Current events, commentary, and links to other resources on retirement income and annuities in the news.

For Many Financial Advisers, Stocks Become A Hard Sell

Life On An Equities Roller Coaster

Life On An Equities Roller Coaster

This post’s title is taken directly from a Wall Street Journal cover story that left me smiling today.

Stocks hold no allure for me anymore… Since the first day I worked with annuities, I’ve been free of the roller coaster ride of stocks- the gut-wrenching drops in value, the sleepless nights, and the fear of simply not knowing what some rogue computer program run by a kid playing with some institution’s account can do to my real dollars….

All that’s gone now… And not missed for one moment!

I take real pride in helping others find the same security.  And in case you haven’t studied real, long term yields, the rates offered on our Secondary Market Annuities are quite competitive given the safety and security of the assets.

You’re hardly giving up anything in terms of yield, and yet you give up all the uncertainty, fluctuation  risk, and worry.

You may just gain years on your life in the trade!  (It’s a fact that annuity owners live longer on average- but more on that in another post)

Here’s the story of a few poor souls who haven’t yet found the security of a good baseline GUARANTEED income… the kind of income only an annuity can provide.

Financial adviser Jeffrey Smith recently watched a once-confident client scrawl his fears across a legal pad during a discussion of stock investments: “Congressional stalemate,” “unemployment,” “European crisis,” “corruption.”

The client, retiree Nicholas Zerebny, later recalled how his thoughts strayed to Edvard Munch’s “Scream” paintings. In the middle of the page, Mr. Zerebny drew a crude version of the iconic screaming face.

“That’s how I feel right now,” he told Mr. Smith.

For Mr. Smith and other U.S. financial advisers, that anguished cry—real and metaphoric—has become a familiar part of the job.

Since hitting a recession-driven low in March 2009, the Dow Jones Industrial Average has doubled in value. But many ordinary investors remain too fearful to join in the gains.

After two stock collapses in one decade—2000-2002 and 2007-2009—along with scandals, the rise of high-frequency trading and worries over Washington’s ability to rein in debt, Americans are pulling out of the market. Individual investors yanked a net $900 billion from U.S. equity funds since January 2000, according to fund flow tracker EPFR Global. Penny Stocks and stock mutual funds now make up 37.9% of the average U.S. household’s financial assets, down from 50.5% during the height of the tech-stock boom in 2000, according to the U.S. Federal Reserve.


Here’s the Source:

Muni Bond Tax Breaks On The Table In Cliff Talks

Taxes Lost  To Muni Bonds

Taxes Lost To Muni Bonds


In a stunning turn of  tables, even the tax-free nature of muni-bonds are on the chopping block in  our current buget turmoil.

Many of our readers are heavily invested in Munis so this article wil lsurely be important, interesting and relevant.

Here’s the Source:

And here’s a key summary:

By exempting municipal bond interest from federal taxes, the government creates an incentive for investors to buy them, which helps hold down the borrowing costs of the states, cities and other entities that issue them. Curbing the exemption would likely reduce demand for the bond

Investors are willing to accept lower yields for municipal bonds because their interest income is exempt from federal income taxes and from taxes in the state in which the bonds were issued. In some high-tax areas, such as California, the bonds are also exempt from local income taxes.s, pushing those borrowing costs higher.

Hartford Follow Up- Don’t Leap at Annuity Buyback Offers….Yet….

As a follow up to last week’s article about Hartford offering buybacks on some of its annuity contracts as part of its portfolio cleansing, I thought I’d point you to a WSJournal piece in today’s paper.  It may yet be premature to take annuity buyback offers!

An  annuity owners in the article is in a position that speaks directly to the problem ( And to the very reason people own annuities in the first place)

Pam put $200,000 into a Transamerica annuity in 2000.  Poor fund choices on her part led to losses, and over-generous guarantees by Transamerica led the company to be in a spot guaranteeing her generous payouts.

Her ,account value is just $82,000 after investment losses and her  own withdrawals, but the lifetime income base is 390,000, entitling her to an annuitized payout of $23,490 per year.

Transamerica would love to get that lifetime payout liability off its books, especially as there’s only $82,000 of real cash balance to offset the payouts.

To close the account, they offered Pam a lump sum of $313,200. But the question is, is it a good deal?

Most likely, Pam can’t replace the $23,500 per year with $313,200.  An immediate annuity for a woman in Washington pays just $19,250/ year, less than her annuity guarantee.

Until Transamerica- and Hartford and the other carriers trying to get out of their commitments- at least match the benefits they owe with open market choices available today, investors like Pam should hang tight and wait it out.

The Journal sometimes makes it hard to view old articles by link, so I’ll just quote it below:

Thousands of consumers who paid for lifetime-income guarantees when they purchased the retirement products known as variable annuities are finding themselves in an odd spot: Life insurers are trying to buy back the guarantees.

In early November, Hartford Financial Services Group Inc. HIG -0.28% became the second major insurer to announce a plan to ask some customers to trade in their guarantees, on the heels of a similar offer, just completed, by the Transamerica unit of Aegon AGN.AE +0.23% NV. Some other companies are expected to follow. Meanwhile, the U.S. unit of AXA SA CS.FR +0.24% is wrapping up an offer to buy back certain death-benefit features sold with its variable annuities.

Variable annuities offer a tax-advantaged way to invest in stock and bond funds. The guarantees, sold for an extra fee, promise steady income for the buyer’s lifetime, even if the fund accounts become depleted.

Costly Competition
For years, variable annuities and their guarantees were maligned by many financial advisers because of the fees; the charges can top 3.5% a year of the invested amount. And why pay for a guarantee to protect against a stock-market decline, the naysayers said, when stocks over time inexorably march upward?

But some financial advisers were fans, and their enthusiasm helped make 2007 a banner year for variable annuities, with $184 billion in sales—just before financial markets began sliding with the bursting of the real-estate bubble. Industry executives say the vast majority of those purchases included lifetime-income guarantees, which insurers were then aggressively marketing in what had become a product-feature arms race.

