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Can a Hybrid Annuity Uncapped Index Pay Higher Interest?

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Should annuity buyers be giddy because they can own an annuity with no limiting upside cap and of market loss? Well, maybe, since we are now in the new annuity era of the low volatility index.

If you are a prospective annuity buyer you should consider this new strategy for good reason. First and foremost, these are uncapped indexes with seemingly unlimited upside potential; however, before any irrational exuberance kicks in… [continued below video]

Video: Annuity Guys Dick and Eric discuss the pros and cons of the new low volatility indexes.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

and you sign the next annuity contract you see, please understand that each of these volatility control indexes does have some limiting factors. One such limiting factor used to increase upside potential is the result of a mathematical formula that works similar to a tactically managed investment account that moves in and out of market allocations based upon predetermined triggers. For example: in times of higher volatility these indexes will often move more toward a safe money strategy of weighting more of the index in a cash or bond position. Conversely, when the volatility is low the index will be weighted more toward the equities side.

Another limiting factor of these uncapped indexes is the ability for the insurance company to apply a standard fee or a spread charge. The spread charge/fee is the most common cost associated with these uncapped indexes. It allows the insurance company to take the first few percentage points of growth (typically 2-4%) and then credit your account with everything above that amount. For example: if the spread is 2.0% and the index gains 8.0%, your account will be credited 6.0%. What makes these spread fees more attractive than other charges? If the index has a down or negative year, there is no charge or cost to your account. Just to be clear, with all fixed index annuities your principal is protected and if the index finishes negative, your account will be credited at 0% – it will never reduce your account balance.

Not all of these uncapped indexes were created the same – some are easier to track and have ticker symbols and locations you can find online. Others appear to have been created just for the insurance company and the only research available on them is available through the insurance companies brochures.

Perhaps the biggest warning we can share with these uncapped volatility indexes is the need for realistic expectations. We have seen the historical numbers showing annual gains of 15-20% and they look wonderful, but don’t be wowed by the outlying numbers. Realize that these indexes were designed to provide modest gains that should allow you to share in a portion of the success of the index in the good years while protecting you from losses in the bad years. If you enter an annuity contract expecting stock market type returns, you will likely be disappointed.

This strategy is the current “rage” in the industry. It seems like every insurance company has released a new annuity or a new indexing strategy which utilizes an uncapped low volatility index. So you need to understand how these newer indexes work and if this strategy fits your risk profile.

As annuity guys, we appreciate this innovation and this strategy because it is easier for most clients to understand and grasp than explaining participation rates and index cap limits.

 


 

Are Hybrid Annuity Income Riders Stacked in Your Favor?

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We must own up to our play on words this week. One of the more recent popular income riders strategies is referred to as the “stacking” strategy. Of course we found our title quite witty while most of you are probably thinking – these guys really need to get out more.

However, most of us given the choice of having the odds of success stacked in our favor will undoubtedly at least consider benefiting from those odds. Does that mean this stacker strategy is superior to the traditional roll-up strategies that have been standard on most hybrid style annuities for the last six or seven years? Well, yes and no. What you have available with a stacking income rider is typically better income potential but you give up some of your contractual **guarantees in the trade-off. The income rider with a stacker works by providing a smaller roll-up growth **guarantee – typically three to four percent (instead of six to eight percent) and then stacking on the index growth for that period. Based upon historical illustrations the growth potential typically exceeds that of the traditional **guaranteed riders. However, they are based on probability and potential instead of absolute **guarantees. [continued below video…]

Video: Annuity Guys, Dick & Eric, explain some newer income rider strategies.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

The ongoing low rate environment has squeezed insurance companies and limited their ability to provide greater income benefits without incurring crippling long-term liabilities in today’s depressed rate environment. To combat this, they created a stacker strategy which partially relieves the insurance company of the need to reserve as much money for an income rider liability by creating an opportunity to give that benefit only when the client has growth from the index – so they can pay as they go, sharing the profits with you.

Should everyone start to elect the stacker strategy on their annuity income riders? Not necessarily! The strength of annuities are their contractual **guarantees and if you like the idea of being able to own a “set-it and forget-it” style of annuity – knowing that it will roll-up to increase your future income on a **guaranteed level each year, then you will probably want to stick with a more traditional style income rider.

Are these just the two primary income rider strategies to choose from? No, again.

Another option is what we have termed “enhanced” income riders which offer minimal or no growth income **guarantees. However, you may be surprised to learn that these enhanced income riders have the potential to provide even greater income than the stacked income rider. While again not the ideal option for those requiring absolute **guarantees, they provide excellent potential for higher income based upon historical performance and some even offer an opportunity for increasing income for an inflation hedge.

As you evaluate your retirement, don’t feel as if you can only choose one of these strategies – often times the best results come from balancing multiple income strategies.

 


 

Can Annuities Save Your Assets?

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There is an old saying that goes – “there is nothing **guaranteed in this life other than death, annuities and taxes.”

Well, that might not be exactly how it goes, but you definitely cannot put pensions on the **guaranteed list anymore.

In Illinois we have just passed pension reform in the legislature. Pension reform sounds nice, but what it translates into for retired state employees is not so nice; and for those retirees, it means losing promised relied upon income and benefits.

However, that may end up being minor compared to the impact of the bankruptcy Detroit is facing. This may lead to an avalanche of bankruptcies as cities and municipalities try to find a means to deal with their bloated deficits based on under-funded pension liabilities.

Watch as Dick and Eric discuss why many retirees are scrambling to save their ASSets! lol (Pun intended)

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

What does this mean for pensioners in these systems? We’re wagering it will mean at the very least reduced substantially benefits and incomes – driving many towards increased participation in annuities.

Why more annuity participation?

In an era of deficits and reducing benefits, people want safety and **guarantees – contractual **guarantees that will stand up in a court of law not easily broken legislative promises.  Annuities can provide a degree of income certainty as the public sector debates the benefits of programs like Social Security and Medicare.

Annuities offered by solid companies can help all of us weather these turbulent economic times to create a stable foundational income – for life. Will an annuity be required for the successful retirement of the future? Who knows? We do know, however, that studies continue to show that annuity owners have a greater probability of having enough income throughout retirement than those who do not.

You must decide if an annuity will help empower your retirement.

Detroit eligible for nation’s largest municipal bankruptcy filing, federal judge rules

By Michael A. Fletcher and Reid Wilson at WashingtonPost.com

A federal bankruptcy judge granted Detroit unprecedented powers Tuesday to shed billions of dollars in debt, including the ability to slash city employee pensions despite a state constitutional provision protecting them.

In approving the nation’s ­largest-ever municipal filing, Judge Steven Rhodes cleared the way for Detroit’s emergency manager to develop a plan to reorganize the city’s estimated $18 billion in debt. Beyond cutting worker pensions and retiree health benefits, the city could stiff bondholders and sell city assets such as its water and sewer authority and its priceless art collection.

Municipal bankruptcy experts called particular attention to Rhodes’s decision to allow pensions to be put on the chopping block. Some said the move would set a precedent for future municipal bankruptcies. And unions vowed to appeal the decision.

