Broker Check


Quick 100 Pertinent Annuity Facts

June marked the second annual commencement of National Annuity Awareness Month- a month dedicated to educating consumers about annuities, their benefits, and features. Since I was out on maternity leave last June, this was my first opportunity to be involved in the festivities. In fact, I was able to obtain the Iowa governor’s Proclamation, identifying the indexed annuity capital of the world as the first state for formally recognize “Annuity Awareness Month” just a couple of months ago.

Over the course of June’s 30 days, my annuity research firm received dozens of calls and emails with questions about annuities from prospective annuity purchasers. It was easy to see that annuities are still the black box of the insurance industry…what a shame.

Did you know that that the #1 fear of Americans is outliving their retirement income? (Death comes-in as the second top fear.) What an awesome opportunity for our industry to educate, right?

I know that most of my colleagues would agree that more Americans need to know about annuities. As a result of the many questions fielded by Wink, I was inspired to draft a quick 100 pertinent annuity facts.

Here we go!

  1. Most people do not know what an annuities is;
  2. Those that believe that they know what an annuities is, usually do not;
  3. The greatest reason annuities are misunderstood by the public is the media’s perpetual distribution of inaccurate information about annuities;
  4. Annuities have existed since 1100 – 1700 B.C.;
  5. Annuities are a type of life insurance product;
  6. Life insurance guards against the risk of dying too soon, while annuities guard against the risk of living too long;
  7. Annuities are vehicles that are used to accumulate retirement money and ensure that you receive an income you cannot outlive, once in retirement;
  8. An annuity is the only financial instrument that can guarantee you a paycheck for the rest of your life, no matter how long you may life;
  9. Another benefit of annuities is that they accumulate earnings on a tax-deferred basis- you don’t pay taxes on the annuity funds until you withdraw them;
  10. Most annuities are funded with qualified money, meaning the money has yet to be taxed;
  11. The guarantees on an annuity are only as good as the claims-paying ability of the insurance company;
  12. An annuity purchaser should feel confident of the financials and ratings of the insurance company that they do business with, to ensure due diligence in regards to the insurer’s claims-paying ability;
  13. The most recognized firms that provide ratings of insurance companies are Standard and Poor’s and A.M. Best;
  14. One must ensure that an annuity is not only attractive and suitable, but meets their goals, objectives, and risk profile;
  15. The salesperson that sells you mutual funds most likely does not sell fixed or indexed annuities;
  16. The salesperson that sells you homeowners insurance most likely does not sell annuities either;
  17. You can purchase annuities directly from life insurance companies, in some banks, through some Broker Dealers, or through certain career insurance agents and independent insurance agents;
  18. There are two main types of annuities: deferred annuities and immediate annuities;
  19. Deferred annuities allow you to defer taking an income until you have accumulated additional earnings;
  20. Immediate annuities allow you to commence income payments within the first year of the annuity purchase;
  21. Every deferred annuity offers the purchaser the choice of annuitization;
  22. Annuitization allows an annuity purchaser to change all or a portion of the annuity contract from a cash accumulation period to a periodic distribution of funds;
  23. Most deferred annuities will allow the purchaser to annuitize the contract, without paying surrender charges, after year one;
  24. Annuitization functions similar to an immediate annuity;
  25. Most companies offer several types of income options for annuitization and immediate annuities;
  26. Although a life only income option results in the greatest payment for annuitization/immediate annuities, it also means that if the purchaser dies the day after the annuity purchase, the insurer gets to keep the annuity’s value;
  27. In addition to life only income options, there are period certain income options, which guarantee that income will be distributed for a minimum specified period (such as 10, 15, or 20 years);
  28. Many income options allow for a spouse to continue receiving income payments, should the annuity purchaser die;
  29. There are two sub-types of annuities: fixed and variable;
  30. There are also two sub-types of fixed annuities: traditional fixed and indexed;
  31. Fixed and indexed annuities are insurance products, where variable annuities are investments;
  32. There is a direct inverse relationship between possible risk and possible reward, which holds for annuities: to realize greater reward, one must generally accept a greater risk, and vice versa;
  33. Generally, financially conservative individuals are better-suited to fixed annuities;
  34. Generally, financially aggressive individuals are better-suited to variable annuities;
  35. Generally, financially moderate individuals are better-suited to indexed annuities;
  36. You cannot lose money as a result of market performance with fixed and indexed annuities;
  37. Fixed annuities earn interest at a stated rate, which is declared by the insurance company;
  38. Fixed annuities may offer an interest rate that is guaranteed for more than one year- these are referred to as ‘multi-year guaranteed’ annuities;
  39. Indexed annuities earn limited interest, based on the performance of a stock market index;
  40. The most common stock market index to be used as a benchmark of indexed interest on indexed annuities is the Standard and Poor’s 500 Index;
  41. Indexed annuities generally limit the amount of indexed interest earned via the use of a participation rate, cap rate, or spread rate;
  42. Indexed annuities do not allow the purchaser to invest directly in the index;
  43. Indexed annuities are not a ‘hybrid’ of fixed and indexed annuities;
  44. The index-linked interest on indexed annuities is provided through an instrument the insurance company purchases, called an ‘option’;
  45. Dividends on the S&P 500 (and other indices) are not included in indexed annuities’ crediting calculations because the purchaser isn’t actually invested in the index;
  46. Fixed annuities are currently averaging credited rates of 2.78%;
  47. Interest on indexed annuities is ALWAYS limited in one form or another, even if the product is “uncapped”;
  48. Indexed annuities’ caps are currently averaging 3.73%;
  49. Variable annuities allow purchasers to invest directly in stock market indices, mutual funds, and more;
  50. Variable annuities have unlimited potential for interest earnings, but also unlimited potential for losses;
  51. Fixed and indexed annuities are issued via an ‘annuity contract’ while variable annuities are offered via a ‘prospectus’;
  52. Although fixed annuities have existed for eons, variable annuities were not developed until 1952;
  53. Although variable annuities have existed for over 60 years, indexed annuities have only existed for 20 years;
  54. Indexed annuities are not intended to provide market-like performance;
  55. Indexed annuities do not compete against variable annuities;
  56. Indexed annuities most closely compete with fixed annuities;
  57. Indexed annuities are intended to outpace fixed annuity earnings by 1% – 2%;
  58. Surrender charges on deferred annuities protect the insurance company from unanticipated claims;
  59. Although deferred annuities have surrender charges, most contracts allow the purchaser to take as much as 10% of the annuity’s value out annually, without application of these charges;
  60. Most deferred annuities waive the annuity’s surrender charges in the event of either disability, nursing home confinement, and/or terminal illness;
  61. You can purchase an annuity with a single lump-sum premium, or a series of premium payments;
  62. Single premium deferred annuities only allow for a single annuity payment;
  63. Flexible premium deferred annuities allow more than one annuity payment;
  64. Fixed annuities generally guarantee at least 1.00% interest annually;
  65. Indexed annuities guarantee at least 0.00% interest annually;
  66. The fixed allocation option of indexed annuities generally guarantee at least 1.00% interest annually;
  67. Only the fixed allocation options of variable annuities guarantee interest each year;
  68. The fixed allocation option of variable annuities generally guarantee at least 1.00% interest annually;
  69. Indexed annuities feature a secondary guarantee that promises interest on a portion of the premiums paid, in the event of surrender, death, or non-performance of the index;
  70. Annuities must benefit three parties- the purchaser, the salesperson, and the manufacturer;
  71. Annuity purchasers benefit from annuities’ credited interest rates;
  72. Annuity salespeople benefit from annuities via a commission that they are paid by the manufacturer;
  73. Annuity manufacturers benefit from annuities via a spread, a.k.a. profit;
  74. It is because the guarantees on fixed annuities are relatively rich that credited rates on fixed annuities are low;
  75. The primary determinant of indexed annuity rates is the price of options that are sold to the insurance company;
  76. Bond rates and market volatility also have an impact on indexed annuity rates;
  77. Indexed annuities offer 12 different methods of calculating the indexed interest that is credited to the contract;
  78. The many different options for indexed interest crediting on indexed annuities is a result of the independent agent distribution model that the products are typically distributed through;
  79. All things being equal, an indexed annuity with averaging in the indexed interest calculation (crediting method) will offer a more attractive rate than a similar option without averaging;
  80. All things being equal, an annuity with a Market Value Adjustment (MVA) will offer more attractive rates than an annuity without one;
  81. All things being equal, an annuity with a premium bonus will have less attractive rates than an annuity without a premium bonus;
  82. Although variable annuity sales outnumber their non-variable brethren by 4:1, indexed annuity sales are equivalent to fixed annuity’s sales levels;
  83. While just a couple dozen insurance companies sell variable annuities, 56 different insurance companies offer indexed annuities;
  84. Although more companies offer indexed annuities than variable annuities, nearly 100 insurance companies sell fixed annuities;
  85. Annuities frequently offer the purchaser the opportunity to take advantage of extra features via a rider, or endorsement that offer additional benefits such as a return-of-premiums paid upon surrender;
  86. Variable annuities offer the most diverse offering of riders of any type of annuities;
  87. A Guaranteed Lifetime Withdrawal Benefit (GLWB) rider guarantees annual withdrawals of the annuity’s value, at a specified level, regardless if the contract’s Account Value falls to zero;
  88. A Guaranteed Minimum Accumulation Benefit (GMAB) rider guarantees that the Account Value of the annuity will grow by a minimum specified percentage over a period of time;
  89. A Guaranteed Minimum Death Benefit (GMDB) rider guarantees that the annuity Death Benefit payable will be no less than a specified amount;
  90. A Guaranteed Minimum Income Benefit (GMIB) rider guarantees that the annuity’s income payments will be at least a specified amount, when taken over a specified time period;
  91. An annuity owners can typically exchange one annuity for another, via a 1035 exchange, without causing a taxable event;
  92. One can purchase an annuity for an Individual Retirement Account (IRA), particularly if they are concerned about guaranteeing an income in retirement;
  93. The maturity date on an annuity is the latest point at which the purchaser MUST take income from the contract, and can no longer accumulate earnings;
  94. Annuities offer their purchasers a type of insurance, similar to that provided via the Federal Deposit Insurance Corporation’s coverage on bank products, through their state’s ‘guarantee fund association’;
  95. The insurance companies that sell insurance in any given state are responsible for funding claims though the guarantee fund association for failed insurance companies within that state;
  96. The amount of coverage provided through guarantee fund associations varies in each state, but is generally $250,000 as of the date of this article’s publication;
  97. Just because a company sells a lot of annuities does not mean that they offer the best annuities;
  98. The best-selling annuities are not necessarily the BEST annuities;
  99. Although I am a licensed insurance agent, and frequently cited as an annuity expert, I have never sold an annuity;
  100. Neither myself, nor my companies, endorse any insurance company or annuity product.


