best way to do it and that’s the only way I suggest doing it.

Like I said at the beginning, most annuities are sold in a way that decreases net worth in the long run.  But there’s a way to use an annuity that increases your net worth throughout retirement.  Are you interested in finding it?

A great start is The Annuity Guide which is essential reading for retirees considering Fixed Indexed Annuities.  It is available for a free download at Annuity Straight Talk, and will help you find the safety and guarantees you need.

Click Here to get your copy today!

If you seek a qualified adviser well versed in the pros and cons of fixed index annuities, please do not hesitate to contact Annuity Straight Talk today on 800-438-5121.

Understand the Pros and Cons of Fixed Indexed Annuities

pros and cons of fixed index annuities

The pros and cons of any product are directly related to how you use that product.  With fixed indexed annuities it all depends on your goals and whether this type of annuity can help you meet those goals.

And when it comes to solving retirement problems, in every case there exists a “best” way to get things done.  Sometimes you need to disprove conventional knowledge to find it.

There is a way that 99% of the industry prefers to sell fixed indexed annuities.  That works for some people but most often it is not the “best” way to solve your problems.

A Better Way…

When you run the numbers, many annuity strategies decrease your net worth over your retirement years.  For many people it’s a necessary evil because it’s too risky to go without guaranteed income.  What if you can have the protection you want but get it in a way that allows you to increase your net worth through retirement?

For those of you who have saved enough to retire comfortably you will notice this is based on a few basic asset management principles.  You can eliminate the two biggest complaints about annuities and receive more benefit than you will get from any other strategy.  I don’t care who you saw on TV that says otherwise!

This is the beginning of a safe and flexible strategy that allows you minimize the cost for protection and in turn maximize the output from your portfolio.  You can check it out now using the link below.

Click here to learn more about this smart, flexible annuity strategy.  If you’d prefer, you may always call 800.438.5121 to talk about your situation, or continue reading if you’d like to start with the basics and learn what you can expect from fixed indexed annuities.  You owe it to yourself to make an informed decision.  Whether you use an annuity or not is a decision that needs to be made based on facts.

PROS AND CONS OF FIXED INDEXED ANNUITIES:

Each of the individual components of a fixed indexed annuity can be seen as a pro or a con, depending on your expectations and goals.  Let’s look at each of the major components and the positive vs. negative attributes of each.

Safety:

Pro- You will never lose money.  The insurance company invests your premium in a portfolio of safe investments and backs it up even further with substantial company reserves giving your money the protection and guarantee that you need.

Con- This isn’t good enough for some people.  The cost for safety is limited growth and there are those that don’t mind risk in return for unlimited growth potential.

Earnings Guaranteed:

Pro- Once interest is credited to your account it is also guaranteed against loss.  Protected principal and earnings is a powerful benefit that pays off when markets are volatile.

Con- Most interest is credited once per year, although there are options for two and three year crediting as well.  This means your earnings potential depends on how the market finishes on a single day.  A significant drop in the market at the end of your crediting period can wipe out expected gains.  That can be positive as well but it’s important to not place all your expectations on a single year.

Caps, Participation Rates and Spreads: 

Pro- You get a risk-free option to track performance of a stock market index.  Option costs dictate how much of that gain you receive.  Specifics go deeper but the benefit is that you will experience yields that are far greater than any safe asset.

Con- Again, it all speaks to expectations.  If you think you can buy your own options and do better then go for it.

Surrender Periods: 

Pro- This is all relative to other safe money options.  CDs and Bonds have some long commitments as well but the annuity comes with access to funds and protection from interest rate risk.

Con- Many supposed experts tell you not to lock money up for extended periods of time.  It all depends on your plans for the money so if the annual free withdrawal is not enough to meet your needs then an annuity is not right for you.

Indices and  Crediting Methods:

Pro- Considering the entire annuity market, you have an overabundance of indices to choose from and crediting methods to use so no matter what your preference, there is an option available that will work for you.

Now- The Basics of How Index Annuities Work

The Pros and Cons of Fixed Index Annuities

The AST Flex Strategy helps you understand the pros and cons of fixed index annuities.

Index Annuities, Fixed Index Annuities, and Equity Indexed Annuities, all mean the same thing. These are all the same insurance product with different labels, but the correct name is a ‘Fixed Indexed Annuity’.

Fixed Index Annuities are nothing more than fixed annuities with a different method of crediting interest. With a fixed annuity, which is a lot like a CD, the contract owner receives a stated rate of interest each year.

But with an Index Annuity, the appreciation rate is calculated based on growth in an outside market index, like the S+P 500 or the Dow Jones index.

The beauty of Index Annuities is that if the market index goes up, the contract makes money. But if the index goes down, the principal is protected and the contract does not lose value.

Index annuities give consumers a partial participation in the markets, but offer a principal guarantee.

How Insurance Companies Make This Possible

How can insurance companies make a guarantee that your Fixed Index Annuity may go up, but will not go down?

Insurance companies in general use the premium they bring in to invest in safe assets in the general account.  Think of it like a large pool of conservatively invested money.

In a Fixed Indexed Annuity, the insurance company uses your premium to invest in bonds, mortgages, and other instruments in the safe, core general account.  This produces an annual rate of return, often known as the ‘general account’ yield.  The insurance company expenses are subtracted from this to create the yield you can expect to see with a fixed annuity.

But with an indexed annuity, instead of accepting this ‘general account’ fixed rate, the insurance company uses the interest earned from the conservative portfolio to purchase an option position in a market index.