“This is the first opinion of its kind where a bankruptcy court has directly expressed the view that the supremacy of U.S. bankruptcy laws trumps state constitutional protections of public pension holders,” (emphasis added) said Mark S. Kaufman, senior partner at McKenna, Long & Aldridge, an Atlanta law firm. “The implications of that decision are significant not only to Detroit but also potentially to other cities gauging their level of fiscal distress and how to deal with it.” [Read More…]

Video Transcription:

Eric: Hi, I’m Eric.
Dick: And I’m Dick. We’re the annuity guys.
Eric: You think we’re going get in trouble with the topic today, Dick.
Dick: Well, there’s a little pun intended there. We’re talking about saving your ass-ets… or your proverbial rear end.
Eric: And the reason that the topic came up is because it’s kind of forefront in the news right now.
Dick: It is.
Eric: … looking at what’s going on around…
Dick: Well, Detroit what’s got us going, the ruling.
Eric: Detroit and Illinois because…
Dick: Well, we’re falling apart in Illinois.
Eric: We’re close to home here… the pension reform meaning we’re going to take some..
Dick: We’re going to take some of what we promised you back. And that ruling in Detroit by the judge just recently said in essence “folks, your out a lot.”
Eric: Your pension benefits may not be what was **guaranteed. Now, they said what I think they technically said is “the amount we promised you is not **guaranteed.
Dick: So, imagine that. I mean what does that throw into question Eric?
Eric: Well, and that’s… for me it throws into question that I was promised as a retiree. If I’m **guaranteed or I think I’m
**guaranteed of a lifetime pension from the company I work or the municipality that i work for, what does that mean about what’s on the table right now as far as **guarantees from that side of it?
Dick: Exactly.
Eric: And as a planner, it’s also got me feeling a little bit disconcern because we work with people. A lot of times we start with – what are you receiving from Social Security? What are you receiving from pension? And if all these things that we think are **guarantees that we’re basing the future income on, are all of a sudden on the table as far as reductions without any consultation of the person getting reduced, then there’s a lot of this concerns going on.
Dick: So many times folks you come to Eric and I through the website or when we work with the local client, it’s kind of a plan A – how can we establish that income, set it up for that income shortfall, or that need in retirement. But more and more, it’s becoming about the plan B – and that is we can’t rely on our pensions, we can’t rely on our social security. Many times – even the private pensions – they’re offering the lumpsums, the buy outs…
Eric: GM , Ford…  we’ve had a lot of conversations with folks in those areas that have said “hey, I’ve got a choice of taking this or this.” Well, for those guys, I’m a lot more comfortable now because Ford and MGM got out of the pension business. They decided “let’s give it to a professional that can manage it” and Detroit says “do you want to take the dollars yourself and manage them, maybe with the assistance of an annuity or let a real annuity manage it?” So, I feel better for those folks now
than I did when Ford and GM are managing their own pensions.
Dick: When we look at the traditional 401K and IRA, and what people are left with and their own savings to plan their future, their retirement; the actual, according to the Dal Bar studies and different studies out there, the average investor doesn’t pay so well. So to really literally rely on the markets to carry you through retirement, most folks are coming or have come to the conclusion that “I can’t do that.” So what they’re doing is they are looking at that fallback position “what can get me through my retirement years?” And amazingly, annuities, which had been there for hundreds of years proven track record come back to the forefront.. it’s like “hey, this is what I’m looking at, this is what I believe is what I need.”
Eric: Well, and I know studies out there that show for the highest degree of success or the likelihood of success and having enough income in retirement, having an annuity as a piece of that retirement increases that level of success…
Dick: Dramatically. I mean you go from like a seventy-three or seventy-five percent success rate with the stocks and bonds I think was an ibids to study we were looking at a while back to a ninety-nine percent success rate; and that means a lot to folks. I mean, the thought of being one out five or one out of four that fails; when you’ve saved these assets all your life and you have to have them to carry you through.
Eric: We talk about protecting the foundational aspects of income with pension, Social Security, and annuity; well, it may be reversed now that we start talking about what kind of an annuity do you need to have to protect your income in the future, then we’ll add on that pension and social security, and hope that that cost of living still stays in place.
Dick: Well… and that does become that plan B. And for many folks that have got plan A in place that will work well if everything holds together, it’s what do I do for my plan B – because I don’t know. And we have actually sat down with clients and they’ve like look… “I don t even want to consider social security. I don’t want to consider this. I wanna look at what I can do for myself. And that I’m going to look at as the gravy.” Now, we take a more middle-of-the-road view than that but that plan B is becoming more and more important. And so folks, you might be thinking some of those same thoughts and you’re not alone because it is a real concern.
Eric: Yes. Alright. We’ll Dick, in summary here, if we’re saying yes annuities can saveour assets…
Dick: Yes.
Eric: What would we say are the kind of primary reasons why we would rely on annuities?
Dick: Well, first of all Eric, its safety. They’re very, very safe. You can rely on an annuity for future income; lifetime future income. You  don’t know how long you’ll going to live. you don’t want your money to run out. So, for that foundational portion, you can rely on it for the income; and the aspect of safely growing assets and protecting them along the way with the plan B in place to protect. I believe that annuities really do give us that position to protect us and literally save our rears.
Eric: Saving those assets: safety, **guarantees, lifetime income.                                                                                                           Dick: Thank you.

Give Money to an Internet Annuity Advisor! Are You Crazy?

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We don’t work with crazy people (okay, maybe a couple, LOL), but we do work with a lot of sincere folks who first met us; after doing some internet research and then turned over a sizeable portion of their life savings in return for some annuities!

So, is this crazy or wise? It is really decided by two primary issues: First; working with the most capable advisor when you are choosing and structuring annuities. Second; understanding that you don’t really give your money to any advisor local or national.  Your retirement dollars along with millions of other retirement dollars are housed with a financial custodian, such as a brokerage or insurance company, usually hundreds or even thousands of miles away.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

We all want the best possible options; whether that be the best car, best house or best retirement annuities. Sometimes, we settle for “what they have” when making choices based upon local convenience. When it comes to your retirement, you should never “settle for what they have.”  As a result of the technology that exists today you can work with an annuity advisor without regard to distance one who understands your objectives and can help you identify the best possible options for a safer and more comfortable retirement. Designing a portfolio for retirement should mean a transition from an accumulation advisor to a retirement income advisor. Just like you would not let your local general practitioner perform open-heart surgery on you – you also should consider consulting with a specialist when the challenge of retirement is upon you.

Technology now makes it possible to work face to face with the best retirement and annuity advisors having any distance reduced to just a couple of clicks .  This may seem like a radical idea to a few; but for many, it has been nothing more than best practices. Once folks grasp the concept of a financial custodian as the actual caretaker of their money it then becomes much more important to locate a true expert who specializes in annuities so that their initial plan is done absolutely right the first time (with no do-overs!).

According to Investopedia the definition of a “Custodian” is:

A financial institution that holds customers’ securities for safekeeping so as to minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form. Since they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms.

So who do you want holding your assets, the advisor or the custodian? If you said the advisor — We cannot help you.

Lastly, who do you want helping you chose the optimal outcome for a safer, more secure and comfortable retirement? The local generalist or an an advisor that specializes in annuities?

Transcription:

Dick: Hello I’m Dick.

Eric; And I’m Eric and we’re the annuity guys.

Dick: Eric, are folks crazy to go out on the Internet and actually hand their money to an annuity specialist?

Eric: They must be crazy for handing it through… for shoving it through the disk or drive. That’s the misnomer; people say I got this chunk of cash; you want me to give it to somebody?

Dick: and folks feel like they’re doing something unusual or something that’s crazy; but when you really start to analyze it in terms of where that money goes and how that money is used effectively for their purposes, it always goes to some other place. It goes to a custodian – a third party. The advantage to working with someone on the Internet that is a true specialist is exactly that.

Eric: You can work with the best versus just working with somebody that’s around the corner because they’re there and I think that’s the challenge most people have to overcome. The reason this topic came up is people often calls us; we’ve referred to an advisor to them; why did you not refer the local guy?

Dick: Well, we love to.

Eric: First of all…

Dick: We’ve tried that.

Eric: We would rather refer the best guy and I’ll tell you what, in our practice we redefine local. Local is not just in our neighborhood; local is fifty states.