Money may not be everything in life but another truth is that money is something in life. Without money, we cannot enjoy the basic necessities of life that is food, clothing and shelter. Therefore, wise use of money and saving it for future purposes becomes important.

Whether you are working in a company as an employee or running your own business, there comes a time when you need to call it a day and that is when the need of a steady source of income arises. This need can be fulfilled in many ways like keeping a part of your income in fixed deposits, investing in stock market etc. There is another way to fulfil this requirement- by way of annuities.

But what is an annuity? Talking in lay man terms, an annuity is a contract between a person and an insurance company whereby the insurance company guarantees to provide the investor a regular income in exchange for regular investments over a period of time or lump sum pay. An annuity is the best way to secure your retirement and to make sure you do not have to depend on anybody for your financial needs in your old age.

Insurance companies define the question of what is annuity in a more concise way. According to insurance companies, an annuity is an investment product that guarantees payment of certain amount at certain pre determined intervals. The payment can be received as interests periodically or as a lump sum at one go.

After the question of what is annuity comes the question of different types of annuities. Broadly speaking, there are two types of annuities- fixed annuity and variable annuity. Both these annuities have different features which are explained below:

  • Fixed Annuity – As the name suggests, fixed annuity is the type of annuity whereby the insurance company announces a fixed payable amount annually. In this type of annuity, the insurance company guarantees the principal and a minimum rate of interest. Every year, the insurance company revises the rate of interest depending on the market conditions but this rate of interest cannot be lower than the minimum rate guaranteed. A fixed annuity is a tax deferred annuity where you do not need to pay any taxes until you withdraw the amount or start receiving an income from it.
  • Variable Annuity – This is a risky investment as compared to fixed annuity. In this type of annuity, you do not receive the interest from the insurance company; rather you receive it in mutual funds. Here, you can gain money or lose money on the initial investment made by you depending on the mutual fund opted by you. In the volatile market conditions of today, it is not wise to go for this kind of annuity.

This is a brief answer to the question what is annuity. There are various other aspects that you must take into consideration when it comes to selecting an annuity type as an investment option.


Financial commentators of all stripes harp on high-profile cases in which annuity contract holders were sold annuities ill-suited to their needs, how annuities are too complicated and expensive, and how inflexible terms make annuities unattractive to changing needs.

Enough! says Kim O’Brien, president and chief executive officer of the National Association for Fixed Annuities (NAFA).

Some of the criticism may or may not be true, O’Brien said in a recent interview with InsuranceNewsNet. Nonetheless, she believes people are not getting a balanced picture and the time has come for the industry to go on the offensive and paint fixed annuities in a more accurate light.

“There are all sorts of other reasons that annuities are valuable other than rate, and agents should stress those other advantages,” O’Brien said. “We don’t want people to go out and blindly support something either, so it’s important to have full disclosure.”