The 2008-09 global meltdown of financial markets demonstrated the value of the guarantees to their owners—and the financial danger to the insurance companies. While most insurers run hedging programs to mitigate those risks, as markets slid, many insurers had to set up bigger reserves for the guarantees, which hurt earnings. They also raised capital totaling billions of dollars, which diluted shareholders’ stakes, to show regulators they could make good on their commitments to consumers.

Hartford’s need for additional capital prompted it to take government aid, since repaid.

Insurers’ stocks continue to be depressed by the exposure they face from the guarantees.

Dodging a Bullet
In announcing their plan, Hartford executives said consumers would be offered a boost to the amount of money in their fund accounts in exchange for canceling the income guarantee.

Hartford’s costs would rise in the short term, but the goal is eliminating long-term exposure that hinges on uncertainties such as stock-market performance and customers’ longevity.
The offers might appeal to some people with pressing cash needs. But many owners are like Pam Tufts, 64 years old, a college administrator in Seattle, who says she bought her variable annuity and its income guarantee from Transamerica in 2000.

She was newly widowed, and the guarantee appealed to her because she didn’t have an old-fashioned pension plan to augment Social Security and other savings. She was concerned about future market drops that could wipe out investment gains and even her principal, she says.

As it turned out, the big tech-stock swoon happened soon after she put about $200,000 into large-cap U.S. stock funds within the annuity. She could take comfort that Transamerica was on the hook to provide for her financial future, even if her stock funds never rebounded.

As of Oct. 1 of this year, Ms. Tufts’ fund balance was still well below her initial investment, at approximately $82,000, depressed both by poor market returns and withdrawals totaling about $30,000 she has made since 2008. She says she aims in a few years to begin collecting an annual amount equal to approximately 6% of a guaranteed “base” amount that recently stood at about $390,000—or $23,490 a year at that level.

Doing the Math
The guarantees are complicated and varied. Under the one bought by Ms. Tufts, in broad terms, her minimum lifetime annual income is tied to a base amount that started out as her original investment. The base was guaranteed to grow at least 6% a year (more if her funds gained more than that) until she began withdrawing money.

Transamerica offered to buy out the contract for 80% of the guaranteed-base value at the time of the offer, or $313,203, according to Ms. Tufts. While the amount was certainly large, she says it took only a few minutes of conversation with her financial adviser, David Moskovitz of the RBC Wealth Management division of RBC Capital Markets LLC, “to come to the conclusion it didn’t make sense for me to take that cash and run, unless I didn’t expect to live very long.” She is in good health, she adds.

Mr. Moskovitz says: “Bottom line, if we took the buyout, I would have to invest the $313,000 buyout in something that would pay an approximate 7.5% in perpetual income to match the guaranteed annual amount of $23,490. In today’s interest-rate world, that is impossible without taking substantial credit or market risk.”

Some advisers estimate that at most about one in five holders accepted Transamerica’s offers, based on their experience with clients. A Transamerica spokeswoman says: “We’re unable to disclose offer and acceptance information.”

As Ms. Tufts concluded, the Transamerica-type offers can make sense to people with ill health who aren’t worried about outliving their savings, other advisers agree. But many buyers of the guarantees have been people in their 50s and 60s seeking the security of a lifetime income stream, and they are comfortable with a highly rated insurance company bearing the risk.

“There is no question that other companies are watching these offers and considering their own offer,” says Scott Stolz, who heads an insurance unit at brokerage firm Raymond James. He says some people’s circumstances can make the offer worth accepting. But in general, he says, insurers “are likely to make an offer that is favorable to them,” rather than the consumer.


Perfect IRA Deal- A Nice Deferred Lump Sum

Today I want to feature a deferred, lump sum investment that is just hard to beat.  We have two similar lump sums, from two different top rated carriers, AIG and Prudential.  Each have the same payment stream.

The AIG deal is this one:

What makes this so special?  Well, compare it to a CD or a fixed annuity.  For an investor with a bucket of cash and time to defer, there are few better ways to position assets today.

Take an IRA for example.  For a 50 year old, an IRA is a bucket of money that you can’t touch until you retire, age 59.5 at the earliest without IRS penalty.  What’s a 50 year old to do? You have to defer for 10 years at minimum…. and if you’re looking to retire at 65, this is a perfectly timed passive and safe investment.

Long term deferred lump sum investments make perfect sense in an IRA where you can’t do anything with the money anyway until you retire.  And concerns about a large amount of taxable income coming in one year are moot when you do this deal in an IRA.  It’s all tax deferred anyway.

Compare CD’s at a paltry 1.5 % rate, taxable annually… Fixed annuities at about 3%…. Muni bonds at 2% to 4% and susceptible to principal degradation if rates rise… and compare to Treasuries at 1%… ish.

These yields are you other ‘safe’ money options.  Why wouldn’t you seriously consider a fantastic  lump sum deferred deal like the one above that has a guaranteed price, and guaranteed payout, fixed and defined terms, and a great rate?

We’re waiting for your call- 2 of these are available today, one from AIG and one from Prudential.  800-438-5121.

Longevity Insurance In The News

longevity protection annuityLongevity Insurance is one of the best ways to guarantee lifetime income AND take advantage of the higher yields offered by Secondary Market Annuities.  It works like this:

Assume we are talking about a 65 year old California man with $1M assets who need $5000/ month for his essential living expenses

Step 1: Purchase a lifetime income guarantee policy, sometimes called Longevity Insurance, to give you  enough income but starting at age 85.  Rates vary regularly but recent quotes for a 65 year old California man paid over $6000/ month  per $100,000 of premium.

Step 2: Now that the lifetime income/ longevity risk of outliving income is taken care of, the remaining $900,000 in assets can be positioned for maximum yield to last a defined period of time.  And Secondary Market Annuities are the single best way to get a high yield in a guaranteed, fixed term investment.

With longevity – the biggest unknown – out of the way, the rest is easy!

We have relationships with the major carriers in the longevity marketplace, so if this strategy strikes a chord with you, please give us a call.  We can make it happen.