If the market goes up, the company will exercise the option and realize a gain that is credited to your annuity account value.

If the market moves sideways or down, the option expires worthless and no interest – or gain- is available for crediting, but most importantly no loss of principal is realized.

Potential for Gain with No Risk of Loss

When talking about the pros and cons of fixed indexed annuities, the biggest positive is that index annuities truly offer you the potential for gains based on market appreciation, without the risk of loss to your principal.

Your principal is not at risk, rather, it’s only the earnings from your principal are invested in potentially higher yield options. Thus, an indexed annuity is a safe asset with upside potential.

This explanation also gives you a good idea why these are called “Fixed Indexed Annuities”. Income from the FIXED account growth is used to buy options in a market INDEX for potential gain.

 Using Fixed Index Annuities

Fixed index annuities are a great alternative to bonds and are a core, safe money holding often used to make sure principal is safe, and to preserve assets and options for later.

But far too often, the fixed indexed annuity is sold with income or long-term care benefits that add more cost and take away from the real benefits you need.

Additional cost is fine for additional benefit but you need to look at it from a different angle to see if if it truly gives you more money.  Most times it does not.  The key to getting the most out of an annuity is to use it so that the annuity allows you to get the most out of your total portfolio.  There is a best way to do it and that’s the only way I suggest doing it.

Like I said at the beginning, most annuities are sold in a way that decreases net worth in the long run.  But there’s a way to use an annuity that increases your net worth throughout retirement.  Are you interested in finding it?

We’ve produced The Annuity Guide as essential reading for retirees considering Fixed Index Annuities.  It is available for a free download at Annuity Straight Talk, and will help you find the safety and guarantees you need.

Click Here to get your copy today!

If you seek a qualified adviser well versed in the pros and cons of fixed index annuities, please do not hesitate to contact Annuity Straight Talk today on 800-438-5121.

How The Rich Play The Market- New WSJ Article

feature-box-goldA new article in the Wall Street Journal caught my eye.  “How The Rich Play The Market” is a fresh reminder that human nature is just that- human.

The ‘Rich’ don’t necessarily have any secrets, better will, stronger nerve, or more skills.  In fact, even the ‘Super Rich’ suffer from the same impulses and trading habits as everyone else.  They may simply have more resources and be able to recover faster.

These households, with an average net worth of roughly $90 million, invest intelligently, for the most part, spreading their bets widely, seldom trading and keeping their investing taxes to a minimum.

But the superrich also commit rookie mistakes. Their approach to diversification might not always be ideal. They chase investment fads like people chasing Audi A3 deals. They freeze with fear just when bravery is most likely to be rewarded. Maybe the “smart money” isn’t so different from the middle-class “dumb money” that Wall Street likes to mock.

The last paragraph of the article, which appears Here, really says it all.

You’re better off doing what Wall Street can’t: cultivating patience, trading as seldom as possible, focusing only on those rare companies where you might know something everyone else doesn’t and, finally, rebalancing when it is hardest.

Right now, that might mean trimming stocks a bit just as other people are most tempted to add to them.

So how best to lock in gains? Consider annuities.  A Fixed Index Annuity offers some attractive options, chief among them a guaranteed floor that protects you from losses.

Other options which move more to the Hybrid Annuity category, include

  • Return of premium
  • Partial liquidity ( i.e. 10% free withdrawals, nursing home and terminal illness waivers, income)
  • Lifetime Income annuitization options
  • Additional cost of living increases, LTC type enhancements and death benefit enhancements with NO UNDERWRITING… if need be.

Index Annuities are an excellent way to lock in gains, protect from losses, yet still participate in some of the market upside.  If you’ve had a good strong run, re-balancing out of riskier positions just makes sense.

Case Study- Is A Fixed Index Annuity The Right Tool For This Job?

This post is one of a series of questions and answers from our readers who are seeking the right annuity for their needs.

This came in via email:  This reader listed the following parameters for their desired annuity;

1. An annuity that keeps 100% of my principle investment for my children.

2. Pays the most income per month

3. Has the lowest fees.

4. Pays on 100% of my investment.

5. Protects my principle investment in a down market but increases my principle in an up market.

Great parameters, and this describes to a T the attractiveness of fixed index annuities, often marketed as a ‘hybrid annuity’.  The easy answer to this inquiry is to find the best Fixed Index Annuity for this individual, however that is not truly the best combination of Safety, Flexibility, and Profitability.  You can’t wrap all these goals into one annuity and expect each goal to be met perfectly.

Our answer to this question is below:

 

I appreciate the brevity and clarity of your question, unfortunately, the answer is long.  Here’s the summary: you can’t guarantee MAX principal/inheritance amounts AND take out Max income for life from the same annuity contract, and have both goals perform to their full potential.   One or the other of these objectives will suffer and your probability of failure goes up.  If you’re willing to let your future inheritance suffer, a Fixed Index Annuity may be just the ticket.

However, you CAN guarantee that BOTH goals are maximized with two annuity contracts- a deferred lump sum annuity paying your heirs, and an income annuity supporting you.  Separating your goals and using the right tools for each job locks in BOTH objectives, and does so at a lower cost, with lower fees, and with higher degree of certainty.

Here’s the full answer:

We believe that what makes the most sense is for you to use a deferred annuity for the inheritance, and have a separate income focused annuity for income purposes.  Trying to accomplish both goals with one hybrid annuity is likely to be disappointing.