Bad apples infect all sectors of the financial industry. One look at enforcement actions by the Securities and Exchange Commission and the Financial Industry Regulatory Authority will tell you that.

What matters most, O’Brien said, is to disseminate accurate information about what fixed annuities do and why they should be considered as part of a retirement portfolio.

Years ago, when workers could count on monthly income from corporate defined benefit retirement plans, retail buyers had little contact with annuities. Indeed, few had even heard of the products, which tended to be the purview of institutional money managers.

But with baby boomers retiring and in search of guaranteed income, annuities have entered the lexicon more frequently.

Earlier this year, the Society for Annuity Facts & Education (SAFE), a nonprofit that educates consumers about annuities, and an industry coalition declared the month of June Annuity Awareness Month to help raise awareness about annuities.

Sponsors of National Annuity Awareness Month included NAFA, Beacon Research, Wink Inc., the National Association of Independent Life Brokerage Agencies, the Society of Financial Service Professionals, Allpro Direct Marketing, Insurance Insight Group, the Association of Advanced Life Underwriting (AALU) and the National Association of Professional Agents (NAPA).

Annuities have, indeed, emerged out of the shadows, whether from lawmakers on Capitol Hill mulling the merits of the Security Throughout Retirement Act, Treasury Department experts issuing the final version of the Qualified Longevity Annuity Contract rule over the summer, or state regulators cracking down on misleading guaranteed investment returns in financial advertising.

“It’s still a good story, but let’s tell the right story with annuities,” O’Brien said. “We’re going to be active in educating agents.”

Not only does NAFA see a need to educate agents, but NAFA has become diligent in questioning expert opinions about annuities.

NAFA recently posted a response to Kellan Finley, managing director of the consulting firm Insurance Decisions, who is quoted as saying that no one should buy fixed annuities “because they’re not competitive right now,” in this era of low interest rates. NAFA counters that annuities have not been developed as an interest-rate tool.

Nearly 90 percent of annuity owners buy them because they provide retirement savings and protect contract holders from losing money, NAFA said in response to the article with the headline “Annuity Sales Up, But Should They Be?”

Fixed annuities are designed to guarantee income, offer peace of mind and provide protection. The narrow question of whether retirees should hold off on buying an annuity in hopes of higher rates misses the point of buying a fixed annuity.

“It’s important to keep the story simple,” O’Brien said.

Like life insurance, fixed annuity contracts are a protection vehicle, not an investment play, and buyers should approach annuities from the protection standpoint.

With the recent explosion in sales of fixed index annuities through banks and broker/dealers, it’s important for the industry to make sure distributors distinguish the value of fixed annuities compared with mutual funds or life insurance in the minds of retail consumers.

Consumer demand for protection and guaranteed income, particularly in fixed annuities, is on the rise.

Sales of fixed annuities reached $24.3 billion, an increase of 41.6 percent over the year-ago period and an increase of 7.6 percent over the first quarter, the Insured Retirement Institute has announced, citing data provided by Beacon Research and Morningstar.

Cathy Weatherford, president and CEO of the Insured Retirement Institute, said in a news release that the fixed annuity sales numbers are the highest the industry has seen in five years.


Life expectancy is the single most influential factor that insurance companies use to determine life insurance premiums. Understanding how insurance companies use the concept of life expectancy – and how it is calculated for the insured – can help you decide when to purchase a policy, how to calculate the future potential value of your policy and what to consider when choosing an annuity payout option.

Life Expectancy: The Cold, Hard Numbers

Life expectancy is defined as the age to which a person is expected to live. It can also be described as the remaining number of years a person is expected to live based on life expectancy tables issued by the Internal Revenue Service (IRS). There are several factors that affect your life expectancy. The two single most important factors are when you were born and your gender. Additional factors that can influence your life expectancy are:

  • Your race
  • Personal medical conditions
  • Family medical history

You can view the federal government’s data on U.S. life expectancy on the National Center for Health Statistic’s website and the Social Security Administration’s Actuarial Period Life Table.

It’s important to note that life expectancy changes over time. That’s because as you age, actuaries use complex formulas that factor out people who are younger than you but have died. As you continue to age past mid-life, you outlive an increasing number of people who are younger than you, so your life expectancy actually increases. In other words, the older you get – past a certain age – the older you are likely to get!

Life Expectancy and Your Life Insurance Premium

There is a direct correlation between your life expectancy and how much you’ll be charged for a life insurance policy. The younger you are when you purchase a life insurance policy the longer you are likely to live. That means that there is a lower risk to the life insurance company because you are less likely to die in the near term, which would require a payout of the full benefit of your policy before you have paid much into the policy. Conversely, the longer you wait to purchase life insurance, the lower your life expectancy, and that translates into a higher risk for the life insurance company. Companies compensate for that risk by charging a higher premium.

Given that math, many people wonder if they should purchase life insurance for their children. After all, having a policy as a child ensures the lowest possible premium. However, there is a cost-benefit analysis to consider before purchasing a policy for your child. Because the main financial benefit of life insurance is to provide income to dependents in the event of the policyholder’s death, this makes life insurance coverage relatively unnecessary for a child. However, it could provide your child with a low premium and coverage for the length of his or her life, which may be important given the child’s future medical conditions or occupation. Talk with your financial advisor or insurance agent about the pros and cons of purchasing a life-insurance policy for your child.

The principle of life expectancy suggests that you should purchase a life insurance policy for yourself and your spouse sooner rather than later. Not only will you save money through lower premium costs, but you will also have longer for your policy to accumulate value and become a potentially significant financial resource as you age.

Life Expectancy and Calculating ROI on Your Life Insurance Policy

Your life expectancy also plays an important role in determining the potential return on investment (ROI) you could achieve.

Payout to Beneficiaries – Amount Paid into Policy at Time of Death = ROI

For example, if you choose a policy that pays your beneficiaries $150,000 at the time of your death and you have only made $48,000 in premium payments for the coverage, the ROI on your investment is $102,000.

Your Life Expectancy and Annuities

An annuity is a contract between you and a life insurance company in which the company agrees to provide you with an “income stream” for a set period of time or until your death. The payout usually begins at a certain age, and depending on the terms of the annuity, may continue to your beneficiary after your death. Payments to your beneficiary may be less than the payments made to you while you are alive, depending on the type of annuity and the terms of the contact.