Dick: Yes, because local is as quick as a click away.

Eric: That’s right.

Dick: We can talk to an advisor; I can talk to an advisor in Texas; Allen or Rob. I can talk to them faster than I can get you Eric.

Eric: That’s right. A lot of times we can say “hey, Paul…” and Paul is five dials away and me, I’m just stuck behind the door at the back.

Dick: Eric! But that is the truth. And what we got to come back to folks is that technology today has changed everything. It’s all leveled the playing field. You no longer would consider looking around for someone to do an organ transplant locally or you know a serious heart operation or you name it. When it comes to medical elective surgeries, you’ll shop. You get on the internet. You do your research and you jump on the airplane a go where it’s best, and next to…

Eric: Well I was going to say how is retirement planning starting now? Typically with you setting up a 401K or retirement planner or your employer, it’s not like those dollars are just sitting on your bosses top drawer You’re literally setting up those accounts. Most often, they’re configured and then you’re in-charge in making the changes; you’re logging into TD Ameritrade or fidelity or TRowe Price; and you’re manipulating those accounts. Those dollars are not sitting right there; you’re working with a place that’s giving the tools to be more efficient, more affective. The planning tools are there; everything’s online so you have immediate access.

Dick: Right.

Eric: The same as…

Dick: Well, there’s been this consolidation in the annuity industry which is very similar in a sense that everything is coming down to the expert; down to the specialist; down to that aggregator or the person who has the greatest access and availability; and works with more folks and sees more things. And their specialization, their abilities continue to grow and increase; and the local person unfortunately doesn’t have that same advantage.

Eric: Right and we’ve seen many advisory and we always call them accumulation specialists that have done a great job helping you build up your savings to a certain stage. Now it’s time for retirement, well you’re accumulation specialist may not be the same guy that’s going to help you with retirement.

Dick: It takes whole different skill set. And I come back to this whole thing about the healthcare. When it comes down to choosing a specialist, I look at financial situations in people’s lives is being on par, it’s somewhere up there with those health care decision. This is going to be your entire retirement and if you don’t work with somebody who really knows how to get it right in the first place, a having that local guy is not necessarily going to be the best answer.

Eric: Yes and I guess I had never thought about it being heart surgery probably don’t get to do too many do over. They take the one out…

Dick: There’s only one shot.

Eric: Retirements much the same way. You want to compare the best way the first time. So working with somebody the best people possible should be first and foremost in your retirement planning mindset than necessarily working with the guy around the corner.

Dick: Right. And Eric when it comes to referrals, we do work with some folks from our website and we have our local practice but when it comes to referrals we’ve had to basically do the same thing. We’ve had to choose the best of the best!

Do Fixed Annuities Beat Bank Interest Rates?

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Ever since my days of playing the board game of Monopoly, I have wanted to beat the bank. Remember drawing the card that said “Bank Error in Your Favor”? Collect $10…. 10 bucks – sweet and no jail time either.

Nowadays, it seems nearly impossible to beat the bank — unless you are talking about their interest rates paid to a saver!

Retirees have been pummeled by an artificially depressed rate environment which filters down to interest offered by banks. Good thing, there are alternatives to traditional bank rates paying next to nothing. Insurance companies and the payments on annuities have also dropped off, although they still manage to consistently offer substantially better yields than their bank counterparts.

So, do fixed annuities beat bank interest rates? Simply compare and you will see that they do quite handily!

Is now a good time to place money into an annuity? Watch as the Annuity Guys® -Dick and Eric, discuss how the political and economic decisions of today impact annuities and retirees.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

The Annuity Guys® believe a lot of the future economic impact will be based upon the decisions of Janet Yellen, read more about her in this Washington Post Ariticle.

Nine amazing facts about Janet Yellen, our next Fed chair

By Dylan Matthews

Janet Yellen will be appointed Fed chair tomorrow. Neil and Ylan already wrote the definitive profile of her, but here are the main things you ought to know going into her confirmation hearings.

1. She is perhaps the most qualified Fed chair in history.

Paul Volcker is the only Fed chair who even comes close to Janet Yellen’s level of experience.

Just look at the competition. When he was appointed chairman, Ben Bernanke’s only prior government service was three years on the Fed board and six months as chair of the Council of Economic Advisers (CEA). Alan Greenspan had three years as CEA chair.

Yellen, by contrast, has served for three years as vice chair, headed up the San Francisco Fed for six years, ran the CEA for two years, and before that did a three year stint on the Fed Board of Governors. She also did a stint as an economist at the board in the late 1970s, for good measure.

Only Paul Volcker — who had a multi-decade career at the New York Fed and the Treasury — even comes close to that, and he had nowhere near as much exposure to the highest echelons of the Fed system as Yellen has. If experience is your main criterion, Yellen is hard to beat.

2. She’s been a powerful voice for the unemployment hawks on the Fed.

In various speeches — perhaps most notably at the AFL-CIO — and in Fed deliberations, Yellen has been clear that she thinks subpar growth and too high unemployment are the biggest problems facing the Federal Reserve. “Maximum employment,” she has emphasized, is the main goal of the Fed at this point in time. In her words, “With employment so far from its maximum level and with inflation currently running, and expected to continue to run, at or below the [Federal Open Markets] Committee’s 2 percent longer-term objective, it is entirely appropriate for progress in attaining maximum employment to take center stage in determining the Committee’s policy stance.”

3. But she’s more than willing to crack down on inflation when the situation requires it.

As Evan Soltas and Matt O’Brien have noted, Yellen is plenty hawkish when the situation requires it. In the mid-1990s, when she served on the Fed Board of Governors, she made it clear that she thought unemployment was dangerously low, low enough that employers have to hike wages, which in turn leads to higher prices, i.e. inflation. “We have an economy operating at a level where we need to be nervous about rising inflation,” she said at one meeting. “We can’t dismiss the possibility that compensation growth will drift upward, raising core inflation and in turn inflationary expectations. This is a major risk. Obviously, we need to be vigilant in scrutinizing the data for signs of rising wages and salaries.”

So inflation hawks, take heart — if and when it’s actually worth worrying about inflation, Yellen will be ready to handle it.

4. She’s pretty darn good at predicting where the economy’s headed.

Yellen’s predictive record is the envy of the Fed. As Ezra noted, she was one of the few voices at the Fed in December 2007 warning that recession could be around the corner. At a time when most thought the worst of the subprime crisis was over, she was skeptical. “The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real,” she warned.

It was far from the only time she got it right when her colleagues didn’t. Indeed, an analysis by the Wall Street Journal revealed that Yellen had the best predictions of any Fed policymaker in recent years. [… Read More at the Washington Post]

Transcription:

Eric: Hi, I’m Eric.

Dick: And I’m Dick. We’re the annuity guys.

Eric: And we’re going to examine today whether or not fixed annuity rates, will they’ve really beat bank interest rates?

Dick: You know Eric, to set the stage for that a little bit, we’ve got a nomination coming up here of Janet Yellen…

Eric: Ohh, so Uncle Ben, we’re throwing out Uncle Ben way and bringing her in?

Dick: New Federal Reserve Chairman and I think that we have to talk about where interest rates have been and where I think that they’re going to go, and then answer that question.

Eric: My general belief and I’ll start with – typically you see annuities are paying a higher return than banks are.

Dick: Well, historically.

Eric: Historically. So you’re fees are here and traditionally annuities are going to pay somewhat higher

Dick: But right now; the savers, the retirees, the folks that have been diligent in putting their money away – preparing for this time in their life…

Eric: welcome to the penalty mess… you no longer being treated like royalty.