What you asked for is a perfect description of the benefits that are used to market index annuities, however with the important caveat that if you are intent on absolutely preserving your investment base for inheritance, you will not be able to draw income in down years without invading principle.  Did you see our posts on ‘reverse dollar cost averaging”? This would be your plight.  You can’t guarantee principal AND take MAX income without some consequences.

A look at a Fixed Index Annuity with Lifetime Income rider illustration will show impressive growth in the ‘income base’ or ‘benefit base’, much lower projected growth in actual account value, then when income starts, you will see the account value dissipate in 10 years or so.  Income benefits are paid our of YOUR money first before you ride on the Insurance company’s shoulders, therefore, its’ quite likely there will be little or nothing left for inheritance.

Any scenario with a product whose performance may vary (variable annuity or index annuity) where you absolutely must have a certain income every month could box you in to spending principal.  In fact,  if you avail yourself of the guaranteed income benefits riders in index annuities, those income streams WILL erode your account value principal and put your inheritance goals in jeopardy.

There are always tradeoffs, but please consider the following alternative.

By using secondary market annuities, whose returns are fixed, and guaranteed, but which come in a variety of timelines, we could put together a winning solution.

We would use a deferred growth contract so that the future payout of the deferred contract equals or exceeds your total initial investment today.  Then, additionally, we would use an immediate income type contract which offers the highest potential payout for income purposes now.

This income could also be obtained with a plain immediate annuity if you prefer, which offers longevity insurance, or an index annuity with the GLWB type income benefits.  However, I must say our secondary market annuities almost always beat the index annuity assumptions and come with no fees, variables, or assumed future rates of return.

Now, what I’ll describe sets a period certain date when your inheritance dollars will be paid- and regardless of your passing.  If you want it to be contingent on your life, then we should look at life insurance to fill that need.  However I think you’ll see my proposed solution below is superior.

Scenario:

Basically what I’m thinking of is a scenario like this- let’s assume you have $600,000 cash today, and you wish your heirs to receive $600,000.  I’ll assume you are 60 and in great health, so conceivably could enjoy another 30 years, and you want the most income possible in that time period.

By placing roughly $100,000 of your portfolio on a long term, deferred, lump sum contract, you lock up and guarantee that you or your heirs will receive this windfall at a specific date in the future.  I’ll illustrate with this currently available secondary market annuity:
$95,552 investment today, pays $634,090 in one check on September 5th, 2039.  You can set this up today in an LLC, and gift the LLC membership to your heirs over time.  When the income comes in the future, it will pay to the LLC and it won’t matter if you are still living or not.

So- future inheritance, locked in and guaranteed today.

Now, for income….

 

Based on my hypothetical scenario, you still have $500,000 to work with to generate income.  As I said, you could look at an immediate annuity which will ensure against your longevity risk, or you can consider other period certain secondary annuities.  Or, you can consider an index annuity but take advantage of all the income benefits and bonuses and riders and disregard the account value concerns.

Because your took care of the inheritance with your long term deferred contract, you can focus solely on income now.  Depending on your age, a Secondary Annuity or an Immediate will likely pay more than an index or hybrid product.

A secondary annuity or an index annuity will also ensure additional inheritance to your heirs- an immediate annuity will not.

To place this $500,000 in secondary market annuities, you will end up with much higher guaranteed and certain payments, but it will be a variety of contracts and terms.  That’s just the nature of this marketplace.  This contract is illustrative of one we’d use in crafting your portfolio:

 

An immediate annuity on a 60 yr old male is appx $2900/ month income with a $500,000 premium, and depending on various factors.

The same premium in a fixed index annuity with no deferral period is appx $2200/ month.  Again, there are many varieties and contracts to chose from.

We would most likely get from $3500 to $4500 per month in Secondary market annuity cash flows over a 30 year certain period, from multiple carriers.  This will depend on availability and readiness to take action, however.

Now, as to the fees:

 

There are no costs or fees on the Secondary Market Annuities- the total cost is the purchase price.   Likewise, with an immediate annuity, there are no ongoing fees- you will simply trade your lump sum for a monthly lifetime check.

Bear in mind, too, we have nearly every annuity available nationally at our disposal- we don’t market one particular company or product, but rather, market our services putting the whole package together.  We’re not captive to one company.

Additionally, we won’t sell certain B rated, Index Annuity products that are marketed as ‘Hybrid Annuities’ with Swiss Army Knife lists of characteristics.  We don’t see the credit risk of the issuer as one worth taking.

As to the income component of your scenario, I need a few pieces of info such as your home state to illustrate further……

Would you like this sort of attention and analysis of your annuity questions and retirement goals? Contact Us today!

What is a Hybrid Income Annuity?

Since a fair number of people have recently found my site with this exact question, I figured it’s time to give a straight answer. What is a hybrid income annuity?

To put it bluntly, the term ‘hybrid income annuity’ is nothing more than a marketing name for a fixed index annuity with a guaranteed lifetime income rider. This is marketing lingo meant to create a mysterious aura around this ‘exclusive product that no one knows about.’

Now, Index Annuities with income riders are wonderful and innovative retirement income options.  They have a lot of benefits and features.  There are a wide range of options offered by many carriers, so you need a well versed adviser not biased towards one  company in order to select the best contract for a client’s goals.

That’s our job- to help you determine your needs, then scour the landscape for the best deal for you.

You can read more on Hybrid Annuities here– for now, let’s stay on point about the marketing term for a moment.

