Social Security changes: How will they impact your retirement plan?

This new budget bill will significantly impact the retirement plans of many individuals nearing or in retirement. Beginning in 2016, the bill would stop the benefits of…[continued below video]

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 these segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued]…spouses, divorced spouses or children on the work record of a spouse, ex-spouse or parent who has suspended his or her Social Security benefit with the plan of restarting their benefit later. This strategy is often referred to as the “file and suspend” strategy. However, these recent changes eliminate the said strategy effective May 2016 for all future retirees.

If you have not planned to use “file and suspend” or implemented this Social Security  strategy, you might just be saying “so what?” But as financial planners who pride themselves in helping clients optimize their retirement income, congress has just undone tens of thousands of optimized retirement plans across this nation, especially for those who do not reach full retirement age by May of 2016. They will not be grandfathered in and are directly affected in an adverse way by these changes. What these Social Security changes effectively do is to possibly cause couples to file for their own benefits earlier than they would have under the old rules in order to meet their retirement spending needs. For many, this loss can be a significant portion of their total retirement income.

So, in order to protect retirement lifestyles,  many couples will have to file for each of their Social Security income benefits simultaneously and earlier than planned. By filing earlier, they are losing out on the compounding growth available to individuals who delay taking Social Security until as late as 70. One major impact this will have is on the additional compounding effect provided by the cost of living adjustments (COLA); that under the old rules, Social Security payments could have been deferred longer by one of the spouses to lessen the impact of inflation by creating a larger benefit base for (COLA) income benefiting both spouses.

For many Americans, Social Security is a cornerstone of their retirement income plan. It is unfortunate that with the raise of hands, congress has undone the retirement benefits promised to so many American families.

Updated related article by Michael Kitces from Wednesday, November 4th.

Navigating The Effective Date Deadlines For The New File-And-Suspend And Restricted Application Rules

With last week’s “surprise” legislation that revealed Congress is killing the File-and-Suspend and Restricted Application claiming strategies for maximizing Social Security benefits, even those who weren’t previously aware of the strategies are now wondering whether it’s something to take advantage of before the new rules go into effect.

Fortunately, though, the new rules do not kick in immediately. Those who are already receiving benefits are not impacted at all. And those who are full retirement age – or will reach it in the next 6 months – will still have the opportunity to file-and-suspend before the crackdown takes effect after April 29, 2016. Furthermore, anyone who was born in 1953 or earlier (or January 1st of 1954) will still be able to do a Restricted Application for spousal (or divorced ex-spouse) benefits, even if the filing doesn’t occur until years from now.

Nonetheless, the next 6 months do mark an important transition period that merits a close look at Social Security claiming strategies, for the brief time window that all of the tools remain on the table, whether it’s an individual filing and suspending for a potential lump sum reinstatement in the future, a couple claiming spousal benefits, or a family claiming dependent or disabled child benefits while delaying individual retirement benefits until age 70. And for those “lucky” enough to be born in 1953 or earlier, only a few years remain to consider a Restricted Application, before that deadline ends, too!

The Near-Term Expiration Of The File and Suspend Strategy For Married Couples
How File-And-Suspend Used To Work
The original version of File-And-Suspend allowed someone, upon reaching full retirement age, to file for Social Security retirement benefits, and then immediately suspend them. The fact that benefits had been filed for meant a spouse became eligible for spousal benefits (as spousal benefits cannot be claimed until the primary worker also files for benefits). However, the fact that benefits of the primary worker were subsequently suspended – and therefore were not actually received – meant that the original filer could still earn delayed retirement credit increases of 8%/year for waiting.

Example 1. John and Mary are both age 66, and have been married for 40 years, in a household where John was the primary breadwinner and Mary never worked outside the household. John is eligible for a retirement benefit of $2,000/month at his full retirement age, and Mary at her full retirement age will have no retirement benefit of her own, but will be eligible for a spousal benefit of $1,000/month, equal to 50% of John’s full benefit.

John wants to delay his benefits until age 70, increasing his benefit by 4 years x 8%/year of delayed retirement credits to $2,640/year (plus subsequent cost-of-living adjustments). Doing so not only boosts his own benefit, but increases the size of John’s survivor benefit that would be payable to Mary if John dies first.

However, waiting until John turns 70 means that Mary won’t receive any of her $1,000/month spousal benefits until then either, since Mary cannot get spousal benefits until John actually files for his own. And since there are no delayed retirement credits for spousal benefits, the extra 4 years of waiting just means Mary permanently loses those 4 years of $1,000/month benefits with no benefit in return!