Dick: So, we got this upside down world now where you’ve done everything right and now you get penalized with very, very low interest rates; and it would appear appearances that we’re building a nice bubble up into the stock market and just a very securities where that money is flowing instead of into savings nationally. Who would want to put money in a bank account that’s getting…

Eric: That’s getting zero…

Dick: Half of percent, a percent…

Eric: And people don’t really think about these terms but when put money into a CD or a money market account, you’re actually losing money because the effect of inflation is actually eroding what’s there. Your spending power is decreasing every year.

Dick: And folks who would maybe otherwise not put money in the market? They have no place to put their money that can earn anything. So, they’ll maybe take more chances and go a securities route. And that’s where we do find a lot of folks will turn to annuities and again looking for “hey, what’s got at least some comparison in terms of safety but gets a better interest rate?”

Eric: There’s a misnomer a little bit about fixed annuity rates because a lot of times; it’s going back to the term fixed; they tend to think the annuity rate is the same every year when they start out. It’s not necessarily always that case. Your first year rate is fixed and then the insurance company goes back to the next year with another year fixed-rate. Now, those rates can change already at all-time lows, would not be advantageous to say select an annuity where the rates could actually…

Dick: where you get a good initial rate. We call it a teaser rate or introduction rate. But they ask the idea that your rates could increase that does have an attraction to some; and then to others, they want that concrete, that absolute **guarantee that if I put my money in here I’m going to at least get XYZ. And, it would be the CD style or the multi-year **guaranteed annuity.

Eric: The nice thing is annuities have that flexibility in saying “hey, if you want that same rate **guarantee over a period of time, that’s an option.” If you think that interest rates are going to come up and you just don’t have another place to go, well, here’s a place where you can park money and get a market return each year based on what the companies willing to offer based on the market condition.

Dick: Yes. So, it can go up, but conversely, it can also go down. Well and back to that we’ve started with originally discussing where rates are going; with Janet Yellen, being the nominee for the Federal Reserve Chairman to replace Ben Bernanke; the concern is that she has a lot of the same strategies and thoughts, she’s going to follow that same line to pumping a lot of money into the economy, artificially holding rates down trying to pump up employment; and this is the biggest experiment we’ve ever done with monetary policy on this level that could really backfire on us in a big way. It does appear it’s going to hold rates down for a long time.

Eric: Well and I think the statement that’s been made by the Fed that says “until we get to an unemployment level of 6.5, below that level we’re going to keep rates where they’re at.

Dick: That could be a long, long time.

Eric: And we’ve talked to people consistently. They’re on the sideline; they’re park in cash, they’re park in zero percent basically returns because they expect rates to go up. They just can’t foresee this poor rate environment lasting but we’ve got people that are basically in charge of all rates telling us they’re going to keep them here until we get to this.

Dick: And Eric, this is why it does make sense, I believe, just financially – just doing this simple math; that if you keep money parked at a half of a percent and you got the opportunity to earn 3 percent or three and a half percent or something of that nature; by putting it in a shorter term type of an annuity and you made all those gains for the next year or two to three years before that rates tend to go back up; so, now if they do go up a little bit higher than your three, three and a half percent; at least you didn’t lose anything during those years. You had your money working and there’s just that nice offset to getting your money working today and then knowing that you can still do something later.

Eric: Well and I’m a big fan of laddering. I talked about laddering. In fact, I talk about laddering MYGA’S in the terms multi-year **guarantee annuities. We’ve got decent rates at five, six, seven percent. Well, five, six, seven years…

Dick: I was waiting where you’re going on that one.

Eric: But looking at those, by staggering those terms, you have money becoming available. It may take some shorter terms now but always having kind of that circular nature. Rates when they change are not just like flipping a switch and all of a sudden it’s going to be 5 percent tomorrow…

Dick: Right.

Eric: You’re going to see gradual changes. It’s best to get money in a place right now where you’re getting at least a competitive return to combat inflation and having that ability to kind of just keep recycling those ladders as they come available.

Dick: I agree and a lot of folks who have done that for many years have CDs and other types of banking instruments; and so, using them with annuities should not be anything unusual. And right now, it is a fact that annuities are considerably higher than bank rates, and there are some shorter-term annuities that give you a little more flexibility in the event that the rates do eventually take off.

Eric: I look at the average 5-year CD before we started. We are at one point three is the average.

Dick: And we’ve seen recently three, three and a half percent from five year annuity.

Eric: MYGA style. So, there are better options available…

Dick: Than the banks.

Eric: In my opinion.

Dick: Thank you.

Choosing a Fixed Index Annuity

By

All fixed index annuities are hybrid annuities – fact or fiction?  Fiction!

Don’t let the sizzle fool you. You can get a fixed index annuity without an income rider. Why would you do that? Why pay a fee for a service you will never use?

Typically, you shouldn’t upgrade your annuity to a hybrid style unless you know you want the lifetime income **guarantee while still maintaining majority control.

A base FIA (fixed index annuity) offers the ability to grow based upon the performance of an index while not going backwards. Your principal is never at risk and to clear up a popular misconception – your money is never actually invested in the index itself. With a fixed index annuity, the insurance company assumes all investment risk and while you may be able to participate in the gains generated by an equities or commodities index your dollars were never invested in any of those securities.
Watch as the Annuity Guys® – Dick and Eric, report on the fixed index annuity to help you evaluate if this type of annuity would be a good fit for your portfolio.

[embedit snippet=”video-specialist-button-index”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

There are pros and cons to any financial product and fixed index annuities have their detraction’s, such as cap rate, participation rate, and surrender terms. But if you are looking for an option that allows for better than average safer interest growth with no investment risk, check out a fixed index annuity.

Worried about interest rates impacting your bond portfolio? Check out this article.

Fixed-index annuities as bonds alternative?

By Robert Klein at MarketWatch.com

If you haven’t noticed, bond interest rates have been inching up over the past year. The U.S. Treasury 10-year index hit a 52-week high of 2.83% on Friday, up 1.29%, or 84%, from the 52-week low of 1.54% on Aug. 31, 2012.

Given the fact that market prices of bonds move inversely with interest rate changes, increasing interest rates generally translates to decreasing bond prices. An example of this is the Barclays U.S. Aggregate Bond Trust, which, after increasing 7.84% in 2011 and 4.21% in 2012, is down 3.27% year-to-date as of Friday.

Recent bond interest rate increases, combined with the prospect for continued interest rate hikes, have gotten the attention of investors, resulting in reduced bondholdings in many cases. Replacement investments have included dividend stocks. While this has provided an alternative source of income, i.e., dividends, it has also resulted in increased equity risk exposure, which may prove to be more problematic than simply remaining in bonds.

Many investors in the past few years have discovered a different strategy for a portion of their bond portfolio that retains the fixed income nature of bonds while offering protection from bond and equity market declines. It’s called fixed-index annuities, or “FIAs.”

 What is a fixed-index annuity?

A fixed-index annuity is a fixed annuity that offers a minimum **guaranteed interest rate and potential for higher earnings than traditional fixed annuities based on the performance of one or more stock market indexes. When purchased with non-retirement plan funds, unlike bonds, earnings grow tax-deferred. If a minimum **guaranteed withdrawal benefit (“MGWB”) isn’t built into the contract, a FIA can be paired with an income rider to give the annuitant(s) the ability to activate a lifetime income stream.

There are two types of FIA’s — single premium and flexible premium. A single-premium FIA is a one-time investment whereas a flexible-premium FIA allows for subsequent investments after your initial investment. With both types, you need to allocate your premium, or investment, between a fixed account and one or more indexing strategies. The fixed account pays a fixed rate of return for one or more years that’s generally higher than a similar-duration CD.