The amount that the insurance company pays out to you is determined, in part, by your life expectancy. Let’s look at three different examples to see how life expectancy plays into or affects your annuity contract:

  1. If you choose a joint life annuity with a period-certain payout, you are essentially estimating how long you will live. However, if you die before the contracted period of time, your beneficiary would continue receiving funds for the years remaining on the contract.
  2. If you choose an annuity with a joint life option with survivor benefits, you are selecting a contract that will continue to make payments to your surviving beneficiary after your death, or will continue to make payments to you after your beneficiary’s death. Generally, if you die first, your beneficiary’s annuity payment amount is reduced, but if your beneficiary dies first, you will continue to receive the full payment amount. Because that annuity benefits both you and your beneficiary, your premium cost would be based on both your and your beneficiary’s life expectancies.
  3. If you choose a single life annuity option, payments are made to you based on your single life expectancy and cease after your death.
    Annuity payments are usually made on a systematic basis, and can be made monthly, quarterly, semiannually or annually as permitted under the terms of the annuity contract.


It’s important to know your life expectancy – not only to understand how your life insurance company arrives at your premium cost, but also to make informed decisions about your annuity payout options. Two key determining factors that affect your choice of annuity are whether you want payments to continue to your beneficiary should you predecease him or her, and how long you expect to live. A period-certain annuity may be ideal in some cases, while one with survivor options may be more suitable in other cases. If you are in the market for an annuity or life insurance policy, consult your financial planner for help with determining which is most suitable for you.


Too many Americans, particularly in the younger generation, believe Social Security benefits will be nonexistent by the time they reach retirement age. While it’s true that the money in the Social Security trust funds is being depleted, the chances that benefits will be eliminated altogether are slim to none. Here’s what Americans need to know about the current state of Social Security, what would need to happen to keep benefits as they currently stand, and what the worst-case scenario looks like.

The reserves are running out
Social Security taxes are deposited into trust funds, which theoretically earn enough interest to pay out benefits — and right now, they do.

However, the Social Security and Medicare Trustees’ 2014 report projects that reserves will build until 2019, after which the benefits being paid out will exceed the amount of money flowing in. This deficit will drain the trust funds, and all reserves are forecast to run out by 2033 unless Congress makes changes to the program.

What can be done to fix this?
Several actions could be taken to maintain Social Security benefits past 2033. And Congress has some time to decide, as reserves will build up for another four years.

  1. Increase Social Security taxes: Currently, employees pay Social Security taxes at a 6.2% rate, and employers contribute a matching amount. One potential fix would be to gradually increase the rate to 7.2% over 20 years. It is estimated that this would make up for 52% of the projected shortfall. This solution is supported by 83% of Americans, according to a survey by the National Academy of Social Insurance and Greenwald and Associates.
  2. Eliminate (or increase) the wage cap: As of the 2015 tax year, only the first $118,500 of Americans’ wages are subject to Social Security taxes. Increasing the wage cap to about $230,000 — which would represent 90% of all earned wages — would reduce the shortfall by 29%. Eliminating the cap altogether would take care of 74% of the shortfall, although this idea is less popular than simply increasing the cap.
  3. Raise the normal retirement age: Gradually raising Social Security’s full retirement age to 68, or even 70, would go a long way toward fixing the problem. However, this is a rather unpopular option: 65% of the population opposes an increase to 68, and even more Americans oppose an even higher retirement age.
  4. Lower benefits: Across-the-board cuts are extremely unpopular, but cutting benefits for higher earners is a possibility. Because the system is weighted toward lower-income earners already, it could be possible to reduce benefits on a sliding scale to middle- and high-income workers. There are an infinite number of ways to do this, so it’s tough to say how much of the deficit this could offset.
  5. Adjust how cost-of-living increases are calculated: Currently, the Consumer Price Index, or CPI, is used to determine annual cost-of-living increases in Social Security benefits. However, switching to an index called “chained CPI,” which economists say provides a more accurate picture of inflation, would reduce annual increases by about 0.3%. This politically popular idea would eliminate 25% of the shortfall.
  6. Base the formula on more working years: Finally, because Social Security is calculated based on the 35 highest-earning years of a worker’s career, that number could be increased to, say, 38 years in order to reduce the calculated average. This could take care of 13% of the shortfall, but it would effectively represent an across-the-board benefit cut and would therefore be unlikely to gain traction in Congress.

The most likely outcome
I’m almost certain Congress will do something to make Social Security solvent, at least on a temporary basis. In the past, lawmakers have acted when necessary in order to keep the program above water, and there’s no reason to believe things will be any different this time. After all, the last significant Social Security changes (made in 1983) are the reason the trust funds are expected to last until 2033 in the first place.

However, some options are highly unlikely. For example, cutting benefits across the board and raising the full retirement age are both particularly unpopular choices among Americans, so they’re unlikely to get serious political support.

On the other hand, Americans of all income levels and political affiliations support gradually increasing taxes, raising or eliminating the wage cap, and changing the cost-of-living calculation method. So my best guess is that we’ll see one of those, or some combination of them.

What if Congress does nothing?
Of course, there’s always a chance that Congress will do nothing (hey, it’s happened before), but that doesn’t mean benefits would disappear completely, despite the fact that 41% of Americans mistakenly believe they would. It simply means that because the trust funds will be depleted by 2033, the only funding source for benefits after that point would be money flowing in from taxes.

If this unlikely scenario were to play out, the Social Security and Medicare Trustees 2014 report found that benefits could be sustained at 77% of the current level until 2088, at which point they would only drop to 72%.

Again, I find this scenario unlikely, but it’s good to know Social Security benefits will be largely sustained no matter what.

Hope for the best, but plan for the worst
The point here is to recognize the current state of Social Security and what the future could look like.

If you’re a younger American, you can reasonably expect to have at least three-fourths of your projected benefit amount. If you don’t know what your projected benefit is, the Social Security Administration provides a pretty accurate estimator that you can use to plan your retirement savings strategy.

The $15,978 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more… each year! Once you learn how to take advantage of all these loopholes, you could retire confidently with the peace of mind we’re all after.


By the time you retire, your accumulated wealth is probably at its height. The challenge now is to manage your assets so that they last as long as you do. Insurance still plays an important role at this stage of your life.


Mature drivers are some of the safest on the road. They have fewer accidents and tend to drive safer cars. Some insurance companies give discounts to drivers between the ages of 50-70. As drivers age, however, their abilities change. Older drivers, those 70 and older, have higher rates of fatal crashes, based on miles driven, than any other group except very young drivers. These older drivers should expect to see their rates begin to rise. Many states mandate discounts for seniors who have successfully completed driver refresher training. The AARP, for example, offers one such state-certified program.

Seniors are the most experienced drivers on the road. And mobility is vitally important to this group, particularly where public transportation is not readily accessible. Yet, as a group, older drivers, particularly after the age of 70, are involved in more serious accidents. Because of their age, they are increasingly vulnerable to serious injury. In most cases, seniors themselves, sensing that their physical skills are not what they once were, begin to restrict their driving – limiting themselves to daylight hours and familiar roads, for example. And while many states require more frequent vision and, if necessary, driving tests later in life, it appropriately should be an individual and family decision when it is no longer safe to get behind the wheel.