Here’s a recent WSJ article on the topic as well:

In recent months, insurers including Massachusetts Mutual Life Insurance, Northwestern Mutual and New York Life Insurance have introduced these products.

In February, the Treasury Department issued a proposal to make it easier for people to buy so-called longevity insurance products—which start payments at, say, age 80 or older—in 401(k) and individual retirement accounts.

Economists say it can make sense to put a small portion—for example, 10% to 15%—of your nest egg into such a policy upon retirement to protect yourself from running out of money from age 80 or 85 on. But insurers including New York Life and Northwestern Mutual say that with pension plans falling by the wayside, a growing number of buyers are purchasing these policies in their 50s as a way to secure a pension substitute in their 60s and beyond.

“In 2008, people saw their 401(k) balances get decimated. Now, they want certainty,” says Tim Hill, a consulting actuary and principal who specializes in annuities at actuarial consulting firm Milliman.

Hartford Heads for The Exits In Variable Annuities

The Hartford insurance company is making strategic decisions to exit the annuity business, especially variable annuities.  Industry watchers have long known that variable annuity guarantees made several years ago exceed return expectations, so it’s only a matter of time to see some of these carriers scale back.

Why are they getting out of the annuity business?  two primary reasons- 1) over generous contracts are ‘out of the money’ for the company, and 2) low rates means writing new business is even more risky.

Pervasive low interest rates in the market make it hard to keep pace with the benefits promised.  Insurance companies just like individuals are yield starved, so older contracts promising 7-8-or 9% annual returns are untenable in a 4% rate environment…. and new contracts promising much lower returns may STILL be hard to stay ahead of the game with

What’s it mean? Is Hartford going under? Not likely.  Hartford in particular is under pressure from John Paulson, an activist hedge fund investor, to simplify and streamline its businesses.   And even though they may not be writing new policies and may be trying to buy back variable annuity policies, The Hartford will be in the annuity business servicing existing contracts for many years to come.

My verdict is this: there’s nothing to fear with a Hartford policy if you have one or are consider a secondary market annuity backed by Hartford, even if the company is not writing new business.

If you are considering a new annuity, be extra sure that the credit union checking account quality of the issuing company is as strong as you can find.  This is a tempting marketplace for lower tier companies to grab market share with compelling benefits…. but if low rates prevail for many years, will that B rated company be able to pay out all you are promised today? Don’t make a long term bet on a shady carrier.

Here are two recent articles and a quote on the topic. and

Hartford Financial Services Group Inc. (HIG) is offering to pay some clients to give up retirement products as Chief Executive Officer Liam McGee works to reduce risks tied to stock market declines and free up capital.

Holders of some variable annuities, which guarantee payouts, would be offered cash to give up the contracts, McGee said yesterday in an interview. The offer will be made to holders representing 45 percent of the Hartford, Connecticut- based company’s net amount at risk on the contracts, he said.

Hartford is “examining every single possibility we can reasonably consider to accelerate the runoff of the book,” McGee, 58, said on a conference call with analysts today. “There’s no stone that’s being left unturned.”

Insurers are scaling back from variable annuities as low interest rates and stock market declines weigh on their profits. MetLife Inc. (MET), the largest seller of the contracts last year, said Oct. 31 that sales fell by 46 percent in the third quarter as it cut benefits. Axa SA (CS)’s Axa Equitable and Aegon NV’s Transamerica said this year they are offering to pay clients to reduce risks tied to variable-annuity guarantees.

Can You Sell The House And Travel The World In Retirement?

World Retirement Map

In today’s Wall Street Journal we have a fantastic article on a totally unorthodox retirement plan.  Instead of worrying about your dream home, or cashing out of your suburban home for a rural property in retirement, Lynn and Tim Martin cash out of California, put their precious possessions in storage, and hit the road.

Years later, their retirement is less expensive, more enjoyable, and more exciting than anything they imagined.

The Martins spent several years traveling the world, renting homes or apartments in Mexico, Paris, London, or wherever their heart desired.  They are not extravagantly wealthy or foolhardy.  Rather, they enjoy getting to know a new place, and taking the time to explore the back roads.  Sounds like a wonderful retirement plan, and they’re doing it on far less money than it would take to live a lifestyle similar to that which they left behind in California.

The Wall Street Journal article is well worth your time, if only to expand your mind.

The Let’s-Sell-Our-House- And-See-the-World Retirement: 

How one couple walked away from all they owned and are putting down new roots— one country at a time.

You can Read It Here:

Prospects For Stocks Are Dim Says WS Journal

The title really does say it all- “Prospects For Stocks Are Dim” says Tom Lauricella of the Wall Street Journal.  It’s hard to chart a course in this turbulent market and the risks are just too high for most investors.  Individuals can not afford to take the risk of losing principal, and it seems those risks have never been higher.

With record low interest rates, bonds  carry immense risk to principal if interest rates rise.  As value moves opposite to yield, a rise in yield will vaporize principal faster than a stock market crash.

And stock market crashes seem to be more the norm than the exception anymore.  Respected money manager Ben Inker of GMO in Boston is quoted in the article below saying:

“Corporate profits are at all-time highs and we don’t think that is sustainable,” Mr. Inker says. That, he adds, suggests stocks are more expensive than investors realize.

As a result, over the next seven years “we don’t think the stock market is priced to deliver a lot of returns,” says Mr. Inker. “Maybe you will keep up with inflation.”

Faced with such high risk times, volatile options, and low expectations from even the best managers, why not make a smart, safe, insured bet on quality annuities, especially our Secondary Market Annuities which can routinely yield high 5% to 6% range.

What’s not to like?

Here’s the full article below-

Prospects for Stock and Bond Returns Are Dim


Source: WSJ 

When it comes to expecting stocks to provide them with any kind of decent return, many investors are throwing in the towel. After all, it’s been years of back-and-forth swings in their portfolios.

Meanwhile, the double-digit returns on bonds over the last 25 years have investors piling into fixed-income investments in record numbers—even as many money managers and analysts warn that investors shouldn’t expect those kinds of returns to continue.