To resolve this issue, John would File-and-Suspend upon becoming eligible at his full retirement age of 66. By doing so, Mary becomes eligible to claim her own $1,000/month spousal benefit (which she can receive in full, since she too is age 66), accumulating 4 years’ worth of spousal benefits she otherwise wouldn’t have received. (If Mary had been younger, she could have also claimed, but her spousal benefits would be reduced for starting early.) And John still gets the 8%/year delayed retirement credit increases for delaying his own benefits until age 70.

The fundamental point – with File-and-Suspend, John could allow Mary to get her spousal benefits, while still delaying his own benefits to earn the 8%/year delayed retirement credits.

How File-And-Suspend Will Work Now
Under the new rules in Section 831 of the Bipartisan Budget Act of 2015, when John suspends his benefits, he will suspend not only his own benefits, but any/all benefits payable to other individuals based on his earnings record. And since Mary’s spousal benefits are 50% of John’s benefits – and therefore are based on his earnings – then the entire File-and-Suspend strategy is effectively dead.

Now, if John were to file-and-suspend, he will suspend his benefits and Mary’s benefits, so no one gets any benefits. Which means if John wants to delay his benefits to earn delayed retirement credits, Mary will have to wait on claiming her spousal benefits, too. [continue reading about the changes at kitces.com]

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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.

The post Can Annuities Save Your Assets? appeared first on Annuity Guys®.

Never to fear, we have a cost of living adjustment (COLA) in Social Security to help save us — maybe not the more generous COLA that we have come to expect if the President and Congress decide they should balance a portion of the budget by restructuring the consumer price index (CPI) formula used to calculate increases in social security income.

Can annuities be used to hedge against depleted spending power in retirement? Certainly! Today’s hybrid annuities are bringing forth solutions for just that concern. Annuities developed by multiple insurance companies are now offering options to tie annuity income to inflation tracking indexes such as the CPI-U. This creates an additional option to other strategies used by advisors in the past such as laddering annuities.

Watch as Dick and Eric discuss the potential change in the CPI and what annuity strategies you might consider if inflation is a concern for you in 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.

Check out this article from Walter Hickey on what the change in the CPI  might mean for Social Security.

How Obama’s Plan For Chained CPI Is Both A Stealth Tax On The Middle Class And A Cut In Benefits For Grandma

Last week it was revealed that the President’s budget proposal will include a revision to the way the government calculates the impact of the rate of inflation as a concession to House Republicans.

Still, a switch to chained CPI from the current rate demonstrably cuts benefits to seniors and could be a stealth tax on primarily the middle class.

The Consumer Price Index (CPI) is used as a proxy for the annual cost of living adjustment used to keep federal benefits in line with inflation.

There are several different ways that economists calculate the Consumer Price Index, according to the AARP Public Policy Institute.

• CPI-W is the current cost of living adjustment index for Social Security. It reflects the spending habits of households where the income comes from a wage earner.
• CPI-U expands CPI-W to reflect the spending habits of the retired, professionals, the unemployed and self-employed as well as wage earners.
• A new, experimental CPI-E looks exclusively at how the elderly spend their money.

“Chained CPI” refers to another adjustment, particularly to CPI-U.

As an example, CPI-U and CPI-W already incorporate people switching from Starbucks coffee to homemade when prices increase.

Chained CPI-U takes that a step further — the idea that when coffee gets more expensive, people switch to orange juice. It incorporates more switching.

When it comes down to it, Chained CPI-U spits out a lower rate of inflation than regular CPI-U, which already spits out a lower rate of inflation than the current CPI-W. As a result, were the government to switch the way they index cost of living adjustments to chained CPI-U from CPI-W, payouts to seniors would increase at a much slower rate.

This means that over time, seniors receiving Social Security see their benefits cut. [Read More at BusinessInsider.com]

The post Hybrid Annuities as an Inflation Hedge appeared first on Annuity Guys®.

As Annuity Guys®, Dick and Eric talk about annuities every day – that does not mean that an annuity is the right answer for every retiree but it certainly should be part of the retirement discussion.

In this edition Dick and Eric share their thoughts on how annuities should be viewed by retirees and pre-retirees making financial decisions. One click to play or pause…

**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.

How about these Retirement Factoids….

