Retirement Safety Comes with Earnings Cap

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$53k Loan @ 6% for 30yrs = $112k over the life of the loan; Rental income of $650/mo yields $5.79 / $1,000 (before you hit age 65 up untill you die in the late 60's or 70's - nobody lives forever); You get the tax breaks of owning rental property, etc.; Stocks, bonds, annuities, etc. seem like such a waste. If I could tap my employer sponsored 401k and buy property with it, I would do so in a heartbeat. Cut out the middle man and invest in yourself. As a young man (nowhere near 65, or 67 or whatever retirement age will be "allowed" when I get there), I can do most maintenance myself and as I age later in life I will hire someone else to do it (all the properties will be paid off by then). Yes not every property will always be rented out, you can get the bad renter, and there is maintenance, but the pros of "getting money back" early on (to spend or reinvest), getting a tax break, having solid assets, direct interface with the product and consumers, direct control of your investment, and direct control of where reinvestment goes makes property the gold standard in my porfolio. Who knows, maybe I will one day tap my 401k, pay the penalties, and stick with rentals as early retirement regular income. Luckily I was not as foolish as everyone else that lost 40% of their accounts when the stock crash happened. The smoke & mirrors of Walstreet can keep pushing their goods. The $3k+ I lost in KMart (who later defaulted and bought/merged with Sears) taught me a life lesson on stocks and politics. Rental property also is not a guaranteed income, but as long as I have a regular job (and live below my means), it is great supplemental income until the day I can afford to fullly devote my resources!

LT of AL 3:53PM February 07, 2011

Were the indexed interest NOT limited, the insurer could not afford to offer a minimum guarantee on the product, and THAT is a variable annuity- not an indexed annuity. On the other hand, the client is guaranteed to never receive less than zero interest (a proposition that millions of Americans are wishing they had during that period of 03/08 to 03/09). What a tremendous value proposition for American consumers!
Unfortunately, the Insured Retirement Institute (IRI) is not the primary trade group for annuities. They have historically represented only variable annuity insurers and only began recruiting outside of this industry recently. They are certainly not representative of the fixed or indexed annuity industries. I cannot attest to the immediate annuity quote that was provided to you by the IRI. However, there are numerous immediate annuity payout options that would not result in an “estate getting nothing,” should the annuitant die shortly after purchase. For example, choosing a “life and period certain, 30 year” payout would ensure that the immediate annuity would pay out to the later of the annuitant’s death or 30 years. For this reason, your characterization of immediate annuities is inaccurate.
The average rate being credited on fixed annuities today is 3.84%. This does provide the ability to slightly outpace inflation. However, indexed annuities do hedge against inflation risk better than fixed annuities.
It is scary to consider that your readers would be suggested to “hold some investments that may be riskier than” they’d like. I encourage you to find out more about the features and benefits of indexed annuities as an alternative retirement income product.
Should you have a need for accurate information on annuities and insurance products in the future, please do not hesitate to reach out to us. Thank you, Mr. Moeller.
P.S. Ask us about our new TOTALLY FREE website, www.IndexedAnnuityNerd.com!
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax

Sheryl J. Moore of IA 4:59PM March 17, 2010

So, while it is true that variable annuities put consumer’s monies at risk, fixed and indexed annuities do not. Fixed and indexed annuities do not carry “high fees” either. However, all annuities have surrender charges, which is truly to the benefit of the purchaser. The surrender charge on a fixed, indexed, or variable annuity is a promise by the consumer not to withdraw 100% of their monies prior to the end of the surrender charge period. This allows the insurance company to make an informed decision on which conservative investments to use to make a return on the clients’ premium (i.e. 7-year grade “A” bonds for a seven-year surrender charge annuity or 10-year grade “A” bonds for a ten-year surrender charge annuity). Investing the purchaser’s premium payment in appropriate investments allows the insurance company to be able to pay a competitive interest rate to the purchaser on their annuity each year. In turn, it also protects the insurance company from a “run on the money” and allows them to maintain their ratings and financial strength. I personally appreciate the value of the surrender charge on an annuity and if more consumers understood them, they would too.
I understand your concerns about “plan vanilla” products such as fixed annuities being utilized as part of Obama’s plan. However, did you know that indexed annuities are a type of fixed annuity that offers both a minimum guarantee, and the potential for limited gains based on the performance of the stock market? Indexed annuities are a perfect retirement vehicle for someone that is not willing to stomach the losses of investing directly in the market, but also wants the ability to outpace the earnings on traditional fixed money instruments (such as fixed annuities or certificates of deposit). The typical indexed annuity guarantees a return of nearly 118% at the end of the product term, even if the S&P 500 declines every single year. On the other hand, there are indexed annuities today that can pass on gains of 11.65% annually or more. This makes an indexed annuity the perfect product for risk-averse consumers who want the ability to outpace inflation.
Indexed annuities are priced to return 1% - 2% greater interest than fixed annuities. In exchange for this greater potential, the indexed annuity has a slightly lesser minimum guarantee. So, if fixed annuities are earning 5% today, indexed annuities sold today should earn 6% - 7% over the life of the contract. Some years, the indexed annuity may return a double-digit gain and other years it may return zero interest. However, what is most likely to happen is something in between. All indexed interest on these annuities is limited through the use of a cap, participation rate, or spread.

