Fixed Indexed Annuities are a fully guaranteed insurance product who’s crediting (interest earned) is tied to an outside source such as the Standard and Poor’s 500 Stock Index. Annuity owners don’t fully capture the index’s performance; they would earn a portion of the market gain as a trade-0ff against exposure to any risk.    The amount of participation depends on the company and the actual product series offered.

Not many brokers and financial planners are considering Fixed Indexed Annuities as a viable fixed-income alternative and a possible provider of lifetime-income benefits.

A recent article in Investment News (an industry magazine) stated Raymond James reported an increase in the sale of FIA will hit $330 million this year, an increase of 60%. The leading independent broker in America based in San Diego, LPL, reported sales of fixed indexed annuities through the third quarter of 2013 at LPL hit $649.4 million — up 15%.

The combination of 10,000 Baby Boomers reaching 65 each day and the fear of an overpriced stock market have brought a huge focus to the FIA segment.  “People just don’t want risk any longer and are searching for stability” says David Townsend, an annuity industry leader and owner of www.annuity.com.

New products have been introduced as the popularity of the category increased.  Now products can offer a guaranteed interest rate if the annuity is targeted to be used as an income stream.  Some companies will guarantee rates as high as 8% per annum.  “If used properly, a Fixed Indexed Annuity can help stabilize the retirees guaranteed portion of their retirement income,” says annuity insider Townsend.

With the advent and movement to the broker dealer arena for FIA products it is a sure bet that this segment of the guaranteed income choices will increase as more main stream acceptance comes.

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What the FDIC does guarantee and insure:

Individual Accounts: Individual accounts are accounts owned by one person and titled in that person’s name only. All individual accounts at the same insured bank are added together and the total is insured up to $250,000, with the exception of non-interest-bearing transaction accounts which are separately insured for the full amount. For example, if you have an interest-bearing checking account and a CD at the same insured bank, and both accounts are in your name only, the two accounts are added together and the total is insured up to $250,000. 

Individual accounts include:

• Single ownership accounts
• Sole proprietorship accounts
• Agent, custodian, conservator accounts
• UTMA accounts (minors)
• Estate accounts 

Joint Accounts:  In addition to individual insured accounts, each person is entitled to a maximum of $250,000 coverage for interest-bearing deposits in all of his/her joint accounts. If a couple has a joint interest-bearing checking account and a joint savings account at the same insured bank, each co-owner’s shares of the two accounts are added together and insured up to $250,000, providing up to $500,000 in coverage for the couple’s joint accounts. 

Retirement Accounts: Certain retirement accounts are separately insured from any other deposits acCustomer may have at the same institution. These are deposit accounts owned by one person and titled in the name of that person’s retirement plan. Only the following types of retirement plans are insured in this ownership category:

• Individual Retirement Accounts (IRAs) including traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs
• Section 457 deferred compensation plan accounts
• Self-directed defined contribution plan accounts
• Self-directed Keogh plan (or H.R. 10 plan) accounts

All deposits that an individual has in any of the types of retirement plans listed above at the same insured bank are added together and the total is insured up to $250,000. For example, if an individual has an IRA and a self-directed Keogh account at the same bank, the deposits in both accounts would be added together and insured only up to $250,000.

The FDIC does not Guarantee or Insure:

• Investments in stocks, bonds, mutual funds, municipal bonds or other securities
• Annuities
• Life insurance products even if purchased at an insured bank
• Treasury bills (T-bills), bonds or notes
• Safe deposit boxes
• Losses by theft (although stolen funds may be covered by the bank’s hazard and casualty insurance)

Any other investment available to you will have some level of risk, some more, some less depending on the investment option. A word about risk, risk is not bad as long as you understand the possible exposure to loss and the exposure to gain.  Many of us accept a certain level of risk as well we should because with some risk we have potential for a greater gain.  Risk should be managed and blended with other assets that do not have risk exposure.

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So here are some factors to think about with an annuity:

1)       Annuity money is predictable if you need lifetime income. It is safe and guaranteed, plus an annuity can provide income that can never be outlived.

2)       Women benefit more than men.  It’s a better deal than anything else either spouse could buy.  Single females need to think very hard before keeping 100% of their money in categories like stocks and bonds, 401k’s, etc.

3)       You can’t lose it all.  The responsibility for managing your retirement account is fully outsourced to a risk manager, the insurance company. You don’t have to be an investment genius or super disciplined with the annuity option.  No matter how you go about it, managing money to provide income for 20 years or more requires expertise, commitment, and risk taking.

4)       No fees!  To maintain investments, you have to expect portfolio managers to come calling eager to manage your money.  Their interest in your future is propelled by fees and charges.