Indexing strategies provide the opportunity to earn interest based on the performance of a defined stock market index each contract year, with the Standard & Poor’s 500 Index being the most prevalent offering. Unlike a direct investment in an index where you participate in gains as well as losses, there are two basic differences when you allocate funds to an indexing strategy within an FIA:

1. If the index’s return is negative, no loss is posted to your account.

2. If the index’s return is positive, interest is credited to your account subject to a cap.

In other words, unlike bond and equity investments, you won’t participate in losses, however, you also won’t fully participate in gains to the extent that the performance of a particular indexing strategy exceeds that of a defined cap.

When do fixed-index annuities make sense as a bondholding alternative?

FIA’s offer several distinct advantages over bonds, including protection from market declines, elimination of bond default risk, participation in positive performance of stock market indexes, tax deferral in non-retirement accounts, sustainable lifetime income with a MGWB or income rider, investment management simplification, and elimination of investment management fees on the portion of a managed portfolio that’s invested in FIA’s.

They aren’t without their disadvantages, however. [Read more from MarketWatch]

Transcription:

Dick: Hi I’m Dick.

Eric: And I’m Eric and we’re the annuity guys; and today we’re choosing a fixed indexed annuity.

Dick: Yes, and Eric that’s referred to all over the internet as a hybrid annuity.

Eric: No, no…

Dick: Nowadays, nowadays it is.

Eric: Fixed indexed annuity without an income rider is the purest sense. Now, to get a hybrid style you got to have the income rider.

Dick: Well, that’s where we tend to talk in terms of hybrid combining a whole bunch of things into one annuity and mostly its marketing hype… mostly it’s just a sizzle to sell the annuity talking about hybrid; but it is in all fairness, hybrid does mean the combination of several elements into one thing. So, I would say that it is a hybrid in that sense but let’s get into the specifics of the fixed indexed annuity and what’s good about it?

Eric: Yes and I think usually the first thing I start with when someone asked me… its breaking down what’s an index? You know, really when you talk about indexing for an annuity, the most common one out there is typically are the S&P 500.

Dick: Dow Jones…

Eric: Now most people say “I’m invested in the market right?”

Dick: No…

Eric: What do you mean? It’s like an indexed mutual fund^ or…

Dick: And that’s the thing, it’s challenging to explain the folks is that you really are never invested in the market. You’re using that index just as an indicator.

Eric: It’s a benchmark…

Dick: A benchmark to know how much interest will be credited to your account. So, this is a completely safe, investment free product..

Eric: All risk-free.

Dick: Yes, yes it is.

Eric: And I always laugh because what I try to do is explain that you know; we can use the weather as that same index and say we start with the this time at eight o’clock today and at eight o’clock tomorrow we’re going to look at the same time… and if we’re up to two degrees, we’re going to credit you two percent. You can just use any kind a benchmark. In fact, there are indexes out there that use interest rates…

Dick: Commodities.

Eric: Commodities, gold.

Dick: Right. So, if somebody comes to you with an annuity, with this amazing new index; don’t get too excited because first of all even if that particular index could soar, you’re going to be limited on the upside up of it. That’s how these indexed fixed indexed annuities work is they give you the upside but they give you no downside. So you don’t get all of the upside.

Eric: And really, if you kind of peel back the layers of how an indexed annuity really works; the insurance company has something usually that it can purchase options on. They’re looking at options contracts something they can buy for pennies on the dollar;

Dick: If it doesn’t hit, it expires and throw it away; and when it hits…

Eric: It’s very good for everybody.

Dick: It brings some money in.

Eric: And they are willing to share some of those benefits.

Dick: Right.

Eric: So, like you were describing, what’s the negatives here? You don’t get the full upside typically that you’re going to get from a market participation; if you were just truly invested in one of those yourself but then also the inverse of that is you don’t go back…

Dick: Completely safe, completely secure. And when we say risk free, we have to qualify that a little bit. What we’re really saying is, it is a market risk free; and you know, there’s risk in anything we do. If it’s a US Treasury, there’s risk in it. So, in terms of measuring risk, it’s one of the least risky things you can do with your money.

Eric: Right. In explaining some other things that limits some of the upside; this is part of the conversation that if you ever look at an indexed style annuity, that there boards caps typically associated which is usually…

Dick: Limits your upside.

Eric: You may say you got the S&P 500 index with a cap of 5 percent. Well, that typically means the most you’re going to make in a year is

5 percent – so that’s your cap. The market may make up to twenty percent while you’re only going to get up to your cap.

Dick: Yes

Eric: And, there’s the participation rate which is how much of that index…

Dick: So, that if the market goes up 20 percent and I have a 10 percent participation rate, I’m at ten-percent of what the market went up or spread which in that case you agree that the first portion of what’s earned; it could be one percent or 5 percent, goes to the insurance company or is not paid to you. Let’s put it that way. And so consequently, you get anything above that. If you had a 10 percent spread, the market did 20 percent; you get 10 percent.

Eric: And those are really kind of need aspects to say… I can still participate in the upside I know I’m not going to go backwards. And as long as there’s no fee associated with the contract, you’ll never go… you never will back up and that’s what’s very attractive. And who would be interested in these types of annuities? It’s usually somebody who wants some growth but they’re just not willing to go backwards. If we look at the charts over the last ten years; and this is where indexed annuity companies are really putting those charts out, because if you remember back in 2008 when that market went boom…

Dick: Or 2009.

Eric: Well guess what your indexed annuities do?

Dick: No loss.

Eric: We did not go back thirty-eight percent…

Dick: A nice place to start from when the market started coming back up… stair steps up.

Eric: And that’s what’s nice. It locks in typically it resets if it’s an annual reset. Every year you started that new benchmark and all you do is…

Dick: Now Eric, one of the things; I am going to switch our subject here on this a little bit – and that is; that we see all the time and it kind of gets our higher up a little bit, 8 percent returns you know on indexed annuities; and pretty misleading is it?

Eric: Well, and that’s when people are typically selling the rider; they’re selling the piece that you’re going to pay a fee for usually, but it’s that sizzle portion that people want because they want that market-style return. So, eight percent **guaranteed… for future income

Dick: Or income account – it’s a kind of a virtual type account, does what it’s supposed to do – an excellent feature, excellent benefit, but consumers are generally confused and misled many times by that statement of getting an eight percent return on their money; safe, secure, **guaranteed; when that’s just factually not true or at least not the whole picture.

Eric: In effect, most people – and this is the conversation you have to have – that if you’re not looking at FIA or fixed indexed annuity for income you can buy it without the income rider. You don’t need that income rider…

Dick: No fees.

Eric: No fees, no charges. Now you’re not going to get that **guaranteed roll up for future income but you still have the option of receiving lifetime income from these annuities because you can annuitize.

Dick: Annuitize, right. So, when we start looking at the fixed indexed annuity and the benefits that that annuity will give as compared to other annuities – variable annuities#, immediate annuities. We start to look at we’ve got the upside; we’ve got safety and **guarantees. So the upside would be kind of similar to the variable annuity# that you’ve got some upside here. You don’t have the unlimited upside of the variable but you do have upside for a little better than normal growth should be; and then you’ve got the safety and security of the fixed annuity because there really is no investment for a fixed index annuity. Income – you’ve got the potential of what the immediate annuity has in two ways – you can annuitize or you can use the rider for lifetime income; and the beauty of using the rider for the lifetime income is back to what we call majority control of your money where you can actually not get your lump sum away like the immediate annuity, keep control of that money either to go on to the heirs or for a future use if there was an emergency.

Eric: So, I think we’ve broken down the fixed indexed annuity giving you some tidbits as to how the hybrid might be a part or add on to that that base chassis. I think we’ve got it covered all.

Dick: We’ve done it. Thank you.