• According to a 2012 report from the Center for Retirement Research, “at Social Security’s earliest retirement age of 62, only about 30 percent of households are prepared for retirement…By age 66, Social Security’s current Full Retirement Age, about 55 percent of house-holds are projected to be prepared for retirement (this figure includes the 30 percent already prepared by age 62)….At a retirement age of 70, about 86 percent of households are prepared for retirement.”
• According to a 2012 report on the Transamerica Retirement Survey, “more than half of workers (51 percent) are confident in their ability to fully retire with a comfortable lifestyle including 9 percent who are ‘very confident.’…In 2007, prior to the Great Recession, 59 percent of workers were confident including 13 percent who were ‘very confident.’” (p. 14)
• According to a 2012 analysis of data from the Survey of Consumer Finances, “more than half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65.” (p. 6)
• According to the 2011 EBRI Retirement Confidence Survey, “28 percent of workers are now very confident that they will have enough money to pay for basic expenses during retirement (down from 40 percent in 2007,” while 12 percent say they are not at all confident about their ability to pay for basic expenses (up from 7 percent in 2007) and another 16 percent indicate they are not too confident (up from 11 percent in 2007).” (p. 8)
• According to a 2011 Gallup poll of 1000+ adults aged 18 and older, “63% of Americans say they are worried they will not have enough money for retirement — exceeding the 56% who are worried about not being able to pay the medical costs associated with a serious illness or accident and the 55% who are afraid they will not be able to maintain the standard of living they now enjoy.”
• According to the 2010 MetLife Retirement Readiness Index, “just over half of the respondents report feeling prepared overall for retirement. Eighteen percent strongly disagree that they are prepared. The number of those prepared increases by age. Only a third (35%) of the 45- to 49-year-olds feel prepared for retirement, while 64% of the 60- to 64-year-olds and 81% of the 65- to 70-year-olds feel prepared.” (p. 4)
• According to a 2010 EBRI analysis, the aggregate “Retirement Savings Shortfall” (RSS) for all ages cohorts in 2010 dollars is $4.55 trillion, for an overall average of $47,732 per individual. Adding nursing home and home health care expense increases the average individual RSS for married households by $25,317. (p. 2)
• A 2009 AARP survey shows that “nearly eight in ten (79%) adults have either started to cut back on spending (71%) or started saving more money (28%) in the past 12 months… Almost three in four (73%) of those who are cutting back on spending or saving more are doing so in order to save more money for retirement… Older adults (ages 50+) are more likely than younger adults (ages 24-49) to cite this as a major reason (53% vs. 38%).” (p. 3)
• According to a 2009 analysis of data from the Survey of Consumer Finances, there has been a “significant rise in median debt, from $19,697 in 1995 to $40,300 in 2004, and mean debt, from $58,124 in 1995 to $97,363 in 2004. [There has also been] a rise in the proportion of near-retiree families holding debt, from 79.8 percent to 82.7 percent.” Families headed by older individuals (aged 56-61) held less debt on average than younger near-retirees (aged 50-55), with 77.5% of older and 87.2% of younger near-retirees holding debt. (table 1)
• According to a 2009 Urban Institute analysis of financial data, “older households typically hold less in stocks and are thus less exposed to market fluctuations than their younger counterparts. Nonetheless, equities account for about half of the assets in the typical account of households age 50 and older.”
• According to a 2008 AARP survey, “if the economy does not improve significantly, over six in ten workers at least 45 years old say it is likely they will spend less in retirement (69%), as well as delay retirement and work longer (65%). Far fewer (37%) say it is likely they will save more for retirement.” (p. i)

Factoids courtesy of the Sloan Center on Aging and Work

The post Can Annuities Solve the Retirement Challenge? appeared first on Annuity Guys®.

Eric and Dick tackle the question of how much you should allocate to annuities when developing a sound retirement income and estate plan.

One click on screen to play or pause double click for full screen…

**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.

GAO Report Tells Americans: Buy More Annuities!

The U.S. Government Accountability Office (GAO), a non-partisan federal agency focused on reducing wasteful government spending, has released a report entitled Ensuring Income throughout Retirement Requires Difficult Choices. The two most important choices involve:

• Delaying the age when you elect to start receiving Social Security payments; and
• Converting your cash-balance defined benefit pension into a lifetime income annuity rather than take a lump-sum payment upon retirement.

Social Security is Not Enough for Retirement

For those of you that think Social Security will meet your retirement needs, wake up! Given the massive debt overhanging the U.S. economy, the current generous benefits being paid out to retirees is not sustainable. As the GAO report states:

The cost of Social Security benefits is projected to exceed sources of funding, and the program is projected to be unable to pay a portion of scheduled benefits by 2036. In 2010, for the first time since 1983, the Social Security trust funds began paying out more in benefits than they received through payroll tax revenue.