It’s an especially confounding time to be sketching out expected returns on a portfolio, with both stock and bond markets buffeted by significant and unusual forces that could play out for many years to come.

A Grim Five Years
The outlook for stocks stretching out for the next five years or more would seem to be grim, thanks to entrenched fiscal and economic woes in the U.S., Europe and Japan. The U.S., for one, continues battling stubbornly high unemployment and the lingering effects of the housing collapse.

At the same time, some argue that the Federal Reserve’s unprecedented efforts to pump money into the financial markets will eventually lead to a flare-up in inflation. That would send interest rates higher and lead to a nasty bear market for bonds.

Throwing fuel on that fire was the Fed’s decision earlier this month to expand its effort to effectively print new money and prop up the economy. The Fed said it would make an additional $40 billion per month in bond purchases until the unemployment situation materially improves.

But those same efforts by the Fed are keeping the bond bull market alive by capping interest rates and, at the same time, feeding investor demand for riskier and higher-return investments, such as stocks.

In the face of entrenched investor skepticism, the U.S. stock market has staged a powerful rally in 2012. The Standard & Poor’s 500-stock index is up 16% so far this year.

This convoluted backdrop has sparked a vigorous debate over the kind of expectations investors should have for stocks and bonds. Keep in mind that returns are measured by more than just changes in bond or stock prices. What matters is total return—plus stock dividends or bond interest.

Attracting considerable attention have been particularly gloomy arguments from famed bond-fund manager Bill Gross, of Pacific Investment Management (Pimco). Mr. Gross believes bond returns will likely drop to 2% a year on average and stocks will gain only 3% to 4% a year.

Though it may seem like a meaningless debate among the talking heads on financial television networks, expectations matter for individual investors. “They’re a critical component to strategic asset allocation, establishing tolerance for risk and thinking about how asset classes interact” within a portfolio, says Joe Davis, head of Vanguard Group’s investment strategy group.

For Shawn Rubin, a financial adviser at Morgan Stanley Smith Barney, return expectations are central to conversations with clients about their asset allocation and rebalancing strategies.

Often, investors “underestimate the lumpiness of returns and how frequently riskier investments have 5% or more of paper losses,” he says.

Another issue is coaxing investors to think about expected returns in relation to inflation, and not just on a nominal basis. For investors whose primary goal is to avoid having inflation erode the value of their savings, “right now, you don’t need a lot of return to achieve that goal,” says Mr. Rubin.

Take the debate over bond returns. Hal Ratner, an asset-allocation specialist at Morningstar, is among those who think bond returns will dwindle in coming years. He notes that on a short-term basis, investors owning U.S. government bonds are effectively losing money once inflation is factored in.

“That makes you think, ‘Should I really buy government bonds?’ ” says Mr. Ratner. “But in the event that something bad happens [in the stock market], we know that they will protect your portfolio…like buying insurance.”

So for investors with a shorter time horizon, bonds, even with minimal returns, still can act as a cushion should the rest of your portfolio lose money. “Time horizon is absolutely critical,” says Mr. Ratner.

On the stock side of the equation, the calculus gets a lot more complicated.

For starters, expectations are often colored by recent experience, especially a negative one. In the case of stocks, they’re shaped by the financial crisis, even though the S&P 500 has returned more than 6.5% a year for the last 10 years once dividends are factored in.

“For investors, the last 10 years don’t feel like they’ve been up 7%, what they feel is what they felt [like] in 2008” when stocks collapsed, says Lisa Emsbo-Mattingly, director of asset allocation at Fidelity Investments.

Fidelity’s asset-allocation group, which sets the investments for the firm’s target-date retirement mutual funds, believes that over the next five to 10 years, U.S. stocks can generate average to slightly-below-average returns—roughly in the neighborhood of 6% a year.

This forecast is based on expectations that the U.S. economy is not mired in a Japan-like extended recession and will be able to post moderate—though below historical trend—growth of about 2%. Add in the productivity of U.S. companies and strong corporate balance sheets, and Fidelity thinks earnings growth should be able to power better future returns than many investors are currently expecting.

Expensive Stocks
Ben Inker, co-head of the asset-allocation group at money manager GMO, takes a different approach, putting more weight on stock valuations compared with the outlook for corporate profits.

“Corporate profits are at all-time highs and we don’t think that is sustainable,” Mr. Inker says. That, he adds, suggests stocks are more expensive than investors realize.

As a result, over the next seven years “we don’t think the stock market is priced to deliver a lot of returns,” says Mr. Inker. “Maybe you will keep up with inflation.”

Still others take a different view of stock valuations. On balance, “valuations are close to average,” says Vanguard’s Mr. Davis. “That would suggest…returns that range in the high single digits.”

Important Retirement Income News Roundup

First, we featured our Social Security Solutions planning tool last week and had quite a few folks call in to get a copy of their report. We were inspired to get this reporting tool for clients from this article in the Journal, and we’ve been very happy so far. Give us a call and get your report run too!

Fiscal Cliff: More and more news in the coming months will be about the fiscal cliff we are racing towards. With a presidential and many congressional elections in full swing, you can be sure that nothing substantial will be accomplished by Congress in the next 6 months. Unfortunately, this means the Bush tax cuts are likely to expire in a swirl of name-calling, posturing, and general incompetence in Washington. Be prepared for a massive change in estate tax laws, among many other unpleasant shifts.

Americans are learning more about the “fiscal cliff” approaching at the beginning of next year, when tax rates for families and small businesses are set to spike and new taxes in President Obama’s health-care spending law take effect. But unless there’s real change in Washington, we’re also headed for a steep “regulatory cliff” that could compound the damage.

Tax Laws: Here’s another article that for once looks at the brighter side of tax law- the annual exclusion available to individuals of $13,000 per recipient. With the sunset of the high estate tax thresholds a possibility, more and more retirees are likely to possess taxable estates. A family home worth $500,000 and a portfolio of $750,000 puts you over the limit, if the Bush cuts sunset in 2013…

Given the uncertainty surrounding next year’s taxes, here is a reassuring thought: One of Uncle Sam’s most useful tax benefits isn’t expiring, shrinking or otherwise under threat after 2012.