Annuity Income Riders

By

What makes a newer hybrid style income annuity different from the industry standard, immediate income annuity? It’s the income rider!

Everyone who hears about a new hybrid style annuity is pitched on the the “sizzle”. I’m sure you have seen the advertisements – 5%, 6% or even 8% **guaranteed. Call today! Unfortunately, the limitations are not explained in most advertisements. So, there are many misconceptions about income riders and how they work.

Income riders are great options for creating a predictable retirement income in the future by using their roll-up **guarantees for lifetime income provisions.  They allow annuity owners the flexibility of creating lifetime income without having to lose cash value access by handing their savings over to the insurance company for income.

Annuity income riders are truly beneficial options when used in suitable ways, but they are not without certain trade-offs.

Video: Annuity Guys® Dick& Eric, discuss annuity income riders and how they can work to improve your retirement.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.


 

When Are Living Benefits Riders Right?

To truly determine if a living benefit rider is best for a retirement plan, it is important to understand exactly what one’s objectives are. For example, certain questions should be answered, such as:

  • Does the annuity income stream need to start soon or at some future date?
  • How much income will be needed?
  • Is it important to leave money to heirs?
  • Is long-term care spend-down a concern?
  • How much control should be maintained over the money?
  • Is outliving income a concern?

Once the answers to these questions about a retiree’s specific situation are determined, there is more information that must be gathered about the income rider being considered.

Some of the important rider questions are:

What is the roll-up rate? Many annuity income benefit riders offer a **guaranteed rate of growth, or roll-up, or minimum floor of between 5 to 10 percent. This roll-up rate is the **guaranteed annual rate at which the income base will grow. Therefore, if an annuity with a contribution amount of $100,000 plus a bonus offers a ten-year income rider with an 8 percent annual compounding roll-up, then the income base could be $215,892 at the end of ten years. Then, at the end of the ten years, the income stream from the annuity would be based on an annual percentage income payout of the income base determined by the annuitant’s or joint payee’s age (using the youngest age for joint to determine the payout percentage) at the time that the payout phase began.

Is the interest being credited compound or simple? When comparing different types of annuity income riders, it is important to truly understand the type of interest being credited. For example, a 10 percent roll-up rate is typically going to be based on simple interest, and 10 percent simple interest is the same as 7.2 percent compounded for ten years.  After ten years the compounded rate grows much faster and larger.

How many years can the income base accumulate? There are many income riders that will not allow the income base to accumulate beyond ten years before the annuity owner must start taking the income payout. However, there are some that allow much longer accumulation periods.

What are the fees now, and can those fees increase over time? Many annuity income riders have current fees of between .40 percent and .95 percent. Some annuities may increase their income rider fees after a specified number of years, up to 1.5 percent or more

View some of our newest featured videos below from the country’s leading experts on successful retirement strategies and the pitfalls you will want to avoid!

Retirement should be an exciting new phase in one’s life. And just like any other aspect of life, how we embrace and prepare for this new phase will help determine just how secure and fulfilling this extended time period of our life will be.


Using OutCome Based Planning™ for Your Retirement

We practice and recommend a "Holistic - OutCome Based Planning™ process when considering annuities." This approach has the effect of balancing your overall portfolio so you can meet your retirement objectives by "first identifying the least amount of your investments or savings (if any) that should be considered for annuities." OutCome Based Planning™ analyzes and models multiple outcomes so you can clearly identify your best income and growth opportunities.

"The Annuity Guys will only call if you request help". Hence, when you are ready for specialized help we will be available.
"Working with an Experienced Fiduciary Financial Planner can help you Avoid a Trial & Error or Risk Based Retirement"

This type of approach does take considerably more time, effort and analysis which will show you mathematically the successful possibilities by comparing various outcomes rather than trying to sell or convince you of that "so-called one best solution." Clients frequently tell us that this process removes some of the confusion and emotion to help them objectively identify a better retirement plan; rather than just ending up with the most convincing salesperson or advisor.

When requesting help you can be assured of working with an experienced Annuity Guys' Retirement Planner who is independently insurance licensed and securities licensed as a fiduciary financial planner having access to the vast majority of annuity companies in helping you choose the best annuities using a holistic-outcome based planning approach. We consider the high quality advisor recommendations we make to our website visitors as a direct reflection back on our commitment to serve all client's with a high standard of excellence in financial planning for retirement.

Based on survey feedback on advisors from our website visitors, we eliminated about two-hundred local advisors and now only recommend a few that we consider experienced vetted Annuity Guys' Fiduciary Advisors. Many local advisors continue requesting us to recommend them as a vetted advisor. However, our reputation and future business is driven only by satisfied website visitors. So, unfortunately we've had to tell the vast majority of local advisors no, since we changed our business model four years ago. At that time we stopped trying to satisfy everyone with local advisors, we now primarily work with individuals who are comfortable using today's internet technology to their fullest advantage by working with a select group of vetted, experienced and knowledgeable Annuity Guys' Fiduciary Planners.


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Selecting the Best Annuity & Retirement Income Advisor

Are you willing to work with one of our retirement and annuity advisors based on their experience and expertise as a first priority rather than being limited by a local or regional area? The good news is that technology has forever eliminated our geographical limitations and leveled the playing field for everyone! As a result of today's technological advances, all of us can now work confidently with experts in any field including personal finance. We are no longer confined by regional or local boundaries limiting our choices and ultimate success. A high quality advisor is now as close as a click or phone call away.

Video:"Choose a National or Local Advisor"?
"There is no room for trial and error when it comes to choosing MarketFree® Annuities or a Successful Retirement Planner."
When you think about it, your money is almost always in some other state with a custodian; whether invested in the market or with an annuity insurance company, the advisors competence is primarily needed when positioning your money initially. So working with a specialized expert in a financial discipline like investments or retirement planning is imperative. There are no undo buttons in retirement! Once the annuities get set up correctly, it is customary and more efficient for owners to benefit by having direct access to the issuer instead of having to go through the agent. And, of course any reputable advisor, local or national, is more than willing to assist their clients if needed after they are implemented.
Video:"Why These 3 Types of Annuity Advisors are Not Created Equal"
"There are no undo buttons in retirement so it is vitally important that you do it right the first time!"

We are fortunate to have a select few who we believe are truly the highest qualified advisors out of about two hundred licensed insurance agents that we eliminated. Your survey feedback is what helps us make these tough decisions. Our advisors have an independent financial practice, specializing in annuities and retirement planning, which helps ensure that you are given the best options available for your retirement planning.

Video: "How Much of Your Money Should You Consider Placing into Annuities"?
"It takes an experienced expert to know how to structure annuities for income, inflation, growth, return of principal, and tax advantage."

"Anyone can sell you an annuity; however, it takes a truly qualified and experienced advisor to know how to structure them for income, inflation, growth, return of principal, and tax advantage. Typically, there is not just one that can accomplish all of these objectives. It is how an advisor structures multiple annuities in balancing your total portfolio that makes it possible to achieve your most important retirement objectives."

Video: "How to Choose a Great retirement Advisor"?

Why Searching for the Best Annuities on Your Own Can be so Frustrating...