Due to the long-term fiscal challenges facing Social Security, options for reform may result in lower benefits and reduced replacement rates from Social Security. As a result, reforms to the Social Security system may increase the need for retirement income from other sources such as private pensions.

Even under the current generous benefit schedule, social security cannot be relied on to fully replace a person’s pre-retirement salary. According to the GAO report, for low-wage earners (i.e., 45% of national average) social security replaces only 55.2% of pre-retirement income and for high-wage earners (i.e., 160% of national average) the replacement rate is only 33.9%.

by Jim Fink on April 19, 2012 at Investing Daily

Annuity Guys® Video Transcript:

Eric: Today we’re going to talk about what percentage of your portfolio should be allocated to annuities, and the magic number is, get right to the point.

Dick: Exactly 50%.

Eric: There you go, thank you very much for.

Dick: Video over. Wouldn’t that be nice?

Eric: Unfortunately, it doesn’t work that way. Everybody wants the magic answer of what exactly needs to go into an annuity?

Dick: Well, even the GAO which we’re going to talk about here, the Government Office of Accountability did a report last year in June that pretty much hit in July, and actually it’s even on the cover of our book that the GAO is recommending that everyone has more annuities and less securities, so that was the overall assumption that they were making.

Eric: I think it’s looking at the dependence people have on other; when you’re getting to retirement what percentage can you count on Social Security to cover, of your retirement income? The funny thing is you look at low income people in the article we utilized, it’s 55% of low income people, they’re income need is met by Social Security.

Medium wage earners is about a third of their expected income is met by the Social Security income, so how are you then going to supplement; what sources are you going to use to supplement your income and retirement after Social Security? Social Security is not going to do it.

Dick: Right. It won’t cover everything that folks need, so if we take—it’s hard to stereotype, because everybody’s situation is obviously different, but if we take what the GAO report is saying in a summary sense, and say that those folks that are somewhere in that median asset range, where they’re relying more on their Social Security that they would have a tendency to need to put a lot more of their portfolio into a safety and security, that will **guarantee their income throughout their life.

Eric: Right and we talk about this a lot with our clients in talking about the foundational portion of your income, so you take your building blocks. You know you’ve got Social Security, as much as we can count on it to be there. We always like to think of what the COLAs and the things, the increases are going to be.

Dick: Cost of living adjustments.

Eric: Yes, but are we certain that those are going to continue with the way that things are right now? You never know, so if you’ve got Social Security as the base, what do you need to add on top of that each month, to meet your monthly income need? That’s your foundation, a minimum amount, not your trips, not your fancy expenditures, but what’s your basic necessity expenditure need to be? Do we build that with– we always say build it with conservative CDs, annuities.

Dick: If you’re going to do investments, you may have it in bonds.

Eric: Look at the most conservative options out there and utilize those to build that income stream.

Dick: Right and this is where annuities do come in and they work so well, because the one thing that the CDs and the bonds and different things don’t address is longevity and that is outliving our money or another way to say it is, Eric just not dying on time.

Eric: That’s right. When we look at people that utilize CDs, they typically just pull the interest, but if you’re having to utilize the principal to meet those basic necessities that’s really where an annuity comes into play, because it gives you that added layer of insurance that you’re not going to outlive your income.

Dick: Exactly, and so it comes down to the percentage to allocate to an annuity some of this we find, when we’re working with our clients, gets down to that person’s risk aversion. Are they the type of person that’s basically grown their portfolio in a very safe and secure way, and they value annuities for what they do, in terms of safety, security, and controlled growth or are they the type of person that’s been very aggressive with their portfolio, so they’re very comfortable with not having much in safety and security. They may have a very large portfolio, and feel that they’ve got the room to have a very small foundation of safety aspect of corporeal.

Eric: If you’ve got such a large asset base that even if you shock tested it and said, “If we lost half of it and it still is enough to meet your basic income needs.”

Dick: Right, carry us through, throughout our lifetime, right.

Eric: Now for some people when they say, “What’s the percentage?” My answer’s always “The smallest amount that we need to meet that basic need.”

Dick: Exactly, and what we like to do and a lot of the advisers that we’ve worked with, like to do for clients is to look at that objective and figure out what that income need is, and then find the least amount of money that we have to spend to get the proper annuity that meets that need, and that could be Eric, an immediate annuity. It could be a hybrid style annuity.