I can’t tell you exactly why ‘hybrid annuities’ are  frequently presented as exclusive or mysterious investments,  but there are several clues that make sense to me. Here’s my interpretation of that form of marketing.

Creating a Niche– After searching the internet for relevant information, you should have a pretty good idea that you can cross-check information between different sources. Applying a self-made label to an existing product presents the agent as a specialist who is above everyone else and limits the opportunity for consumers to verify the credibility of those claims. That’s exactly why so many are searching for it- there is a massive marketing push behind Hybrid Income Annuities.

Avoiding Negative Press– While considering fixed index annuities there’s no way to avoid Wall Street’s aversion to these products. If an agent calls it by another name then it’s harder to find the negativity associated with it.

The honest approach is to confront negative opinions head-on so you, as a consumer, are given the chance to make a fully-informed decision on a suitable strategy. We do exactly that on our Hybrid Annuities pages. A sales gimmick leads consumers down the path of least resistance to a quick sale, but it’s not ethical.

Exclusive Access– If you like the long string of benefits that come with “hybrid income annuities,” you’re not alone. These products can be extremely useful for protected market participation, income needs or asset flexibility in retirement.

But remember, no single product can be all things to all people. While the fixed index annuity marketplace achieved sales of more than $30 Billion last year, I would call it anything but exclusive. Be careful dealing with anyone who tries to tell you otherwise… there is likely a secondary motive that may not be within your best interests.

The bottom line here is there are good and bad ways to sell anything.  My objective is to provide straightforward advice on the annuity and retirement planning marketplace so consumers will realize that none of this needs to be complicated.

Flashy headlines and product gimmicks do nothing more than put a little fog on the roadway.  For the record too, I do sell and recommend hybrid annuities…. when it’s the right tool for the job, it’s hard to beat.

Many people within this industry have told me I have an anti-sales message. I prefer to see it as a pro due diligence message. I’d rather see it done right and end up with happy, knowledgeable clients. Any financial product, annuity or otherwise, can be good or bad depending on the context of each individual. You deserve a straight approach and that’s exactly what I aim to deliver.

You can continue your discovery process here, and learn How Hybrid Annuities Work.

Use this site to verify what you hear from other people and don’t be afraid to ask a question if something doesn’t seem right. That goes for anything you hear from me as well. I don’t mind the heat so go ahead and hit me with it.

Have a great week!

Bryan J. Anderson

800.438.5121
[email protected]

Index Annuities And Variable Annuities In The News

This week’s focus remains on index annuities and variable annuities because of the rich mix of popularity and confusion regarding each of these products. I want you to have the most recent news and information on available products and strategies so you’re ready to make an informed decision when the time comes. In addition, you’ll find a reference to a very important article on federal spending that should remind you again as to why an annuity is likely to be the keystone financial vehicle in your retirement income plan. Let’s get started…

Are Variable Annuities Becoming More Efficient?

Leslie Scism writes in the Wall Street Journal about the move by investment managers to incorporate exchange traded funds (ETFs) into variable annuities. The main reason? ETFs are more cost effective and the result of this move would bring the overall cost of these products down, making them more attractive to potential investors. It doesn’t matter if the currently high fees are justified or not, but the fee structure of variable annuities has long been one of few valid complaints with the product. Lower fees and the resulting higher level of efficiency will make them better for consumers and also more popular with financial professionals. To read into the details of this transformation, click here for Leslie’s article.

What’s more, the article continues by showing further changes to variable annuities that is meant to not only make them more efficient but also more competitive with other products.

It seems to me that issuers of variable annuities are taking a page out of the fixed index handbook.

In the Annuity Report, the difference between these two products is clearly illustrated and it shows that index annuities provided better income guarantees because of a more stable underlying asset base.

With a variable annuity, the base account is exposed to the risks of the stock market. As such, companies have less control over future performance and must go light on the guarantees as a result. A stable asset base is the major advantage of index annuities to the benefit of the consumer and issuing company. How could variable annuities ever compete?

Well, this article describes a shift in investment strategies for the companies who manage variable annuity assets. In an attempt to protect the principle asset, management teams are working to implement indexing and hedging strategies that will limit downside losses in bear market while capitalizing on upswings during a bull market.

To me that sounds a lot like the value proposition of a fixed index annuity.

Why should you care about changes in the variable annuity landscape?

Variable annuities have achieved much greater reach in the retirement planning market. Index annuities are not as well understood but, by their nature, offer a better value proposition for the consumer. For clarification please refer to The Annuity Report for objective information on the difference between these two products.

My job is to present the information and give a clear interpretation of how these things will benefit you when it’s time to decide how you’ll choose to provide a source of guaranteed lifetime income in retirement.  When you are ready, I look forward to hearing from you.

Investment Firms Show Interest in Fixed Index Annuities

You know, maybe index annuities aren’t as bad as the financial press would have you believe. In fact, this article from Insurance News shows that Wall Street financial firms are working to offer their own line of fixed index annuities. Click here to read the article.

As the products have aged and proved value over the last decade or more, the changing popular opinion means investment firms will have to alter strategies in an attempt to retain assets under management. Yes, the demonizing will slow down as more and more firms embrace the use of these safe-asset products. It’s the classic “if you can’t beat ‘em, join ‘em” mentality.

This will likely result in the movement of many more investment and insurance companies into this market. How does that affect you? Over time there will be a better competitive environment that leads to more product offerings and better contractual benefits. The market will continue to grow along with available choices for consumers.