Unlike auto insurance, where the state sets minimum coverage limits, the bank that holds your mortgage usually requires you to have homeowners insurance. Once you pay off your mortgage, it’s still important to have protection in case of fire, burglary, and natural disasters. Many insurance companies provide discounts for retirees, because they spend more time at home; take the time to properly maintain their property; and are more likely to act promptly to correct small problems before they become big problems.

Some retirees stay active by working part-time. If you work at home, you may need a supplemental liability policy that covers your work-related activity. Consider also an umbrella policy to protect your accumulated assets. Real estate, securities, and savings could be wiped out by one lawsuit. Umbrella coverage adds another layer of protection above what is provided in your standard homeowners and auto policies. Generally, it is relatively inexpensive, and provides an additional million dollars or more in liability insurance.


Life insurance is cheaper the earlier in life it is purchased. Retirees can still get life insurance, but should be prepared to pay much more for it. For those who already have coverage, premiums will generally move higher as existing term insurance reaches the end of a set policy period and is up for renewal. Cash value coverage tends to have a set premium that was locked in years earlier. In order to preserve the benefit for a surviving spouse, it is necessary to continue to pay the premium.


Most people under 65 get group health insurance through their or their spouse’s job. Group health insurance costs less than individual health insurance. Most people who are 65 and older get Medicare from the federal government. Medicare has two parts:

Hospital Insurance (Medicare Part A) helps pay hospital bills; and
Medical Insurance (Medicare Part B) helps pay for doctor bills.
Anyone enrolled in Social Security is automatically signed up for Medicare when turning 65. Anyone not on Social Security can sign up for Medicare at the local Social Security office.

Initially, most people get Medicare Part A coverage when signing up. There is no fee involved. Medicare Part B is optional and has a fee. Generally, individuals who are still working and covered by a employer-provided group health plan not need Medicare. It’s best to keep group coverage for as long as possible. Some employers may continue health care coverage for long-time employees when they retire. But Medicare becomes the primary insurer and the group coverage will pay only when Medicare does not provide coverage. Those on Medicare without such group coverage to fill in health care gaps can buy a Medicare Supplemental or Medigap policy, regardless of health. Anyone who misses this “open enrollment” period may not be able to subsequently buy the Medigap coverage desired.


Long-term care insurance is not part of Medicare and is purchased from private insurers. It is designed to pay for the many services needed by people who suffer from chronic long-lasting illnesses and need regular care, usually in a nursing home, but in some cases in-home care. For those who have this coverage, at least two activities of daily living, such as bathing, eating, dressing, continence and mobility, and/or cognition must be lost in order for the coverage to take effect. While this primarily affects the elderly, a substantial number of cases involve people under the age of 60.


Married retirees need to review their financial situation and determine how much income a surviving spouse would lose. Such income losses frequently result from reductions in Social Security payments. For example, a husband may receive $1,500 a month in benefits while his wife gets $1,000 a month, for a total of $2,500 a month. If the husband dies, his widow would get his $1,500 payment but she would lose her $1,000 payment. That could be a 40% reduction in family income. A substantial loss of income also can result from reduction in pension or annuity payments. The investment strategy for seniors should emphasize income-producing and liquid instruments that can supplement retirement income and Social Security.


A lot of people ask me, “Why should I buy an annuity in today’s low interest rate environment?” With current rates being “low,” they may seem befuddled when asked to consider purchasing an annuity. I explain that today’s rates are not low. In fact, I believe these to be the “new” rates—and today’s rates may be the highest rates we could see for a very long time!

In addition, an annuity purchase today is not a play on interest rates. It is a mortality credit, or as I now call them, “longevity credits,” play. Just like the current rates, these longevity credits could be the highest longevity credits you may see for the rest of your life as well. Let me explain…

Last October, the Society of Actuaries (SOA) Retirement Plans Experience Committee (RPEC) released updated mortality tables that show a consistent trend of increasing life expectancy According to Dale Hall from the SOA, “the purpose of the new report is to provide reliable data that actuaries can use to assist plan sponsors and policy makers in assessing the financial implications of living longer.

Life Expectancy and Mortality Tables (2000 vs. 2014):

Life Expectancy of a 65-Year-Old Male:

  • 2000 Mortality Tables: 86.6 Years Old
  • 2014 Mortality Tables: 86.6 Years Old
  • 2.4% increase in life expectancy

Life Expectancy of a 65-Year-Old Female:

  • 2000 Mortality Tables: 86.4 Years Old
  • 2014 Mortality Tables: 88.8 Years Old
  • 2.8% increase in life expectancy

With increased improvements to medical technology, I predict that we will see significant additional growth in life expectancy and expect it to rise even greater than the current trends indicate.

These updated tables will require insurance companies to adjust their payout rates in order to properly reflect longer life spans. Advisors could be in for quite of a shock when they see these adjustments. I’m talking about payout rates going from 14% to 10%, from 9% to 7%, and from 7% to 5%. These will not be small adjustments!

That’s where income annuities come in. They can offer something that no other product can offer: Longevity credits. Cash flow from an income annuity hails from three different sources: Interest, return of principal and mortality credits. Traditional investments can typically manufacture two of these components—interest and return of principal. However, only life insurance companies can manufacture longevity credits.

When payout rates for income annuities are released with the new mortality tables, you will see the payout rates drop because of an adjustment in longevity credits. Combining the fear of outliving your money and the uncertainty of the market, you should consider locking in these guaranteed rates now as these are likely the highest longevity credits you will see for the rest of your life.


Though it may seem unbelievable, Ferris Bueller’s Day Off came out in theaters 30 years ago today (June 11), making Matthew Broderick’s character about 48 years old.

Bueller, Bueller, Bueller? Anyone know how to achieve a secure, and comfortable retirement?
Bueller, Bueller, Bueller? Anyone know how to achieve a secure, and comfortable retirement?

Now, of course we don’t know the career and lifestyle that Ferris and his friends went on to experience after that life-changing day in 1986 Chicago. But, we do know that today, Ferris would be in the latter half of his career, potentially with kids of his own soon going away to college and a growing realization that retirement is not as far away as it was on that June day three decades before.

In fact, Ferris might be more concerned about his retirement prospects than he would let on. A recent Ipsos study found that confidence in traditional programs like Social Security is weakening and that 54 percent of Americans have never spoken with a financial adviser. Even more worrisome, the average American just slightly younger than Ferris would only have $42,700 saved for retirement.

Luckily, Ferris and his friends are the right age to consider a fixed index annuity (FIA). An FIA is an insurance product that pays you income in exchange for a premium. It allows you to enjoy potential growth that’s linked to a market index, while protecting your savings from any downside loss. It can even provide guaranteed lifetime income throughout retirement.

By planning ahead and looking into an FIA, Ferris – at only 48 years old – can take steps to secure a retirement that is every bit as exciting and fun as his time playing hooky that epic day on Michigan Ave.