Family Financial Planning: Retirement planning often involves some unpleasant things like mediating family disputes. This article helps you start thinking about divisive situations you can avoid. Think long and hard about how you want your affairs and estate handled, while you can. I can say from personal experience that as romantic as the idea sounds, property owned by siblings after a parent passes neither gets the use it should, nor offers the happy ‘get together’ space the deceased often envision. Have a conversation before you leave a well intentioned but unworkable situation behind.

Parents, it’s time to be an adult when it comes to talking to your kids about your late-in-life planning,a nd awesome way is by getting the best pool tables for your kids to learn with and have time at the same time.

Many times the burden of managing a parent’s deteriorating health or financial situation means an adult child has to step into their parent’s shoes.

But parents often can accomplish more by stepping into their former role and taking the lead. Doing so can head off divisive—and costly—family feuds.

Enjoy the last weeks of Summer!

Is Your Home Equity Optimized?

Home equity has been unreliable  recent years.  Too many used home equity as an ATM, and the real estate downturn has left many realizing the folly of their ways with homes worth less than their mortgage.

However while  most of the visitors to this site have significant equity or paid off homes, most are only considering their homes as an asset to be utilized far in the future when they downsize.

I’d like to propose another way of using your home today, and capitalizing on the unbelievably low interest rates in the home mortgage market.

For many people with good credit, home loans can be obtained in the 3% to 4.5% range.  It doesn’t really take a rocket scientist to realize that investing money borrowed at 3.5% into a new investment yielding 5 to 6% is a good deal.

Consider these four current offers (as of 8/2/12): each one offers a solid cash flow, as well as lump sums.  Depending on how much money you borrow from your home, the income stream can be used to pay your mortgage, even pay it off.  This leaves you a lump sum that matures in the future as essentially free money.

Home Equity Secondary Market Annuities

The Genworth case is a perfect example.  It pays $4800/ month for 306 months, then pays $550,000 lump sum.  At 4% interest, you could borrow $1,005,413 on a 30 year home mortgage with payments of $4800/ month.   Theoretically, you could borrow the entire purchase price of $922,969, pay the mortgage off with the income stream, and be left with $550,000 at the end of the term.

Now, jumbo mortgage rates, your risk tolerance, and other factors may make this specific amount of borrowing not advisable.  But let’s say you have $550,000 to invest, and a paid off home worth $1M.  You could easily borrow $400,000, and rates on 15 year mortgages are as low as 3.5%.  The payment on this is 15 year mortgage is just $2860 per month.

Then, combine your mortgage proceeds and your available cash to purchase the $922,969 Genworth case yielding 5.5% over 28 years.  Utilize $2800 of the monthly income from Genworth for your mortgage payment, you are still left with $2000 month of income for the first 15 years.  Your house is paid off after 15 years, and your income from Genworth jumps to $4800 a month for another 10.5 years.  As a super bonus, you also have a $550,000 lump sum windfall- your entire invested principal is returned in full, and meanwhile your enjoyed 15 years of $2000/ mo and 10.5 years of $4800/mo.  That is a superb investment.

Utilizing home-equity in this way is very safe, as your mortgage payment is directly offset by your new income source, and the investment that you make yields a higher rate of return than your debt costs you.  There are home mortgage interest tax deductions to take into consideration as well that may make this even better.  For retirement investors looking to safely utilize home-equity, a strategy like the one described above is hard to beat.

It just so happens that we currently have four similar cases to the Genworth case that all would suit this strategy.  Each includes significant income streams and a lump sums.  For investors with home-equity, you owe it to yourself to make lemonade out of this lemon of a low rate environment.

Don’t let these low rates go to waste.  Grab some cheap mortgage money, and give us a call to secure one of these fantastic income with lump sum Secondary Market Annuities. In most cases, we can make arrangements to hold cases while your refinance is processing.

Free Social Security Optimization Report

Social Security can be devilishly complicated to optimize. But it forms the core of a guaranteed lifetime income strategy.

In the past it’s been hard to make accurate recommendations because the rules of Social Security are complicated. So we have recently started using an online tool from

Social Security

With just a few pieces of info, the tool produces a comprehensive report tailored to you that shows you the optimal and most lucrative time to take Social Security.

This report is normally $125, but for a limited time we’re offering it free to new customers as we work it into our practice.

If you have been resisting calling us, now’s a great chance for us both – get yourself a $125 value for free, and we’ll give you an award winning, customize report on your personal, optimal Social Security strategy.

Give us a call at 800-438-5121 today!

Aligning Your Goals

I read a provocative article in Forbes today titled “Have The Nerve To Let Your Investments Work.” The article perfectly describes why individuals- even professionals- rarely outperform the market.  Lacking conviction and making reactionary decisions, based on news, advertisements, or pressure,  virtually guarantees that you will buy high and sell low.

The article states:

“….one of the largest barrier to investors succeeding is an unwillingness to decide what they are trying to achieve. Consequently, investors never set realistic goals or devise a reasonable plan to achieve them.”

This gets to the heart of retirement income planning and annuity selection.  When working with our clients, we seek to clearly define  goals first- this can be a specific dollar amount, or a subjective goal seeking safe appreciation, or a tangible monthly income starting in a specific number of years.  But having the goal written down is the first, and sometimes hardest, step.

Once we have a goal, our job is to find the best tools for the job to achieve that goal.  We see how much it costs, and then can make an informed decision, and confidently weed out competing options and alternatives knowing that those options don’t achieve the goals. It’s really simple when you start from the right place- which is you.  Your goals and objectives.

The article continues:

If you calculate that a steady return of, say, 5% a year for the next ten years, along with regular contributions to your portfolio, will enable you to reach your goals, then structure your portfolio accordingly: perhaps a higher concentration in bonds to provide greater stability, combined with some blue chip equities that, over time, are likely to provide the growth you want. With careful monitoring of how well your portfolio is tracking the returns you need, you’ll greatly increase your chances of financial success.