That’s the major advantage of Annuity Straight Talk. You have me to do all the heavy lifting in product selection and loads of quality information that allow you find the best product out there for your specific situation.

And there’s one more thing I’d like to share with you this week…

Senators Propose Rigid Spending Cap- Andrew Taylor (AP)

How will any necessary budget cuts affect your plans for retirement? Well, if you don’t live under a rock then you know we have a mounting fiscal crisis in this country.

This AP release talks about a major proposal to reign in federal spending via a serious of cuts that is meant to shave $8 Trillion out of the government budget over the next ten years. You might want to read that again. The primary targets of those cuts are Medicare and Social Security. I’m not making this up… read the AP release.

I don’t want to spend too much time talking about the looming insolvency of those programs, but maybe it’s time for a quick quiz:

When you retire, how much control should you have over your financial livelihood?

a.)    I want to cede all control to bankrupt government program whose administrators admit their own insolvency.

Or:

b.)    I want to take control and make my own decisions.

Hopefully the answer is clear. It’s time to take a step in the right direction and make an appointment now! I look forward to working with you.

Bryan J. Anderson

800.438.5121 [email protected]

Guaranteed Lifetime Withdrawal Benefit Annuities

Time and time again I’ve made the point that guaranteed lifetime withdrawal benefit annuities (GLWB) are great products that too often are not properly explained to consumers.

These GLWB riders and benefits can be devilishly complicated and require proper analysis prior to purchase. There are GLWB riders available in both Variable Annuities, and in Fixed Index Annuities.

Variable products make up the majority share of the market while fixed index annuities with GLWB features are beginning to make a big impression as well.

I’d like to direct members this week to AnnuitySpecs.com and an article written by Sheryl J. Moore.  Sheryl is a tireless advocate for the proper use and placement of fixed index annuities.  She tackles the subject of suitability for GLWB contracts in this article.

This is valuable information because too many salesmen out there consider indexed annuities with guaranteed income features to be a single solution to a variety of financial planning situations. Annuities with guaranteed lifetime income benefits can be a powerful tool when used in the right context.

Sheryl’s article will help you understand when they are not be appropriate.  Don’t listen to anyone who tells you that indexed annuities with GLWB are the only way to go.

An additional disclaimer I’ll note is the fact that this article is written more for the benefit of salespeople.  The information, however, is fully appropriate for consumers who are interested proper due diligence.

Happy Thanksgiving Everyone!!!

Bryan J. Anderson

For More Info on The Fixed Index Annuity, Click Here

For More Info On Variable Annuities, Click Here

Fixed Index Annuities- Safety and Growth Amid Uncertainty

Where can one find the best value proposition in the annuity industry these days?  Fixed rates are very low and variable products don’t protect against market volatility and contractual guarantees can be expensive.

Let’s take a look at fixed index annuities for a moment, a product that offers upside growth potential with protection of principle.  John Rafferty of American General Life tackles the subject in a recent Insurance News Net blog.  Here is John’s article.

Since cap rates on fixed index annuities fall with interest rates, John offers some insight on how to choose the proper crediting method in order to maximize growth.

The way I see it, safety is of paramount concern in today’s economic environment.  Few pre-retirees can afford to risk valuable retirement assets and even fewer want to do so.

The value in fixed index contracts is clear… consistent protection and growth potential in addition to the highest levels of guaranteed future income available.

If you don’t have a pension waiting for you, consider fixed index annuities as a way to ensure a reliable income source in your retirement years.

For information on how these products work and availability in your state, contact me at your convenience via phone (800.438.5121).

Visit here for a refresher on fixed index annuities

Fixed Indexed Annuities vs. Alternate Investments

How do fixed indexed annuities stack up against other investment options?

This question and answer editorial in the Dallas Morning News points out the need for analytical inspection of investments in the proper context. CBA Share price has been capturing the interest of many investors these days, so it may be a good option to check out.

One main point left out is the additional benefit of tax deferral that is inherent in all annuity contracts.  If alternate investments are held outside of tax deferred retirements accounts, annuities will provide a significant account value advantage.

Always do your homework and choose an advisor who won’t overlook any of the benefits or disadvantages.

Increase Your Retirement Nest Egg Through Fixed Index Annuities

From an early age, we are taught to work hard, save money, and deposit our money  in a savings account. Savings go towards buying a house, education, or for our retirement.

We are also taught to scrimp and save and make deposits faithfully every month. When our savings reaches a threshold, say $5,000 or $10,000, we may then consider converting that amount to a CD for a higher rate of return than our savings account. While it will earn more money in a CD than in savings, you do have other vehicles that can earn you even more than a typical savings rate, and may also be tax deferred.

The Chapel Valley Commercial Landscaping are a viable alternative to traditional CDs or money market savings accounts. When you purchase an annuity you are buying a contract from an insurance company. The terms of the contract provide you a specified rate of return and your gains are tax deferred. The Federal government ensures your money is safe by enforcing  cash reserve levels on the carrier  to cover the annuity. States also have guarantee funds to safeguard your money.

All annuities offer returns based upon your premiums paid. But annuities come in many shapes and sizes. There are immediate annuities which offer immediate income payments. There are also deferred annuities which still earn returns, but in which you do not collect income payments until a future date. You may pay a one time premium for these or make yearly contributions, which is also known as a flexible premium annuity.

The most common annuity is a fixed deferred annuity and quite popular for funding college tuition or retirement income. This is because these annuities guarantee a specified rate of return for a specified time frame. This rate of return is usually better than any bank CD or money market savings account can offer. This product is more conservative than a fixed index annuity, which can garner higher rates of return.