Although graduating from college comes with an array of emotions and excitement, it’s important to take time to think about your career path and the ways you can begin planning for retirement. Unlike your parents and grandparents, millennials will be mostly on their own for retirement savings, given the shift in the retirement landscape toward more of a “pay-for-yourself” era. For recent college grads, the key to safeguarding retirement will be to start thinking and saving early. Saving early can add up quickly, and you certainly can’t start early enough!

According to a recent report, a third of U.S. workers nearing retirement are destined to live in or near poverty when entering retirement. An underlying cause of this is the sharp decline in employer-sponsored retirement plans over the past 15 years. So while you may not know exactly where you’re headed in terms of a career path as a recent graduate, it’s important to keep in mind that you may not be able to fully rely on a retirement plan from your employer.

Below is a list of things recent college graduates should keep in mind regarding retirement:

Start planning early. The easiest way to start planning early is to determine the portion of your paycheck you would like to set aside for retirement each month. While retirement, right now, may seem far away, saving a little now adds up to a lot later.

Discover small ways to cut back. It’s perfectly okay to go out to lunch, have fun with your friends, travel or enjoy a Starbucks latte. That being said, it is just as important to start thinking ahead as soon as you start working to discover small changes you can make to save. For example –staying home one or two nights a month instead of going out makes an enormous difference in the long run

Take advantage of free money. Consider contributing to your company’s 401(k) plan or any employer-sponsored plans available. Think of any match your employer is willing to make as “free money.” Keep in mind that a 401(k) will likely not be enough for retirement and will eventually need to be supplemented by another product. A Fixed Indexed Annuitiy (FIA), which protects your principal while generating guaranteed income is one option

Balance your portfolio. As a student or young professional, you have the luxury to put some of your money into high-risk investments – since your retirement is seemingly far away. However, for the safety of your future, it’s important to balance your retirement portfolio with risk-adverse savings products that offer opportunities for market growth with protection from market volatility.

Expect to live longer. Less than 1 in 10 pre-retirees expect to live to age 91 or older. However, 48 percent of pre-retirees reported their longest living family members reached age 91 or older. Truth is, Americans are living longer, and it’s important to have a retirement savings that will last the long haul. When saving, plan for a long life and include savings products that will last your entire retirement.


For financially conservative investors who want to build and protect their assets, fixed annuities are a great option. With many investors scarred from losing money in the recent economic downturn, clients are interested in a vehicle that has a guaranteed minimum rate of return. That is one of the reasons why the fixed annuities industry is seeing strong sales growth.

As always, when positioning an annuity purchase, it’s important to understand your clients’ needs. Fixed deferred annuities can provide a predictable future with flexible payout options that offer a guaranteed income stream, and those earnings aren’t taxed until the funds are used.

This is especially appealing for clients interested in using a fixed annuity as a tool to secure income for retirement, as a deferred indexed annuity can be “turned on” before or after retirement to create a liquid stream of income. How many investments do you know of — other than a fixed annuity — that can provide a predictable and guaranteed stream of income?

Certainly, there are a lot of great reasons for your clients to buy a fixed annuity. Are you positioning these benefits in your sales conversations?


Fixed annuities can ensure that if anything should happen to one of your clients, the surviving spouse has a source of continued income in place.

This can help in case of a catastrophic illness or if a client (or spouse) would need to enter a nursing home.


Today’s challenging economy has heightened interest in liquidity.

Many clients may hesitate to make long-term financial commitments without flexibility and access to their funds, including creating an income stream should they need it.

Tax deferral

The tax benefits of fixed annuities play heavily in the minds of many clients.

Because earnings will not be taxed until withdrawals are made or regular distributions start, clients benefit from triple compounding: earning interest on principal, interest on interest, and interest on tax savings.


Another appealing aspect of fixed annuities is the ability for clients to choose a predictable income stream.

Lifetime income options provide clients with the control of selecting payments that are guaranteed to continue for the duration of their life.

Wealth transfer

Most financially conscious clients are keenly focused on what happens to their money after they pass away.

Fixed annuities are a great avenue for providing security to loved ones in the event of a death.

Annuities can help an estate avoid probate, allowing beneficiaries to receive annuity proceeds without delays and probate expenses.


As advisors and clients continue to search for reliable retirement income alternatives, one bright star has emerged among the many contenders: the fixed indexed annuity (FIA). The FIA’s assent is, at least in part, due to the fact that many of the historical objections to fixed annuity products have been overcome by the development of a new set of indexed annuity features that, when combined with modern market forces, provide a powerful fixed income alternative.

In fact, today’s FIAs often offer features, such as annual interest crediting to lock in gains each year, that have generated returns in excess of traditional “safe” investment products (think corporate bonds) while still providing for 100 percent principal protection. The end result is undeniable—FIAs have been established as major players in the fixed income world, and it’s time for a second look.

Modern FIAs: Interest Crediting Features

In general, FIAs base the performance of the annuity upon a major index or indices (usually a stock index, such as the S&P 500). Unlike directly investing in the equity markets, the fixed indexed annuity product itself generally offers principal protection in exchange for limitations on the potential for investment gains.

When purchasing the FIA, the client is able to choose among a variety of product features, one of the most important of which is the way interest is credited to his or her account value. The annual reset (or rachet) method has become popular because it can eliminate the risk of a mid-year decline in the index’s value, and locks in gains on an annual basis.

Essentially, this method compares the change in the index from the beginning of the year to the end of the year, calculates the percentage change in the index and ignores any mid-year changes. If the ending value is higher than the starting value, the account is credited with the change (taking into account any applicable participation rates or caps; see below). If the ending value is lower, no interest is credited, but the client’s principal account value is still protected.

The annual reset method has gained in popularity because it locks in the value of any increase in the index each year. Conversely, other crediting methods (such as the high water mark method or point-to-point method) often do not credit interest until the end of the investment term. If this is the case, a decline in value near the end of the term can cause a loss of earlier increases in value.

The high water mark and point-to-point methods can also prove problematic for clients who surrender their contracts early—because interest gains are not locked in each year, depending upon the timing of surrender, those gains could be lost. The now widely available annual reset method can provide clients with a consistently available way to measure investment growth throughout the contract’s lifetime.

FIA Caps and Participation

Though the annual reset method may be the most attractive for clients looking for stable growth, clients should be aware that, in many cases, lower cap and participation rates can apply. A cap, as the name suggests, places a cap on the maximum interest rate that can be credited to the client’s account in any given period (e.g., an 8 percent cap means that the account will be credited with 8 percent interest even if the index value increases by 10 percent).

A participation rate limits the value of the index increase that can be used to calculate the contract’s interest earnings (for example, if the FIA had a participation rate of 75 percent and the index rose by 10 percent the contract would be credited with 7.5 percent interest).

Despite this, for clients looking to FIAs as a means for ensuring consistent growth over the long haul, these lower caps and participation rates can provide worthwhile as risk is managed through annual interest crediting.