It’s nice to see Forbes quoting a reasonable rate of return too, however I’d like to offer a better way of achieving that example of 5% per year.  Instead of “Perhaps a high concentration of bonds….” let me suggest Secondary Market Annuities.  Like a bond held to maturity, but bought at a discount, our SMA’s routinely yield better than 5%, with no principal risk (unlike bonds).

Remember, an SMA is simply an annuity contract from some of the highest credit insurance carriers in the market, like Met Life, Aviva, NY Life, Genworth, Allstate, Pac Life, etc.  These carriers making the payments are fully funded and obligated to make the payments, but you  have the  opportunity to become the new recipient of these  existing payment streams, yet at a discount to face value.

Secondary Market Annuities are truly one of the highest yield, safe investments available anywhere today.  If your plan includes some allocation to safety or steady income, you owe it to yourself to give us a call and explore Secondary Market Annuities

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Excellent Deferred SMA’s

Summer  is heating up, and the deferred Secondary Market Annuities we have available this week are hot too.  For so many, just a few short years of SAFE, deferred growth can make a huge difference in planning stable income streams.  Locking in a future income stream now with a strong carrier can be a great move.

Below are selected deferred income contracts we have available.  Click the image to  see the whole list.

As you may  know, these move quickly so if there’s a deal you like, don’t hesitate to give us a call to reserve it.  They might not be available for long

Deferred Secondary Market Annuities

Also, these income + Lump Sum contracts have some attractive features.  The Prudential case #06460 is a solid long term income stream, with a decent lump sum not far out.

Deferred Income Secondary Market Annuities

If you have any questions about our Secondary Market Annuities do not hesitate to call or email.

Most of the questions we receive regularly are also addressed here: SMA FAQ

Target Date Funds- Missing The Target?

Investors are flocking to target date funds at a rapid clip, with an estimated $400B estimated under management in target date funds.

Target date funds allocate assets towards retirement at a defined date.  So rather than re balancing the portfolio yourself over time, the fund managers do it for you.

The problem with target date activity overall, in my opinion, is the fundamental philosophy of lowering risk as you get close to retirement.  ‘Rules’ like the Rule of 100, whereby 100 minus your age should equal your equity allocation, have been around for years.

But I believe risk should be lowered faster- your highest risk point is the 5 years prior to retirement and the first 5-10 years of retirement.  This is the time period when you have the most assets, when you have the most to loose, and when the amount of income you can safely take out each year becomes set into lifestyle patterns.

Invested in 40-50% equities and 50-60% in bonds at age 50 to 60 leaves an awful lot of money at risk- these low rates mean bond yields are incredibly low, and any slight uptick can be devastating on bond prices, evaporating your assets.

What’s the antidote? Our Retirement Thesis is this:

  1. Cover your Guaranteed Expenses – your baseline needs-  with guaranteed income.  
  2. Allocate enough of your assets to cover those necessary expenses with guaranteed income.
  3. Then, with your bases covered, you can optimize the remainder portfolio for growth, to counter inflation, to take risks, and take rewards.

What this does is put you in a much safer overall position, yet allocated towards growth.  Take your money ‘off the table’ and make it produce the income you need, safely.  Then work with the rest to grow.

Now that that is out of the way, what’s a target date fund anyway?

But even as dollars pour into such funds, the asset-management industry continues to debate how best to design the funds for their central mission: generating enough asset growth, even through stretches of poor stock-market performance, to tide over investors through their entire lives.

Some managers have been altering key features of funds, such as how much the equities allocation drops by the target date. (That gradual reduction in stock exposure until and beyond the target date is termed the “glide path” that a fund follows.)

Others are investing in assets that have low correlations to stocks, such as commodities, real estate and absolute-return strategies. Some feature more active portfolio management, trying to reduce the impact of stock volatility.

Professional market observers see nothing amiss in having a wide range of approaches. Some believe it serves the marketplace to have these similar products with a wide range of strategies.

“I don’t think there is one right solution—the various approaches all have intellectual validity,” says Josh Charlson, a senior mutual-fund analyst at Morningstar Inc.

The problem, though, is it may take a long time before it’s clear which approach is going to work best. And meanwhile, the diversity in target-fund strategies makes it tough for individual investors and sponsors of defined-contribution plans—where target-date funds are widely held—to compare fund performance, evaluate the potential risks and choose among different management styles.

Despite that uncertainty, money is flowing into target-date funds at a brisk pace. Their assets now total around $400 billion, more than five times the amount at the end of 2005, according to Morningstar. Growth took off when the federal government in 2007 began allowing plan sponsors to use target funds as their plans’ default investments—the vehicle in which an employee’s dollars are invested if he or she doesn’t actively select one or more options.

Source: WSJ

Boost Your Social Security Check

Maximizing Social Security can  have a dramatic effect on your lifetime guaranteed income. Social Security is a source of  guaranteed income that is indexed to inflation, so it makes sense to get that benefit as high as you can.

This Wall Street Journal article discusses some of the various  strategies, which include  ‘File and Suspend’ and ‘Restricted Applications.’

If you’re considering an annuity and know that Social Security is a part of your retirement plan, give us a call.  We have tools that assist you in making an informed decision about getting the most out of the System.

The File and Suspend approach is described this way:

A claiming strategy called “file and suspend” can help get the most money. Say a husband plans to delay his benefit until age 70. He is allowed to claim his benefit at his normal retirement age—say it’s 66—and then immediately suspend it.

That way, his benefit amount keeps growing—thanks to those delayed retirement credits—but since he did make that initial claim, his wife, at her full retirement age, can file a “restricted” application to claim spousal benefits based on her husband’s record, but not her earned benefit.

Generally, spousal benefits are up to 50% of the other spouse’s monthly benefit at full retirement age (some age restrictions apply). In this scenario, her own benefit now can grow until she hits 70, too.