5)       Annuities deliver a level of efficiency that can’t be duplicated by mutual funds, certificates of deposits, or any number of homegrown solutions.  The challenges facing Social Security and the decline of corporate pensions add up to a “perfect storm” for retirees who might outlive their nest egg.

Let’s face it, if all the market did was go up, the need for annuities would not exist.  The reality is the market goes down, sometimes drastically.  The 90’s exposed millions to the rewards of investing.  The last four years showed the frightening side of the market.  The fixed/indexed annuity plays well to people because of its combination of protection and potential.

It’s a pleasure to keep you informed.

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Another factor that makes long term loans less attractive to lenders, thus raising interest rates, is inflation.  Inflation is the rise over time in the price of goods and services.  Lenders know the longer it takes the borrower to pay back a loan, the less that money is going to be worth because everything costs more.

Inflation is the rise over time in the price of goods and services.  Is a loaf of bread higher than it as the year you were born?  Inflation is measured as a annual percentage, the same way interest rates are measured as a annual percentage.  Is inflation a bad thing?  Not necessarily.  It means prices are rising because demand is rising, so it is the result of a growing economy.  In a healthy economy, wages rise at the same rate as prices.  So in a healthy economy, inflation always rises, meaning the same dollar amount is worth less five years from now.  Sounds pretty healthy, doesn’t it?  Inflation hurts interest rates because lenders know the longer it takes you to repay the loan, the less the money is worth.

The simplest way to explain inflation is “too much money chasing too few goods”.  Normally this is because interest rates are low and people borrow more money and can buy a lot of stuff.  Another reason could be the government is spending a lot of money on defense contracts during a war.  For example, manufactures do not have enough supply to keep up with the demand for tanks, cars, missiles, etc.  In short, inflation (rising prices) kicks in when manufacturers produce goods at a slower rate than people demand.  So, if we run out of ice cream, Popsicle prices spike upward.

Now that we understand supply and demand = inflation, let’s talk about another inflation angle.  For several reasons, the cost of doing business also pushes price levels up.  The interesting thing is that the rising cost of business may have nothing to do with demand.  For example, labor unions negotiating a new contract for higher wages, the elevated cost of exporting goods, or new taxes strain the operating budget.  Plainly any of these factors will push the price of products, goods, and services up because the cost of doing business.

When planning for your retirement, considering inflation is a key factor.  There are ways to keep your funds safe and secure and at the same time hedge part of your inflationary concerns.  Fixed Indexed Annuities calculate the yield on an annuity based on an outside source such as the S/P 500 Stock Index.  This index has replicated inflation many times over the course of our history.

Contact me if you would like a little more information regarding inflation and how Fixed Indexed Annuities could benefit you.

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What are the issues confronting the U.S. at this time?  The answer is multi-level, but can be summed up as:

1)      Collapse of an economy (potential)

2)      Inflation 

So what keeps these annuities safe?  Remember these are not investments, they are deposit accounts backed up by cash on hand, i.e., insurance companies must have the money to compensate the annuity holder in case they should go out of business. This is required by state law (The State Guarantee Fund). Furthermore, the insurance company doesn’t borrow money to make investments, they are not expected to make payouts right away, and they don’t make risky and speculative investments.  How many of you are worried about your homeowners, your auto insurance, your life insurance company going under?  Why is the annuity treated any differently?  It is all the same insurance industry.  Keep in mind, the insurance industry was the last man standing during the Great Depression when banks and investment firms went south.  Then, as now, the industry remains the last bastion of financial freedom.

Safety is not an issue with fixed annuities. 100% of all annuity funds must be backed up with 100% available assets.  In other words, the fixed annuity company has their portfolio already in place to back the contractual guarantees. Their cash flow originates with the general portfolio.

Conversely, investments base their account values on sub accounts consisting of stocks, bonds, and mutual funds. These kinds of accounts generate risk and fees.

Annuities provide a level of economic security that can’t be duplicated by other investments like stocks, bonds, CDs, etc.  Why?  Because annuities relieve the consumer of the need to set aside additional sums of money to offset risk and fees to manage the account.

So if fear of management of your own retirement accounts paralyzes you and causes you stress, simply pass it to a risk bearer, an insurance company, and let the annuity provide you a safe and secure income.

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Because deep down you know the Fed’s money infusion causes economic distractions.  What happens when stock market returns are eroded because of inflation (higher prices)?  If people open their wallets and pocketbooks, prices will rise because of higher consumer demand for everything from peanuts to petrol.  But real growth stops when prices go up at the same time stocks go up.  Higher prices eat into your profit.  Suddenly, the wallets and pocketbooks close up and consumers hunker down.  A negative spending consciousness means a negative economy.  At this point, borrowing costs skyrocket, real estate struggles, and finance as a fuel for capitalism is tapped out.