The surge in FIA popularity is no accident—recent trends in FIA product development have come together to offer options that are undeniably attractive. Importantly, flexible options now ensure that FIAs can function as an important part of a client’s fixed income portfolio to provide secure retirement income.


Every industry has its own language, and it’s no different for retirement planning. Understanding this sometimes confusing language is crucial as you begin making financial decisions that will impact your lifestyle once your working years are over. As you begin looking into annuities, make sure you take some time to understand the most commonly used terms. By doing so, you can ensure that your retirement will be the “golden years” you’ve been dreaming of.

Here are some of the most important retirement words, defined:

Annuity – A contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live. Your money grows tax-deferred as long as you leave it in the annuity.

Annuitant(s) – The person taking out an annuity.

Compounding Interest – Interest paid both on the original amount of money and on the interest it has already earned.

Simple Interest – Interest paid only on the original amount of money and not on the interest it has already earned.

Defined Benefit Plans – A type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending directly on individual investment returns. The plan provides lifetime income through a group or individual annuity contract.

Fixed Annuity – An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.

Fixed Indexed Annuity (FIA)– An fixed annuity on which credited interest is based upon the performance of an index, such as the S&P 500. The principal is protected from losses in the equity market, while gains add to the annuity’s returns. Interest is not based on pre-declared rate of interest, typical of traditional fixed annuities.

Guaranteed Lifetime Withdrawal Benefit (GLWB)/Income Rider – An optional benefit that can be attached to an annuity contract that, will provide a lifetime income stream that can be turned on in the future. Some income riders grow at a contractually guaranteed rate that will compound during the deferral years for future lifetime income.

Guarantee Period – An option to ensure that a minimum number of year’s payments are made by the annuity, even if you die. The maximum guarantee period is 10 years. If you die during the guarantee period, the annuity will continue to make income payments until the end of the selected guarantee period or you could select that the remaining payments are paid as a lump sum (this option is not permitted where the guarantee period is 10 years).

Immediate Annuity – An annuity purchased with a single premium on which income payments begin within one year of the contract date. With fixed immediate annuities, the payment is based on a specified interest rate. With variable immediate annuities, payments are based on the value of the underlying investments. Payments are made for the life of the annuitant(s), for a specified period, or both (e.g., 10 years certain and life).

Longevity Risk – The risk of outliving one’s assets.

Lump-Sum Distribution – The distribution at retirement of a participant’s entire account balance within one calendar year due to retirement, death or disability.

Lump-Sum Option – A withdrawal option in which the annuity is surrendered and all assets are withdrawn in a single payment.

Principal – An amount of money that is loaned, borrowed or invested, apart from any additional money such as interest.

Purchase Price – The amount that is used to buy the annuity. If the whole of your pot has been paid to the annuity provider and they are paying a pension commencement lump sum (PCLS) to you, the purchase price does not include the PCLS.

Refinancing – Revising a payment schedule, usually to reduce monthly payments. A common way to do this is to reduce the interest rate on a mortgage.

Surrender Charge – A type of sales charge you must pay if you sell or withdraw money from a variable annuity during the “surrender period”—a set period of time that typically lasts six to eight years after you purchase the annuity.

Tax Deferred – An investment which accumulates earnings that are not subject to taxes until the investor takes possession of the earnings, often at a point at which the investor is in a lower tax bracket than before, such as retirement.

Variable Annuity – An insurance company contract into which the buyer makes a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments beginning immediately or at some future date. Purchase payments are directed to a range of investment options, which may be mutual funds, or directly into the separate account of the insurance company that manages the portfolios. The value of the account during accumulation, and the income payments after annuitization vary, depending on the performance of the investment options chosen.

Vesting – Reaching the point, through length of service, at which an employee acquires the right to receive employer-contributed benefits such as pensions.


Says comments part of new Fed role to highlight stability risks

WASHINGTON (MarketWatch) — Federal Reserve Chairwoman Janet Yellen on Wednesday used her bully pulpit to warn of the risks from “quite high” stock prices.

“I would highlight that equity market valuations at this point generally are quite high,” Yellen said in a conversation with Christine Lagarde, the managing director of the International Monetary Fund, sponsored by the Institute for New Economic Thinking.

“They are not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there,” Yellen said.

The S&P 500 SPX, +1.29% is up about 12% over the last year and has more than tripled from its March 2009 low. The Fed has kept interest rates near zero since the end of 2008.

The price to earnings ratio of S&P 500 stocks was 20.40 for April, according to data from Haver Analytics, which is near five-year highs.

Yellen said her comments were part of the Fed’s new remit in the wake of the Great Recession to monitor and speak publicly about potential risks to financial stability.

Yellen noted that long-term bond yields were low due to low term premiums, which can move rapidly.

“We saw this in the case of the taper tantrum in 2013,” Yellen said.

“We need to be attentive and are to the possibility that when the Fed decides it is time to begin raising rates, these term premiums could move up and we could see a sharp jump in long-term rates,” Yellen said.

As a result, the Fed was working overtime not to take markets by surprise, she said.

Yellen also repeated a long-standing concern with the leveraged loan market, saying there was a deterioration in underwriting standards.

She also noted that the compression in spreads on high yield debt which looks like “reach-for-yield type of behavior.”

Despite these concerns, Yellen said that she thought over risks to financial stability “are moderated, not elevated, at this point.”

“We’re not seeing any broad based pickup in leverage, we’re not seeing rapid credit growth, we’re not seeing an increase in maturity transformation,” which are the hallmarks of bubbles, she said.


Retirement in America is changing.

What was once all but guaranteed by pensions and retirement plans, a comfortable and secure retirement is now increasingly the responsibility of the individual. Retirement today takes all shapes and sizes – from the couple enjoying adventures and grandchildren to the widow struggling to make ends meet.

This week, the Indexed Annuity Leadership Council unveiled a new initiative that examines the widely varying retirement experience across America. The project, the Changing Face of Retirement, weaves together recently released survey data, regional and personal experiences and expertly comprised photos to paint a realistic view of modern-day retirement. One common denominator we found across the regions and through the survey data: regardless of where you live and who you are, your golden years will depend on your willingness to taking financial planning into your own hands.

IALC conducted in-depth polling to better understand American attitudes toward retirement. Families across the country were interviewed to learn more about their personal experience, providing an intimate perspective on how the retirement experience changes from region to region and across the economic scale.