Almost everyone nowadays turns to the internet for answers on everything - from buying new widgets to researching just about everything under the sun; and finding the best annuity is no exception!At first, it may seem that researching will be straightforward but the more time you spend researching them, the more frustrating it can be. Why is this? First of all, it does not take long to realize that gimmicks abound - such as warnings and alerts from salesmen who just want your attention so they can sell you one or the "too good to be true" claims of 8% to 14% **guaranteed interest and of course the claim that you can get the full market upside with no downside risk! If you have done any research you have heard all of these claims in advertising which are mostly half truths and not fully explained.So how can you find the best annuities on the internet? The truth is... you can't! And what is even more frustrating is all the conflicting points of view from so called experts. There are well over 6,000 different annuities - all designed for different reasons, so is it any wonder that the deck is stacked against the average researcher or do-it-yourselfer. Add to that the fact that they pay high enough commissions to attract a plethora of both good and bad agents. This does not make annuities good or bad; they are simply a financial tool that truly benefit those who use them correctly.How can you find the best annuities for your unique situation?
  • Use the internet cautiously;
  • Work with a vetted and experienced specialist;
  • Do not settle for that one dubious best plan. Compare multiple Outcome Based Plans to decide on the one that is truly best for you;
  • Be keenly aware of scare tactics and hyperbole - avoid those advisors and websites;
  • Avoid websites that are focused on rushing free reports, rates and quotes to get your contact information they are rushing you to speak with them, instead, take your time and choose someone you are more comfortable with that works on your time-table;
  • Know the Five Vital Factors (listed above) that an experienced specialist must answer before helping you select the best options for your situation;
  • Watch this telling video "Avoid Annuity Gimmicks, Amateurs and Charlatans"...

Video: "Avoiding Gimmicks, Scams & Charlatans"

  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
They are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping our website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this website. He still maintains his insurance license in good standing and assists his current clients.
Our vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)


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Should You Choose a Variable Annuity?

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Occasionally, we get requests from our site visitors and viewers to help them review a particular annuity – like that from Larry below.

Dear Annuity Guys®,

I asked my broker about annuities and he is recommending a variable annuity# from @%#^#. What is your opinion of this annuity?

Larry T.

Watch as the Annuity Guys® discuss who should choose or even consider a variable annuity#?

[embedit snippet=”video-specialist-button”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Typically, we try and provide an answer that highlights the pros and cons about the specific annuity in question. However, there are some aspects regarding variable annuities# in particular that need to be made clear prior to even considering variable annuity#.

Here are fourteen questions to consider prior to selecting a variable annuity#.

  1. Is any annuity really the right choice for you?
  2. Are you comfortable with your principal being at risk?
  3. Is your reason for buying a variable annuity# for growth and/or tax-deferral?
  4. Are you planning on using this annuity for lifetime income?
  5. Is your advisor/broker an annuity specialist? (Did they offer and discuss various types of annuities?)
  6. What are the fees – including the hidden fees, that do not appear on the statements?
  7. Do you understand the pros and cons associated with living benefit riders?
  8. Will you have adequate liquidity?
  9. How many ways and how soon can you access your money?
  10. What is the surrender period and the associated charges?
  11. What are the costs associated with the investment accounts?
  12. Who is responsible for selecting the investment accounts?
  13. What is the minimum **guarantee?
  14. What is the death benefit?

These are a few of the topics we would recommend discussing prior to finalizing a variable annuity#. Due to the popularity of these annuities, they are frequently highlighted in the media – for both their positives and mostly negatives, for the way in which they are abused. If you are in the market for or have been proposed a variable annuity#, please be sure to read this article from the Securities and Exchange Commission on variable annuities#.

Variable Annuities: What You Should Know

Variable annuities have become a part of the retirement and investment plans of many Americans. Before you buy a variable annuity#, you should know some of the basics – and be prepared to ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity# is right for you.

This is a general description of variable annuities# – what they are, how they work, and the charges you will pay. Before buying any variable annuity#, however, you should find out about the particular annuity you are considering. Request a prospectus from the insurance company or from your financial professional, and read it carefully. The prospectus contains important information about the annuity contract, including fees and charges, investment options, death benefits, and annuity payout options. You should compare the benefits and costs of the annuity to other variable annuities# and to other types of investments, such as mutual fund^s.

What Is a Variable Annuity?

A variable annuity# is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity# contract by making either a single purchase payment or a series of purchase payments.

A variable annuity# offers a range of investment options. The value of your investment as a variable annuity# owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity# are typically mutual fund^s that invest in stocks, bonds, money market instruments, or some combination of the three.

Although variable annuities# are typically invested in mutual fund^s, variable annuities# differ from mutual fund^s in several important ways:

First, variable annuities# let you receive periodic payments for the rest of your life (or the life of your spouse or any other person you designate). This feature offers protection against the possibility that, after you retire, you will outlive your assets.

Second, variable annuities# have a death benefit. If you die before the insurer has started making payments to you, your beneficiary is **guaranteed to receive a specified amount – typically at least the amount of your purchase payments. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the **guaranteed amount.

Third, variable annuities# are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within a variable annuity# without paying tax at the time of the transfer. When you take your money out of a variable annuity#, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will outweigh the costs of a variable annuity# only if you hold it as a long-term investment to meet retirement and other long-range goals.[…Read the rest of the article from the SEC]

Relying on Annuities for Retirement Pensions

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The private sector has been bailing on providing pensions for employees over the last few decades. Now, it appears legislation to “radically change”  public sector pension plans may also be in the works.

In Illinois, we are aware of how much strife a public pension battle can impact both the fiscal health of the state and that of those employees who were promised lifetime retirement benefits. The proposed legislation would provide for private insurance carriers to manage the public sector retirement income pension systems. Historically, many individuals enjoyed the benefits of defined benefit plans. Yet, now with benefits being cut and lump sum buyouts being offered, many employees are weighting the option of defined benefits versus a pension styled annuity plan.

The Annuity Guys® discuss why insurance companies – with proven track records in managing investment and longevity risk successfully – may be better choices for overseeing your retirement income than both private and public sector pension managers.

[embedit snippet=”video-specialist-button”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

If you (and your spouse, if you have one) could have a pension styled income for life and still pass on any unspent retirement dollars to heirs, would you do it? This is the reason many individuals are converting lump sum buyouts, 401ks and IRAs into annuity portfolios that provide lifetime income, safe and consistent growth with preservation of their lump sum principal from their retirement savings.

Here’s the news from MSN that generated the inspiration for this weeks blog.

Senator Hatch says insurance firms can ease U.S. pension crisis

By Lisa Lambert

WASHINGTON (Reuters) – A top Republican senator unveiled legislation on Tuesday that would radically change public pensions by having life insurance companies pay benefits through annuity contracts, helping to alleviate the underfunding that has engulfed many plans.

The bill introduced by Utah Senator Orrin Hatch, the highest-ranking Republican on the Finance Committee, would have the government pay a premium each year to a state-licensed insurer in an amount equal to a set percentage of salary. Employees would then receive fixed income annuity contracts from the insurance company.

“A new public pension design is needed, one that provides cost certainty for state and local taxpayers, retirement income security for state and local employees and one that does not include an explicit or implicit government **guarantee,” Hatch said in a speech to the Senate.

Annuities function similarly to pension plans by paying set amounts in regular installments. The accumulation of annuity contracts would even out interest-rate fluctuations, according to Hatch, who would have insurers competitively bid for them.

Underfunding is “not possible,” he added.

The bill would not cover past pension liabilities, but allow state and local governments “to stop digging the hole with their existing defined benefit plans,” said Julia Lawless, a spokeswoman for Hatch. [… Read more at MSN]

How do you Choose the Best in Class Annuity?

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The latest issue of Barron’s proclaims to know and list the Top 50 Annuities. Being the Annuity Guys® that we are, we quickly located the article and tables to find out if they were right. What criteria would they use to choose the very best. Finally we would have the answer that all of our readers and callers need so desperately.

Unfortunately, their best in class annuities may do more harm than help.