Sheryl J. Moore of IA 4:59PM March 17, 2010

There are three questions that must be answered, when looking into what type of annuity is right for an individual:
1. What level of market risk am I willing to assume with the annuity?
a. If more concerned about a high minimum guarantee, regardless of the lower level of interest accumulation, consider a fixed annuity.
b. If willing to accept a lower minimum guarantee than a fixed annuity, but looking for potentially greater interest accumulation, consider an indexed annuity.
c. If willing to accept no minimum guarantee, in exchange for the possibility of unlimited interest accumulation, consider a variable annuity.
2. How soon will I be taking income?
a. If within the first year, consider an immediate annuity (offered in fixed, indexed, and variable types).
b. If it is further in the future, consider a deferred annuity (offered in fixed, indexed, and variable types).
3. How many premium payments will I be making?
a. If only a single payment, consider a single premium immediate annuity or a single premium deferred annuity.
b. If making more than one payment, consider a flexible premium deferred annuity.
It is also helpful to understand the difference between variable annuities and other types of annuities. Insurance products such as indexed annuities, fixed annuities, term insurance and whole life are fixed insurance products. Alternatively, products such as variable annuities, stocks, mutual funds, and bonds are investments. Insurance products are regulated by the 50 state insurance commissioners of the United States. Investments are regulated by the Securities and Exchange Commission (SEC). Insurance products do not put the client’s money at risk, they are “safe money products” which preserve principal and protect the purchaser’s funds from market risk. Investments, by contrast, can put all of a purchaser’s money at risk and are therefore appropriately classified as “risk money products.”

Sheryl J. Moore of IA 4:58PM March 17, 2010

Mr. Philip Moeller,
I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
I am writing to you about an article that was published in U.S. News and World Report. This article, “Retirement Safey Comes with Earnings Cap” had several inaccuracies and misleading statements in it. I am contacting you to draw your attention to this misstatements, so that you can ensure your readers have access to accurate, unbiased reporting on annuities in the future.
Did you know that an annuity is the product used for our nation’s social security system? With that being said, it should not be hard for you to “love annuities.” Let me help in your understanding of annuities with some basic information on the products.
What is a Fixed Annuity (FA)?
A contract issued by an insurance company that guarantees a minimum interest rate with a stated rate of excess interest credited, which is determined by the performance of the insurer’s general account. A Fixed Annuity is considered a low risk/low return annuity product.
What is an Indexed Annuity (IA)?
A contract issued by an insurance company that has a minimum guarantee where crediting of any excess interest is determined by the performance of an external index, such as the Standard and Poor’s 500® index. An Indexed Annuity is considered a moderate risk/moderate return annuity product.
What is a Variable Annuity (VA)?
A contract issued by an insurance company where crediting of any interest is determined by the performance of underlying investment choices that the annuity owner selects. A Variable Annuity is considered a high risk/high return annuity product.
Annuity Risk Spectrum
Guaranteed Interest Upside Potential Indexed Participation Client's Risk Tolerance
Fixed
(Traditional) Typically 2% Very Limited: typically less than 5.50% None Low
Indexed Typically 87% of premium @ 3% Limited: typically capped at less than 9.00% Gains based on performance of external index Moderate
Variable Fixed account only Unlimited Gains based directly on fund performance High