While a fixed index annuity guarantees a base rate of return on your principal balance, the actual rate can vary.  Annuity funds are invested usually in a bond portfolio, and returns are based upon the performance of another stock market index such as the S&P 500 or the Dow Jones Industrial Average. Thus, if the stock market performs well, you share some of the gains. If the stock market does not perform well, you do not incur any losses. It’s really a win-win scenario for you, as you can experience some of the rewards without any risk to your money.

When you take into account a higher rate of return on your money, a risk free guarantee on your money, tax deferment and bonuses, you may well earn more on a fixed index annuity in a fraction of the time it would take you to earn it through an account with your savings bank.

Learn more about this on the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

Fixed Indexed Annuity

The Fixed indexed annuity is a booming business. There are billions annually being converted into these annuities.

Fixed indexed annuities garner higher returns than a CD or money market account without giving up security. The Fixed Indexed Annuity is an annuity that allows for market participation without downside risk , and is quickly overshadowing CD’s, mutual funds and other stocks as a great safe place for people to invest their money.

How The Fixed Indexed Annuity Works

A fixed index annuity will provide at least 1-3% returns, compounded annually. This minimum guarantee lasts throughout the contract; however, earnings can exceed this rate.

Fixed indexed annuities are linked to the performance of another equity index like the S&P 500. The overall performance of the US stock market is represented by the S&P 500. If the market performs well, your  investment  will enjoy a percentage of the gains. If and when the market goes down however, you are sheltered from losses.

Fixed Indexed Annuities: Gains, But Not Losses?

Fixed index annuities sound too good to be true.  Well, they are real. When the market performs well, you earn a percentage of the gains subject to a cap. When the market goes down, you do not hold any of the risk and therefore do not lose any money. Every year, any earnings will be locked in at the anniversary index point. In fact, on particularly good years, a fixed index annuity can gain 2 or even 3 times the guaranteed interest rate and not lose any of those gains when the market subsides again.

Fixed Indexed Annuity: Tax Deferred Growth

The icing on the cake for fixed index annuities is that if all earnings are kept in the annuity they will grow tax deferred. You don’t even have income on a Fixed Index Annuity to pay taxes on until you take out the money.

While this product is for all ages, it is especially applicable to retirees.  Small business owners are using FIAs in their 401(k) and SEP-IRA retirement plans as well.

Learn more about this on the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

Are Fixed Index Annuities a Good Option For Retirement Savings?

In today’s tough economic climate,  fixed index annuities may provide you with the security and confidence you are seeking for your retirement savings.

The ‘Fixed Index Annuity’ is also known sometimes as an ‘Equity Index Annuity’. Fixed indexed annuities came onto the market in 1995 and have been steadily gaining popularity. Insurance companies are writing these annuities with a minimum guaranteed return and tying the annuities into another stock market index, such as the S&P 500 or Dow Jones Industrial Average.

You can determine if a fixed index annuity it right for you by looking at your investment goals and time frame. Short term investors seeking maximum returns should shop elsewhere. These annuities are vehicles for long term investors seeking stable returns, not double digit yields. Also, if you like to constantly rebalance your holdings, you should probably not invest in an index annuity. The ideal candidate for an equity indexed annuity would be a long-term, conservative investor who is seeking a stable and steady return. Someone who wants to no risk to their principal but would like to realize higher returns than a CD or money market account, which are also tax-deferred. An equity indexed annuity is a valuable addition to reaching your retirement goals.

Some Contract Features of Fixed Index Annuities:

  • Guaranteed Minimum Rates of Return: Fixed Indexed annuities guarantee a minimum rate of return no matter how the market performs. This return is usually 3% and is credited to a portion of the account value during the contract term.
  • The Stock Index: Fixed Indexed Annuities interest calculations are tied in the performance of a stock price index, such as the S&P 500, without taking into account dividends and capital gains.
  • Participation Rate: The participation rate is set in the contract terms and determines how much the contract owner shares in the index increase. They participation rate percentage is multiplied by the index change percentage to determine what interest rate the contract owner will be credited. If the participation rate is 70%, the contract owner will enjoy 70% of the index change.
  • Caps: A cap is the opposite of the guaranteed minimum rate of return. In essence, an annuity cannot earn more interest than the cap states in a particular period.

One should also note that equity indexed annuities have early withdrawal penalties, or surrender fees. The surrender fees may decrease over the years, but check contract clauses for details on these fees as they can be quite expensive. Remember, these annuities are best for investing long-term, so it is best to only invest money you will not need for several years.

When selecting equity indexed annuities there are is array of components to take into account. Every company offers different products and every annuity has different contract terms. Terms that vary include participation rate, cap, surrender fees, annual reset, etc.

While you may have heard some negative comments about equity indexed annuities (AKA fixed index annuities), this is largely in part to unscrupulous or un-knowledgeable sales agents selling these products to consumers who do not know what they are buying into. Do your research, find a reputable agent with experience in the equity index annuity field and know what product best suits you and your retirement needs.

Find more about Fixed Index annuities in The Annuity Report .

Learn more about this on the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

Straight Talk on Fixed Index Annuities

Straight Talk on Fixed Index Annuities

Few products generate as much confusion and controversy as fixed index annuities, both pro and con. We’re often asked if these products are any good.
Want the Straight Talk? Money managers dislike fixed index annuities because they lose management assets and many insurance agents simply don’t do a good enough job of explaining how the product really works. This is precisely why opinions about fixed index annuities are so polarizing. But that’s just what they are, opinions. Straight talk is based in fact and cannot be disproven!