Annuity Guys® – Dick and Eric, evaluate Barron’s Top 50 annuity article and their best in class annuity selections.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Don’t get us wrong, we are grateful that this publication largely dedicated to investing in stocks and bonds or other securities has dedicated some time to cover a financial instrument that should be considered for at least a portion of most retirement portfolios that need safety, income and modest growth. However, consumers hoping to find answers about the top annuities will only know a small part of the story. Their hypothetical examples only apply to a very tiny segment of the annuity buying population.

While we hate sounding like a broken record, you should know that with annuities there is not a “one-size fits all” model. Sure you can use a list like the one found in Barron’s to ask for a comparison, but an expert advisor who specializes in income and retirement planning will be more likely to come up with better annuity choices when your specific scenario is fairly considered.

Here is an excerpt from the Barron’s article that made us shake our heads sideways.

Top 50 Annuities By Karen Hube

The once-dominant variable annuity# is getting a bit of competition from cheaper iterations. These stripped-down products offer some surprising advantages, though.

Armand Baughman, 71, a retired Continental Airlines pilot of Valley View, Texas, has always viewed annuities as too complex, illiquid, and expensive to warrant his consideration. But last year, he socked $200,000 into a tax-deferred variable annuity#, calling it “the best thing since Cracker Jacks.”

What changed? As part of an effort to lift sagging profits after years of challenging market conditions, firms are giving the oft-maligned annuity a makeover: an ultralow-cost, variable annuity# that offers a broad array of alternative investments, including hedge funds, currency funds, managed futures, and other strategies.

Annuity companies are trying to make a comeback after years of struggling to remain financially sound under the cloud of low interest rates and high stock-market volatility. With annuity sales down 8.4% last year, to $211.8 billion, the lowest level since 2005, annuity providers are aggressively designing and marketing annuities that — like the low-cost variable annuities# — appeal to very specific investor goals or needs.

“For years, companies offered products that tried to do everything at once — give the highest rates, best liquidity, best income **guarantees, and benefits,” says Ken Nuss, founder of AnnuityAdvantage.com, which has free listings of fixed index and income annuities. “But that’s over. They’re getting better at fulfilling a specific goal more effectively.”

To help sort through a breadth of products, Barron’s surveyed annuity companies and industry experts to come up with the 50 most competitive contracts in popular annuity categories. The results, based on common investor assumptions and goals, are detailed in the table, right.

Low-cost variable annuities# with alternative investments earned a new category entry in the top-50 survey this year, thanks to the growing number of these contracts and their potential benefits to investors.

ANNUITIES, WHICH ARE TAX-DEFERRED INVESTMENT vehicles that allow you to turn on an income stream either immediately or years from now, come in two basic categories: Variable annuities have payouts that fluctuate along with their underlying investments; fixed annuities offer a **guaranteed interest rate for a specified number of years. [Read the full article at Barron’s]

Transcription:

Dick: Hello, I’m Dick.

Eric: And I’m Eric and we’re the annuity guys. Today Dick, we’re going to look at best in class annuities. Now, that sounds awfully high pollutant there. What’s best in class mean? Sounds like a horse racing term.

Dick: Well, Eric, one of the problems that we’ve had in our videos and we’ve been criticized at times; we had folks say…

Eric: No.

Dick: Why don’t you guys tell us what a company; which annuity and that type of thing? Well, let’s just give some disclosure here. Folks were in the most tightly regulated, most highly compliant industry; and if we start mentioning company’s names, we actually have to go out to get their approval first.

Eric: We need a lot more leave time to be able to tell you what the company name is.

Dick: Before we can do a video.

Eric: We have to get approved by the company and then they take about six weeks to banter back and forth; and then they come back, they usually say, no.

Dick: And then there’s another problem, if we start mentioning companies Eric…

Eric: Because it’s wrong as soon as we say it.

Dick: After we’ve said it, it’s wrong the next day. And that’s because the best in class annuities; Eric and I have certain annuities that we tend to favor or better than others, and certain companies…

Eric: It’s based off of historical performance that typically is better than others

Dick: But we may have a client one week that’s pretty similar to a client two or three weeks later; and we have to use a different product because some things either change with that annuity or that person’s situation is just a little bit different.

Eric: That’s right. It can be as simple as one is male, one is female. You would think there would not be that much difference?

Dick: So, what got us going on this subject today?

Eric: Well, It varies. I love them, but I hate them right now. You know it’s nice of an investment kind of publication that we typically think up to feature annuities in the top fifty annuities on the cover of that…

Dick: Well, they’re so biased. A lot of times they won’t even talk about annuities.

Eric: That’s right. So, we love the fact that they’ve decided talking about you which are the top fifty annuities. Now, I’ll have you know, they’re wrong.

Dick: Take it with a grain of salt and read it with a critical eye.

Eric: That’s right because as soon as I look at their list, I said “oh no!” Now, they had to make assumptions. They assume within their first section here that everybody two hundred thousand dollars exactly.

Dick: They’re all sixty years old.

Eric: Six-years-old and male. So, this list is probably very good for the time the article was written if you’re sixty and had two hundred thousand dollars. Now, if you’re 63 and female, the list is wrong.

Dick: Or all you have is two hundred thousand in your name; or what if you had a million to your name? All those variables change. Suddenly, that isn’t the right annuity because there’s other reasons you’d be doing this.

Eric: So, it did address some of the issues in the different pieces but we would tell you that when you first look at this, don’t assume everything here is going to apply to your situation. There’s typically not just one best annuity.

Dick: No! And then when you start talking about working with an advisor that really gets it, they’re going to take a much more sophisticated approach and it’s good not going to be one best in class annuity; it’s going to be three or four or five; and they’re going to have to all work together.

Eric: Right. It’s a balancing act of usually giving you an option. Maybe this one is lower rated but has a slightly better pay out for what your intention is.

Dick: Yes, yes.

Eric: This one has a higher rating but maybe slightly lower or may have to hold it a little bit longer…

Dick: This piece over here works well in a tax-free environment for growth and there’s the maybe starting a portfolio out of a good immediate annuity might make sense out there. So, again, being able to structure this properly, I would say to get best in class annuities, there’s no substitute for working with an expert.

Eric: And that’s where you rely on somebody in their expertise to define for you, what fits your situation. I know I sat down and run numbers and I’ve had what I thought was going to be the best one going in. And all of a sudden I said I run numbers and for this particular unique situation it had to be somebody that was exactly this year old and got to hold it for this long, one specific annuity all of a sudden jumps out of package you never expect. Nothing pay’s to go back and look at the analysis and…

Dick: Exactly. And it doesn’t hurt folks; never, never think that Eric and I are saying “don’t do your own research.” Look at the company’s ratings; get in our rate vault and look at all of the different annuities and the different features, and ratings, that type of thing; and do some comparison. But then, there comes a point where you do get involved with a an expert, an agent that works with these on a regular basis; and they’ll be able to look at the subtleties, the real differences and that’s where you really can find the best in class annuities.

Eric: And as we’ve spoken, there’s no reason why you can’t pull out a list like this and say “hey, what about company X here? I see that they were best in class on variance. What’s that look like?” The advisor can then run the numbers give you the idea of why what they’re proposing may be better or you know…

Dick: Eric, even with our expertise, we’ve had situations where somebody’s come to us and said “you know I was reading about this or that or whatever”; and maybe we haven’t even opened our eyes to something that they brought to us. And then we started utilizing it for other clients because it looks like they were right. You know, I’d like to think that we have a lock on all the knowledge but it’s working with people on a regular basis that keeps us on our toes and keeps us at the top of our game.

Eric: So if I’m looking for best in class annuity, where do I go?

Dick: You go first of all to our website…

Eric: Which you are here for a long time…

Dick: And you begin your research; and then you work with an expert advisor.

Eric: Yes and that’s the key; it’s getting the facts from somebody that works in this area all the time.

Dick: That’s right!