Sheryl J. Moore of IA 4:57PM March 17, 2010

FACT: Anyone who Currently has a Defined Contribution plan (401K,etc.etc.) or IRA plan who is about to retire can shop for and Buy their own Immediate Income Annuity. In Fact you have the whole market to choose from which is a better Free Market Choice for the individual, than the Company plan offering this type of annuity by only one company.
It is best to shop around for the Highest Immediate Income Annuity Payout... You can do that with one service and making only one request... Go to JDSAnnuities.com
What is an Immediate Income Annuity?
The FACTS:
It is an exchange of a Lump-sum of money for a Monthly Income Stream guaranteed for Your Life, the joint life of you and your spouse or for a Specified Period of Time 10 Year to 30 Years. Contrary to what you read and hear, you can add guarantees to the Life Options. This can be in the form of an Installment Refund Guarantee or a Certain Period. The trade off is a lower monthly income stream and is not as low as you may think. The younger you are the less the trade off is.
Here is a listing of some of the payout options available:
Life Only
Life with Installment Refund
Life with 20 Years Certain
Joint and Survivor Life
Joint and Survivor Life with Installment Refund
Joint and Survivor Life with 20 Years Certain
Joint and 75% to Survivor Life
Joint and 67% to Survivor Life
Joint and 50% to Survivor Life
10 Year Period Certain
15 Year Period Certain
20 Year Period Certain
25 Year Period Certain
30 Year Period Certain
Safety, Simplicity and No Fees: You know up front how much of a Lump-sum you need to exchange for the Monthly Payment you receive. Nothing else is charged to you nothing is deducted from your payments. It is what it is!
Immediate Income Annuities are all about Guaranteed Fixed Spendable Monthly Cash Flows that you receive each month for life. When you’re in Retirement these Cash Flows are what’s important to you. Nothing else comes close in importance.
Having a Guaranteed Monthly Income Stream as part of your Portfolio improves the performance of your Entire Retirement Portfolio. How? It allows you to focus on investing long-term for maximum compounded return without having to worry about your monthly spendable funds/cash flows.
Yes, Immediate Income Annuities, Fixed Rate Annuities and Index Annuities when honestly reviewed should play a role in everyone’s portfolio for a percentage of your investable long-term assets from age 50 up and until the day you die. They provide safety, predictability, an attractive rate of interest and Cash Flows during Retirement that can’t be safely matched by other assets of like dollar amounts you may allocate into.
If you really want to get a complete understanding of Immediate Income Annuities and other Fixed Annuities including Index Annuities read.... JDSAnnuities.com

Joe Salvemini of NJ 9:54PM March 01, 2010

Mr Kennedy seems to be saying that "Fixed Index Annuities" can provide a fixed 6-8% return with no risk? I am no expert on investment vehicles, but that sounds almost too good to be true. What's the catch? I suspect it comes with a fixed cap on the rate? How about fees? Is the 6-8% after all fees?
Don't mistake my questions as refuting the claim, I am just really curious how this can be done.
Burt Widener
www.allthingsretired.com

Burt Widener of NH 7:33PM March 01, 2010

I appreciate your article 'Retirement Safety Comes with Earnings Cap'. However there are many flaws which I'd like to address. Before we begin, my background as an author, radio host of a financial radio show, and being in the financial advising business as a Registered Investment Advisor with my own practice for 16 years lends to my credibility to disagree with some of your positions in the article.
First, as a respected publication, U.S. News and World Report is sending the wrong message to its readers about annuities. You have not explored a type of annuity called a 'Fixed Index Annuity' which last year returned 34% in some cases to my clients using a no cap S&P 500 index strategy with an 8% asset fee. This 34% was locked in and can never be lost. So to say in your article that 'a fixed annuity may collide with the expectations of people saving for retirement. We want very safe investments. We also want investments with high returns. We can't have both', is a misstatement and factually untrue. A Fixed Index Annuity is a 'fixed' annuity product. It has nothing variable in it at all. If a person had been in a Fixed Index Annuity in the strategy just mentioned to you above, they would've received that return in a March to March contract over the last 1 year. Historically, Fixed Index Annuities have provided 6-8% average annual returns since their inception nearly 2 decades ago.
Also, with regards to income...there are 'income riders' available today on Fixed Index Annuities which will guarantee the growth of the product, for purposes of future income streams, at up to 8% per year regardless of the index linked return or stated interest rate. The annuitant can then choose to get an income for life without giving up the value of the annuity to the insurance company in the case of premature death. There can even be spousal provisions. This is very different from the immediate annuity mentioned in your article.
Additionally, you assessment of Variable Annuties when you stated 'Variable annuities, for example, are often called mutual funds wrapped inside an insurance guarantee. If you put $100,000 in such a product, you can be assured of always receiving back that $100,000, even if the underlying investments you make with your annuity have lost money'. This is also factually untrue in a Variable Annuity product, which is a registered security. The person would need to 'die' before a guarantee would happen on their money. If they just left the product after their surrender charge period or needed the money right away, they'd get the 'actual value' which is the value per the stock market and what it has returned or taken away. There could definitely be a principal loss there.
Sincerely,
Mark Kennedy, President, Kennedy Wealth Management LLC, Kennedy Financial & Insurance Services, Inc
www.allaboutmarkkennedy.com
www.kennedywealthmgmt.com
www.retireinstyleshow.com

Mark Kennedy of CA 9:50PM February 28, 2010