Fixed Index Annuities Summarized:

Fixed index annuities are nothing more than fixed annuities with a different means of crediting interest to the account. Fundamentally, fixed index annuities link the appreciation rate of the annuity account balance to a stock market index. In addition, the principle balance is guaranteed so you can essentially make but never lose money. In return for guaranteed protection, the potential growth only works out to a portion of the overall index gain. The basics are simple but a few moving parts gum up the works and that’s where opponents attack.

Critics will call fixed index annuities a raw deal because policy owners are not given full market appreciation and dividends are not included in the interest crediting. If that were true it would seem that insurance companies are stealing gains from the consumer. Such a short-sighted analysis only shows that the claimant understands little of how index annuities work.

You see, because the assets are not directly invested in the market index, no one receives full appreciation and dividends, not even the insurance company. Assets are actually placed in the company’s general account consisting mostly of investment grade corporate bonds and further backed by large reserves that each company is required to hold. It’s a simple risk/reward calculation. If you want principle guarantees, don’t expect the same returns as you’d get in the open market.

Another common misperception is that all index annuities have long surrender schedules approaching 15 years. In reality, surrender terms for most index annuity contracts are no different than those of variable and fixed annuities, ranging from three to ten years. Before anyone criticizes any surrender period they should first acknowledge the basis for such restrictions. If an insurance company has to buy a long-term bond to back any specific product, the company will incur a loss if the contract is cancelled early due to selling bonds or other investment instruments under less than favorable conditions.

Truthfully, fixed index annuities have a solid value proposition in comparison to other investments, no matter the risk factor involved. I too was a major skeptic at first until I took the time to understand the product. Compared to other investment strategies like futures, derivatives, hedge funds and options, fixed index annuities are not at all complicated.

Now to what really matters… are fixed index annuities a good place to put money? All else matters little if the product can offer decent returns. It just so happens that in 2009 the Wharton Financial Institutions Center for Personal Finance completed a study comparing actual index annuities contracts to alternative portfolios of stocks and bonds. Click here to see what they found. The study showed that index annuities were able to produce respectable returns when the market was strong and limited losses during market downturns. Isn’t that exactly what they are supposed to do?
There are a few specific things that every consumer must understand before purchasing a fixed index annuity. Several of the pages on this site dig into the particulars so be sure to poke around and arm yourself with all the information you can before you call.

Most importantly, there are a couple of valuable reports available with a free subscription to Annuity Straight Talk. The Fixed Index Annuity Report is the most complete resource for understanding how the fixed index annuities work,  and the GLWB Report talks about guaranteed lifetime income riders that can be attached to various fixed index annuities for additional retirement income options.

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Fixed Index Annuity Rates

There are many components to fixed index annuity rates, and they have plenty of working parts that make the contracts seem complicated when they don’t need to be. Among the perceived complexities are the various rates that contribute to overall contract performance. A true professional takes a surgical approach to the analysis so let’s go piece by piece and when finished I think you’ll agree; fixed index annuities aren’t that complicated.

The Various Fixed Index Annuity Rates:

Declared Fixed Rate- Most index annuities offer the option for a simple fixed rate that is exactly like the rate offered in a plain old fixed annuity. Each contract will note the current declared rate, contractual minimum renewal rate or specify that the rate is guaranteed for the entire time period.

Participation Rate- This tells you the percentage of the associated market index that will be credited to the account when asset values are locked in.

Cap Rate- This indicates the maximum amount of interest that will be credited to the account when asset values are locked in.

** Pertaining to Cap and Participation rates, asset values typically lock-in annually but can do so in several other annual time periods as specified in the contract. This is called a contractual reset which can range from one to ten years.

Guaranteed Income Growth Rate- One of the more popular additions to fixed index annuities in recent years is the opportunity for guaranteed lifetime income regardless of account performance. With this option, the account value will grow only when the market does while the income benefit is guaranteed to increase at all times. This affords the contract owner of some level of certainty as to what level of retirement income to expect.

Death Benefit- Many fixed index annuity contracts offer an optional death benefit. With this the contract owner is guaranteed the greater of the account value or a guaranteed annual percentage increase at death.

Payout Rate- When the option for guaranteed lifetime income is elected, payments will be calculated based on the age of the contract owner and joint annuitant if applicable. Different payout rates will be available based on these factors an expressed as a percentage of the guaranteed income benefit or account value, whichever is greater.

Fixed Index Annuity Rates Summary:

This basically sums up the various rates that indicate the potential performance of a fixed index annuity. As there are several moving parts to this type of annuity product, all of the points above relate directly to certain contract provisions that require further explanation for proper knowledge before purchase.  Feel free to Contact Us  for help in selecting the right annuity for your unique situation.

Refer to additional information on this site for more detail on the inner-workings of fixed index annuity contracts. If you are considering the use of a fixed index annuity for retirement income planning be sure to seek the advice of an unbiased professional. The Annuity Report is a great place to start… sign up below for more info on annuities.

Your Own Private Pension Calculator

Pension CalculatorCongratulations- Now that you’ve made it this far, you are ready for the rubber to meet the road.  With all the ground we’ve covered regarding the benefits of pension-like income it’s time to put this information into practice.

In this final section, we’re going to take a look at nearly all the things each person needs to consider before allocating assets to such an important task.  It’s critical to think through these items before considering any products.