In one hypothetical “file and suspend” scenario, a couple, both 66, could collect an additional $60,000 by delaying their benefits and the wife taking spousal payouts while they wait, says Lisa Colletti, New York-based director of wealth management at Aspiriant.

Barrons Top 50 Annuities

Barrons Top AnnuitiesBarrons recently published an article hi lighting the top 50 annuities in the marketplace.  It’s a good general overview article.  One of the interesting comments is how drastically the industry has changed over the last year.  We’ve seen benefits contract, fees move up, and payouts decrease.

Why is this?

Quite simply, the insurance and annuity industry faces the same investment climate you do.  they must make long term future promises to their contract holders, and have to invest the premiums in a near 0 % rate environment.

“We’ve seen investment options in variable annuities diminished, guarantees brought down substantially and fees going up,” says Nigel Dally, an analyst at Morgan Stanley. “Protracted low interest rates and high volatility in the stock market have made it far more expensive for annuity companies to support their products.”

With fixed and immediate annuities, the annuity issuers offer guarantees, then rely on their investment managers to produce the returns promised and also to produce a corporate profit.  They shoulder the market risk so you don’t have to.

But when they have no where to turn for safer, higher yield options, they necessarily must lower the payout benefits offered.

What’s your best strategy?

Our principal approach to retirement planning remains true now as before: cover your baseline income needs with guaranteed income, and optimize the remainder of your portfolio with the difference.  The optimization may mean allocating to riskier categories like stocks, when traditional wisdom would have you getting more and more conservative.  However with your bases covered, you can afford to do so, and may come out better in the long run.

You can see the article here:

Operation Twist- Low Rates STILL Here…

For investors  unhappy with the low yield available in the marketplace, it was not good news today that “Operation Twist” from the Fed will  keep long-term interest rates low will continue through 2014. 

For investors looking for safe, higher yield alternatives, the secondary market for annuities looks even more attractive.

Policy makers left unchanged their view that economic conditions will probably warrant keeping interest rates “exceptionally low” at least through late 2014. The FOMC has kept the main interest rate in a range of zero to 0.25 percent since December 2008. 

We must leave  aside for a moment the advisability of our government replacing long-term securities with short-term  interest rate exposure.  It’s clear that in the decades ahead, our massive federal debt will be rolling over at higher and higher interest rates.  

Here is more from the press release:


 June 20 (Bloomberg) — The Federal Reserve will expand its program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012 as policy makers lowered their outlook for growth and employment.

  The continuation of Operation Twist “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said today in a statement at the conclusion of a two-day meeting in Washington.

  The Fed said it is “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labor market conditions in a context of price stability.”

  Policy makers led by Chairman Ben S. Bernanke are taking steps to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Payrolls expanded at the slowest pace in a year in May, and the jobless rate has been stuck above 8 percent since February 2009.

  “Growth in employment has slowed in recent months, and the unemployment rate remains elevated,” the FOMC said. “The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually.”

  The yield on the 10-year Treasury note rose to 1.67 percent at 1:48 p.m. in New York from 1.62 percent late yesterday. The Standard & Poor’s 500 Index was little changed at 1,357.17 after declining as much as 0.9 percent.


 Language Change 

 “The Fed will do more as necessary, and this puts emphasis on it,” said Eric Green, a former New York Fed economist who is now global head of FX, Rates and Commodities at TD Securities in New York. In April the committee said it was “prepared to adjust” its securities holdings “as appropriate” 




Get Realistic About Retirement Income Needs

Setting reasonable retirement income goals is the first order of business we address with potential clients.  As it turns out, most pre-retirees have unrealistic income assumptions based on their assets, according to a recent survey of advisors.  Plus, while asset distribution is a critical issue with consumers and advisors, there is hardly any consensus as to how best to meet that challenge. 

A recent article from Investment News talks about the problem.  Because it offers no solutions or concrete strategies, the article serves to highlight issues with the industry.  Read the article here.  Registration is required but it’s free.  


When we started Annuity Straight Talk, our goal was to make sure people had all the information needed to make a good decision.  Well, what we’ve found is that there is a major knowledge gap among consumers.  New visitors to the site frequently come in confused, after receiving conflicting advice from different advisors who don’t agree on how best to handle the retirement income question. 

The fundamental, mathematical and scientific proof is that annuities play a critical  role in an optimal retirement plan, but it is critical to place it in the right time and context for the individual.

What’s that mean for you?

So you, as a consumer, are searching for relevant answers about how, when, and even if, to use annuities.  But you are almost guaranteed to get a variety of opinions and solutions.  And each opinion comes with a different probability of success.  We also happen to have our own ideas of how best to meet retirement income needs, but we back those ideas up with all the research we can find.  We have yet to be proven wrong. 

As it turns out, there is one optimal way to generate retirement income- it involves using annuities… at the right time and proportion to your overall asset base.  It also turns out that figuring out what you need is pretty simple. Getting these two things down is 90% of the challenge.

In the world of financial advisors you’ll find specialists in every area of the industry.  Each advisor is likely to offer solutions based on maximizing your participation in their area of expertise.  That might be stocks, bonds, muni funds, T bonds, real estate, hybrid annuities… whatever.  While a single product specialist may be perceived as having some value, it can also be phrased as a one-trick pony.  A single product or strategy solution is rarely the most optimal strategy for you.

Remember, there is no one-size fits all plan or product.  Rather, a truly optimal strategy is aware of all these options and picks those that are best for you, when they make the most sense.  Unfortunately, this can often mean that people get  seriously confused after seeing a wide variety  of options. 

By all means,  do your research and gather information.  But when you are ready to put an optimal plan that works best for you together, give us a call.  It may well be that an annuity is not for you, depending on your age and assets, and we’ll be the first to tell you if there’s nothing we can do to help. 

Good luck and have a great week!