Eric: Then it’s what options do you want? Immediate may give you a bigger payout, but you’re giving up your asset. A hybrid style may be a little bit less income, but you have a lot more flexibility, as well as some other options with long-term care potentially, or other rider pieces that come into play.

Dick: One thing, folks, that you really always want to keep in mind on anything that you allocate to annuities, especially if you’re allocating for some reason a lion’s share of your portfolio, you always want to keep something available that’s liquid. It should be fairly sizable, because we don’t know what type of emergencies might arise.

Eric: We always talk about inflation, and how are you going to gauge for inflation, and you’re better off to have assets out there that continue to grow, that can continue to work against inflation, especially if you’re set on a level, if you take an immediate income or an immediate annuity and it’s level, how are you going combat increases in expenses?

Dick: That’s one thing, folks where the hybrid style or the fixed index annuity with the income rider works so well. If you can maybe have a portion of your income that, if you need income right away, that you can go ahead and maybe set that up in an immediate annuity or one of your investments or some other area of asset in your portfolio that you can pull money from, while you allow that hybrid annuity to defer over five or ten years. It’s a great inflation hedge to get that income boosted up pretty dramatically.

Eric: I like to call it laddering annuities or laddering and if you haven’t seen that video you can actually look for that afterwards, because there should be one out there. There are strategies to basically, help you as the GAO says here.

Dick: We will put this on the blog site, so that you can see the full report and the article that we’re reading from that addresses Social Security, and again how to maybe, use strategies with annuities for Social Security. Eric, if I ask you the question this week what’s the proper allocation to put in an annuity?

Eric: My answer is the smallest amount that meets your foundational needs.

Dick: I like that. Eric did not say, “Well, it depends.” That’s my famous line, “Well, it depends.” I think you’re right Eric, and I think that it also depends on… Here we go. It also depends on the individual preference for safety and security. We have to always take that into account.

Eric: Yes, it should be suitable for your investment style. Very good; thank you very much for tuning in today.

Dick: Thank you.

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• Full Backing of the US Government
• Tax advantaged – 0 to 85 percent is taxed based on income
• Inflation Protection – cost of living increases (COLAS)
• Income for life – eliminating longevity risk
• Spousal, Family and Survivor benefits
• Priced less than commercially available annuities

**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 did retirees do before 1935 when Social Security was not available? What about those less fortunate who had no supplement for their retirement income to survive? There was more family and church involvement on behalf of the poor and more hardship for certain. Here are some recent statistics from www.SSA.gov that demonstrate why Social Security, like it or not, is likely to be continued to a large degree as part of what it means to be a Social Security entitled US citizen.

• In 2011, nearly 55 million Americans will receive $727 billion in Social Security benefits.
• Social Security is the major source of income for most of the elderly.
• Nine out of ten individuals age 65 and older receive Social Security benefits.
• Social Security benefits represent about 41% of the income of the elderly.
• Among elderly Social Security beneficiaries, 54% of married couples and 73% of unmarried persons receive 50% or more of their income from Social Security.
• Among elderly Social Security beneficiaries, 22% of married couples and about 43% of unmarried persons rely on Social Security for 90% or more of their income.
• Social Security provides more than just retirement benefits.
• Retired workers and their dependents account for 69% of total benefits paid.
• Disabled workers and their dependents account for 19% of total benefits paid.
• About 91 percent of workers age 21-64 in covered employment in 2010 and their families have protection in the event of a long-term disability.
• Just over 1 in 4 of today’s 20 year olds will become disabled before reaching age 67.
• 67% of the private sector workforce has no long-term disability insurance.
• Survivors of deceased workers account for about 12% of total benefits paid.
• About one in eight of today’s 20 year olds will die before reaching age 67.
• About 97% of persons aged 20-49 who worked in covered employment in 2010 have survivors insurance protection for their young children and the surviving spouse caring for the children.
• An estimated 158 million workers, 94% of all workers, are covered under Social Security.
• 50% of the workforce has no private pension coverage.
• 31% of the workforce has no savings set aside specifically for retirement.
• In 1940, the life expectancy of a 65-year-old was almost 14 years; today it’s almost 20 years.
• By 2036, there will be almost twice as many older Americans as today — from 41.9 million today to 78.1 million.
• There are currently 2.9 workers for each Social Security beneficiary. By 2036, there will be 2.1 workers for each beneficiary.

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