Note also that I say ‘nearly all the things’ because there are no doubt certain issues that will only occur for specific individuals.   That’s exactly why a solid plan can only be crafted with expert guidance.

Everything on this list is basic but coordination of each into a solid strategy is where an expert can add tremendous value.

1)      What is your current age and when do you plan to retire?

Are you looking for joint or single life coverage?

2)      Take account of the assets you have accumulated to this point.

Cash
IRA/401K
Brokerage
Real Estate
Business

3)      What is your base level of income needed in retirement?

Consider all expenses and add a little extra just to be sure

4)      How much guaranteed income do you expect from other sources?

Employer Pension
Social Security

5)      The difference between what you need and what you expect is the income gap that needs to be filled.

Make note of the fact that certain forms of passive income are not guaranteed and should be considered additional supplemental income.

Investment Property
Stock Dividends

The goal is to find the most efficient way of filling that gap possible.

If you’re ready to work with us right now, please call 800-438-5121 or use this brief STRATEGY SESSION page.

Other Considerations:

The only typical issue not stated on the list deals with an individual’s desire to leave a financial legacy or inheritance for future generations.  That is something that needs to be dealt with on a case by case basis and relates more to how additional assets are invested once a guaranteed income source has been secured.

As for the other points, depending on your specific answers the optimal plan can vary greatly.  The strategy you select will ultimately be determined by the timing of your planned retirement date as well as your current level of assets in relation to what you need.  As you work through the list, each item will move the levers one way or another.

In relation to timing, you either need the income immediately, or you need it at some point in the future.  There are also plenty of situations where people will want a certain level of income to start well into the retirement years.

Conveniently, there are annuities to satisfy all requirements with both immediate and deferred annuities available.  An exact answer is impossible without your individual specifications, but we offer you a starting point.

Here’s what you need to do…

Find a calculator that will show you how much investment is needed to produce your desired result so you have a target to work with.  Fortunately we have created one that you can find at the end of this post.

Remember, no single calculator available can account for all of these factors so qualified advice is a must at some point.  Find someone you trust- we’re here to help.

As you move from the general plan outline above to specifics, keep in mind the threats we’ve discussed.  Plan for them and answer the following questions…

1)     How do you plan to deal with inflation?

Many agents will present a product centric approach vs. our advice to maintain asset flexibility and potential future benefits with multiple products or financial vehicles.  This also allows you to spread risk across various financial institutions which is, coincidentally, a much safer approach.

2)    What about market risk?

Guaranteed income will insulate your basic income needs from volatility so you’ll only be subjected to the level of market risk you assume via separate accounts.

3)    How about longevity?

Guaranteed income for life will cover basic expenses as long as you live, while retaining flexibility and growth for future planning and prosperity.

Private Pension Calculator

As mentioned previously, we have designed a simple calculator that will allow you to find out how much money it takes now to provide the guaranteed income you need in the future.  This will give you a general calculation that will allow us to design a strategy around your needs.

From there the process requires fine tuning based on individual parameters.  Throughout this series you have seen our detailed approach to the considerations each individual faces while crafting a private pension that supplies sustainable, passive retirement income.  We appreciate the opportunity to share this approach with each of you and look forward to working with you on an individual basis.

The calculator is at the bottom of this page.

When you are ready to get into specifics of how to optimize your retirement portfolio, please simple Contact Us, or pick up the phone.

Best wishes for a prosperous retirement!

If You Prefer To Speak To Us Directly, Our Phone is 800.438.5121

Private Pension Calculator- Click The Image to Download our Private Pension Calculator in Microsoft Excel .xls format.

This calculator will give a good indication of the income you can expect to receive in a private pension annuity. We look forward to working with you to design a private pension annuity that suits your individual situation.

When you are ready to get into specifics of how to optimize your retirement portfolio, please simple Contact Us, or pick up the phone.

Best wishes for a prosperous retirement!

If You Prefer To Speak To Us Directly, Our Phone is 800.438.5121

Annuity Resources

This directory of Annuity Resources is intended to offer an overview of annuities and point you in the right direction for more detailed information.

So what are annuities? Do you want to know How Annuities work?

First- An Annuity Definition:

An Annuity is a contract between you and an insurance company.  You pay premiums to the company, and the company in turn grows your money tax- deferred, and commits to pay you either a lump sum, or a stream of income.

There are two main categories of annuities:

In terms of timing, there are either Immediate Annuities, or Deferred Annuities. These two choices refer to the timing of the payments from the insurance company to you.

Annuity Rates:

As to the rate of rate of appreciation on the capital you give the insurance company, there are many kinds of annuities, including Fixed Annuities, Variable Annuities, Fixed Index Annuities, and Immediate Annuities.

Sounds simple, right?  Well there are millions of ways to complicate even the most straightforward concept, and annuities are no exception.   We’ll cut to the chase and help you understand the ground rules.  If you determine that an annuity might make sense for you, be sure to sign up with your email  for our essential tools to choosing an annuity.

If you have an annuity already, you should know that there is an active market to buy and sell annuities on the secondary market- you may be able to receive cash today to sell an annuity you have owned for several years.  Also, buying secondary market annuities is an excellent way to find a high yield, safe investment.

We also have sections on annuity riders and living and death benefits this is where products can get complicated, and expensive.  Be sure to explore the pages of this site once you are a Member too- our tools can really help you to cut to the chase and figure out what is important and what is not.