Bryan J. Anderson

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Buying Trouble With Secondary Pensions

Frequent readers of Annuity Straight Talk updates will know that we are big fans of the secondary market for annuities. Well there’s another secondary market with high yields and assumed levels of safety but things aren’t always as they appear. I’m talking about secondary pensions, which come with a whole different set of rules and guidelines. In fact, it seems as though by participating in this market you’ll be buying nothing but trouble. Forbes published an article recently with a few horror stories. Read the article here.

Since we promote secondary annuities, it’s our duty to clarify things when something similar is peddled to unsuspecting investors. The transfer of structured settlements, or secondary annuities, is governed by federal statute, USC 5891. Court assignments are irrevocable and the transfer process has been refined to the point that it represents extreme levels of safety for consumers.

Secondary pensions, on the other hand, have laws that explicitly restrict and prohibit transfer. So when you purchase one of these, not only is there no court order, but it’s very hard to make the private-party contracts stick as well.  The original seller can simply decide to stop sending payments. The article does a good job of outlining the imminent legal issues and points to certain advisors who are misleading clients into thinking these contracts are legally binding. They are not and should be avoided at all costs.

If you’ve considered participating in the secondary market for annuities, knowledge of similar options is of paramount importance. Don’t believe anyone who tries to steer you toward a secondary pension. Let me be clear: the sale of pensions in a secondary market is strictly forbidden by law and I’d like to ensure that none of our readers makes a mistake with precious retirement assets.

Please contact us with any questions or comments. For more detailed assistance we are available by phone or email.

Thanks for your continued loyalty!

Bryan J. Anderson
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Inheritance Less Likely for Many Boomers

Whether or not you expect to receive an inheritance from your parents, this recent article holds some key insights into what it takes to make assets last a lifetime. Instead of receiving a retirement windfall from parents, many baby boomers are now spending their own assets to help parents financially in the later years of life. Some lessons can be learned here to make sure the cycle doesn’t repeat itself with you and your children. Read the article here.

Increased life expectancies due to medical advances and poor stock market performance have largely contributed to portfolio failure for the postwar generation. So if you were planning on some help from Mom and Dad for a secure retirement, those plans may need to change.

And if you plan to leave an inheritance for your kids, take proper steps now to make sure you don’t run out of money yourself. This isn’t exactly the most positive angle to approach the subject but serious planning requires realistic assumptions. The steps you’ll take to help your parents preserve wealth are identical to those you’ll take to preserve your own.

It’s time for some quick stats… the average 65 year old male has a 60% chance of living to age 80 and 40% chance of living to age 85. Women at age 65 have a 71% and 53% chance of reaching similar ages. So roughly half of all baby boomers can expect to live to at least the age of 85. That requires plenty of assets, and they must be used in the optimal manner, to last.

You can’t afford to make mistakes.

This article suggests several practical financial moves that will give you all the assurance possible that things will work out for any generation. Here’s a basic list…

Scrutinize your retirement budget and look for any ways possible to cut costs without sacrificing lifestyle.

Downsize to a smaller residence if possible. Although the real estate market makes this difficult it can work in certain cases.

Purchase an annuity to guarantee lifetime income. Steady paychecks allow much more flexibility and profitability with additional assets.

Consider using a reverse mortgage to tap assets held in your home. This should be carefully considered and done only when specific circumstances warrant it.

Use long-term care insurance to defray the cost of rising health care. Children with enough disposable cash can pay for it as a way to protect their own assets. My siblings and I have done this for our parents.

I’ve been in this business long enough to know that most of you are seeing nothing but expense right now. Proper planning and preparation can be expensive, but that’s only because of the many guarantees it offers.

My advice is to take one of the suggestions above and focus on that first. Add layers of protection over time as your plan develops. Once the worst case scenario is covered, you’ll have more financial freedom than you can imagine whether you are doing for your parents, yourselves or your children.

For additional advice or assistance regarding any of the above, feel free to call or email us at your convenience.

Have a great week!

Bryan J. Anderson
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Big Banks Expect Ratings Downgrade

Last weekend started much like any other, with me tying up loose ends at the office while searching for a meaningful story to share with readers this week. The big headline on Saturday made it pretty easy for me. Apparently, Moody’s is expected to downgrade several of the largest U.S. banks in a move that has serious implications for conservative investors. Read the article here.

Here’s how this affects you…
The credit ratings of banks are tied to all other areas of the investment landscape. There are two areas of particular interest.

First, municipalities will have more trouble raising money when this pushes up bond rates which in turn causes a decrease in asset value. Cities and investors lose.

In Cleveland the city’s debt manager, Betsy Hruby, raced to replace Bank of America as the backer of $90 million of water-department bonds. “We realized that might have an impact on the rate” of the bonds, she said.

Second, money market funds will have more limited investment options because they are already restricted by law to the safest assets. Banks will in turn lose one of the most important funding sources.

Craig Mauermann, who manages the $850 million BMO Tax-Free Money Market Fund, said he recently has been buying municipal bonds backed by banks “not under the gun,” while selling bonds in danger of being hit by a downgrade.
“We manage the most conservative type of investment there is in the world,” he said. “We continue to reduce risk in all ways we can.”

It is likely that these banks will have to put up extra cash as collateral against default of certain debt instruments and opportunities to generate trading revenue will decrease. If banks are less capitalized and less profitable then it only adds another level of uncertainty to the already shaky economic outlook. On top of this, recent news of the economies of the U.S. and China slowing tells us that volatility is probably here to stay and options for conservative investors become more and more limited.

I think this excerpt sums it up nicely…

Many debt investors have rushed into safe-haven assets such as U.S. Treasurys and are avoiding any investments that have even an inkling of risk.

With heightened risk very much on the minds of investors and ratings agencies alike, why not get a middle man to shoulder the risk for you. That’s what an insurance company does. Available rates in most cases are much better than what you’d find elsewhere and the reserves are there to protect you in the worst case scenario.

The message from this is very clear: we continue to face wealth-eroding forces in today’s markets so elimination of risk is critical. We happen to specialize in guaranteed growth for the retirement assets you most want to protect. Gives us a call when you’re ready to shed risk in your portfolio.

Have a great week!

Bryan J. Anderson