So where does one go for safety and security? 

Safe money fixed/indexed annuities can be the logical choice.  Wall Street will come running to the safe annuity industry if they see any chance of recapturing the funds that have evaporated from them.  As a matter of fact, new products will be developed which will only have allusion of what we know as an annuity.

There is no public outcry of dissatisfaction with fixed/indexed annuities.  In 2012 there were a total of 50 complaints initiated against safe money fixed/indexed annuities.  There were approximately 30 billion dollars submitted in new sales for fixed/indexed annuities.  Think about it – there are 50 individual states in the United States, and a total of 50 complaints.  This breaks down to only 1 complaint per state?  $30 billion dollars in new business divided by 50 complaints?  Your calculator can’t even do the math.  Folks, there is no other industry that boasts the same degree of customer satisfaction as safe money fixed/indexed annuities.  It is a squeaky clean industry.  All these facts run contrary to any misinformation campaigns via Google search engines.

Have a look at Fixed Indexed Annuities, just might be a good option for your important money.

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Have you heard of The Magnificent Twenty? They’re a group of 20 in an elite group who lost at least $100 million in the stock market back in 2008.  Now here’s a question for you – does anyone have better information than these informed investors?  No one complains when the market is roaring, but how vulnerable are normal investors if the top guns don’t see the avalanche coming?

The theme of the fixed/indexed annuity message is safety and security.  There is plenty of research and studies to back up the fact that these plans work and they work well.  When you are retired, everything works completely different than when you were working.  It’s like doing everything in a mirror.  Money management activities become opposite to when a person is working.  Safe money fixed/indexed annuity accounts grow on a guaranteed basis, with no risk, even in uncertain economies that occur from time to time.  It is pretty satisfying to save your retirement money from collapsing and not be in a position where you never have to ask the question “Can I win or lose?”  Can you put a price tag on peace of mind?

The safe money fixed/indexed annuities method speaks for itself:  The ability to grow money safely, securely, and guarantee a lifetime income.  The ability to avoid financial enemies: risk, taxes, and fees.  Unfortunately, the average person spends more time planning a vacation than managing their money.

The safe money fixed/indexed annuity owner won’t suffer losses when the market fails, because you never leave the safety and security of a highly rated insurance company.  Do you want your hard earned money to have privacy, be protected from probate, and pass automatically to your heirs?  Is it desirable to have the potential to increase retirement fund yields without market risk and no brokerage fees?

Do you wish to have an additional stream of income riding piggy-back to your pension and social security?  If you have a safe money fixed/indexed annuity, you have all of the above.

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If anything, employers have reduced their 401k match, while employees are contributing less to their 401k.

What about social security?  The IRS tells us a third of today’s retirees get almost 90% of their income from social security.  This statistic is very alarming; 1/3 of retirees are wards of the government and living off fixed income from the government.  Additionally, we have another 1/3 of retirees who get 50% of their income from social security.  All told, people retiring and folks hitting the social security system are expected to get 55% of their income from social security.  So, what are the alternatives for income?  Back in 2008, a $250,000 CD produced $1,000 a month in interest.  Today, this same CD produces $75 monthly.  Can that even buy a pair of shoes?  The Wall Street Journal tells us that people have exited the stock market in mass numbers.  $138 billion has been removed from mutual funds since March 2009.  At a time when traditional financial vehicles have come under fire, safe money annuities offer the perfect trisect: guarantee of the funds, competitive interest rates, and guaranteed lifetime income (even if you live to be 113).

Buying gold and silver has always been an answer for falling currency rates.  But it has always been tied to rumors, events, and speculation.  The safe money fixed/indexed annuity effectively sidesteps such issues.  Return of principal, income, diversification, and liquidity are peerless benefits only delivered by the fixed/indexed annuity.

So here are some talking points for the backyard fence, water cooler, or family reunion when people (well intentioned) question the prudence of buying safe money fixed/indexed annuities.  First, safety is not an issue.  100% of all annuities funds must be backed up with 100% “available” assets.  In other words, the fixed annuity company has their portfolio already in place to back contractual guarantees.  Their cash flow originates with the general portfolio.  Conversely, investments base their account values on sub accounts consisting of stocks, bonds, and mutual funds.  These kinds of accounts generate risk and fees.  Second, you can’t lose it all.  You don’t have to be an investment genius or super disciplined with your annuity option.  No matter how you go about it, managing investment money to provide income for 20 years or more requires expertise, commitment and risk taking.  Third, annuities deliver a level of efficiency that can’t be duplicated by mutual funds, certificates of deposits, or any number of homegrown solutions. The challenges facing social security and the decline of corporate pensions add up to a “perfect storm” for retirees who might outlive their nest egg.

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