The Changing Face of Retirement discovered several key findings:

Only 41 percent of those ages 54 and under plan to retire before 67;

Sixty three percent of those 55 years and older said they plan to work past 67 for financial reasons;

Fifty four percent of participants have never spoken with a financial adviser and an even larger amount of those between 18 and 34, 65 percent, have not gotten such advice;

Further, 66 percent of those with incomes under $55,000 per year and 77 percent of the unemployed have never spoken with an adviser. The people who presumably would need advice the most;

Confidence in traditional retirement support is weakening. Only 26 percent of people between 18 and 34 plan to rely on Social Security compared to 48 percent of those 55 and older

Conversations with families and individuals in Sun City, Arizona; Brooklyn, New York; Minneapolis, Minnesota and Naples, Florida provided the Changing Face of Retirement with a personal, even gritty reality that stands in stark contrast to the overly romanticized view of retirement shared by so many. The diversity of their experiences makes it clear that a comfortable retirement is not something that is stumbled upon, but achieved.

What does this mean for you? At the end of the day, retirement is the result of your willingness to plan ahead, work hard and spend time thinking about what exactly you want your golden years to entail. It’s crucial to think about what you want your retirement portfolio to look like – by building one that is diverse and emphasizes guaranteed lifetime income, retirement is not something to be feared, but to be appreciated. A Fixed Indexed Annuity (FIA) is a great example of a secure vehicle to consider in a savings portfolio, so that a meaningful and long-lasting retirement is something attainable.


The 400% Solution:

This may be the most important post I’ve added to this website. If you are making regular deposits in a “qualified” retirement program – a 401k, a 403b, 457, TSA, or traditional IRA – and IF the purpose of these deposits is to build a retirement income, then you MUST read this carefully.

The following comparisons will show the amount of after-tax retirement income you can expect to build by making deposits to a qualified retirement plan from different ages, then we’ll compare that income to the tax-free distributions you might get from an IUL (indexed universal life insurance) policy.

In each example, we’ll assume the qualified plan will earn 8.39% interest from start through age 90 (8.39% is the 30-year average of the S&P 500 index), even though few people actually earn that high a rate in their qualified plans (annuities don’t pay that much and the mutual funds typically offered in qualified plans also do not average that much over long stretches). We are also NOT assuming any matching funds because the trend for this is downward, and every company has its own policy on whether to add matching funds or not. The IUL will also assume that the performance of the S&P 500 will continue as it has for the last 30 years, but will have a floor of 0% in any year and a cap rate of 14.5%. However, NONE of the examples given are guaranteed.


If you start a 401k or other qualified plan at age 25, depositing $200 a month through age 65, you’ll have $782,113. If you assume the same rate of interest through retirement as you had during the growth years (8.39%), and expect to die by age 90, you can withdraw $74,783 a year. HOWEVER, if your money earns less in retirement, or if you live longer than expected, you will run out of money too soon. ALL advisors will tell you that withdrawing 9.56% of your qualified money each year is too aggressive. For many years, it was believed that a 4% draw rate was a safe rate. But current research indicates that even that rate may be too aggressive, especially if you experience a market crash early in retirement. So, most advisors now recommend withdrawing just 3% per year (see article here).

If you withdraw 3% per year, the expected income becomes $23,463 per year, all taxable unless it’s from a Roth. If you’re just in the 15% federal tax bracket, this amount will be reduced to $19,944 per year. Keep in mind that most qualified plans will not average 8.39% growth for life and, if you have other income, you may be in a higher tax bracket; and either of these will reduce your after-tax income.

By comparison, if you put the same $200 a month into an IUL through age 65, you can start taking tax-free distributions of $92,850 per year (if you are a woman; a man would receive a little less) for life, regardless of how long you live, PLUS your heirs will receive a tax-free death benefit when you die. This example also assumes that future performance of the S&P 500 will mirror the past performance, which probably won’t happen. If the S&P 500 does not perform as well, your distributions from the IUL will be lower; however, if the S&P 500 does better than it has, your distributions will be higher. But, if the market performs as projected, the tax-free distributions from the IUL will be 465% higher than the after-tax distributions from the qualified plan (396% higher than a Roth).


If you start at age 35 and put the same $200 a month into a qualified plan to age 65, then begin distributions at age 66, your money should build to $323,765. 3% of this is $9,713 per year before taxes. If the tax rate is 15%, then you get $8,256 after taxes.

If the same money went into an IUL and the market performs as expected, a woman may be able to take distributions of $35,994 per year, tax-free. This is 436% higher than the qualified plan and 371% higher than a Roth.


If you start at 45 and put the same money into a qualified plan through age 65, you should have $123,680. 3% of this is $3,710 per year before taxes, $3,154 after taxes at 15%.

The IUL for the 45 year old woman produces $13,273 per year, tax-free. This is 421% higher than the qualified plan and 358% higher than a Roth.


The qualified plan for the 55 year old builds to $37,396. 3% is $1,122 per year, $954 after taxes.

The IUL produces $3,205 per year, tax-free. This is 336% higher than the qualified plan and 286% higher than a Roth.


At most ages, an IUL will produce significantly higher after-tax retirement distributions than if you put the same money into a qualified plan or a Roth. ALL options produce a lot less income if you don’t get started early! While all options are affected by the growth of the stock market, money in an IUL is guaranteed not to go down because of the market. Is your qualified plan protected from drops in the market?

There are many more caveats and qualifications that I go through with clients. If you have questions about any of this, please let me know.


An annuity is a contract between you and a life insurance company in which the company agrees to provide you with an “income stream” for a set period of time or until your death. The payout usually begins at a certain age, and depending on the terms of the annuity, may continue to your beneficiary after your death. Payments to your beneficiary may be less than the payments made to you while you are alive, depending on the type of annuity and the terms of the contact.

The amount that the insurance company pays out to you is determined, in part, by your life expectancy. Let’s look at three different examples to see how life expectancy plays into or affects your annuity contract:

If you choose a joint life annuity with a period-certain payout, you are essentially estimating how long you will live. However, if you die before the contracted period of time, your beneficiary would continue receiving funds for the years remaining on the contract.

If you choose an annuity with a joint life option with survivor benefits, you are selecting a contract that will continue to make payments to your surviving beneficiary after your death, or will continue to make payments to you after your beneficiary’s death. Generally, if you die first, your beneficiary’s annuity payment amount is reduced, but if your beneficiary dies first, you will continue to receive the full payment amount. Because that annuity benefits both you and your beneficiary, your premium cost would be based on both your and your beneficiary’s life expectancies.

If you choose a single life annuity option, payments are made to you based on your single life expectancy and cease after your death.
Annuity payments are usually made on a systematic basis, and can be made monthly, quarterly, semiannually or annually as permitted under the terms of the annuity contract.


It’s important to know your life expectancy – not only to understand how your life insurance company arrives at your premium cost, but also to make informed decisions about your annuity payout options. Two key determining factors that affect your choice of annuity are whether you want payments to continue to your beneficiary should you predecease him or her, and how long you expect to live. A period-certain annuity may be ideal in some cases, while one with survivor options may be more suitable in other cases. If you are in the market for an annuity or life insurance policy, consult your financial planner for help with determining which is most suitable for you.


Banks will lose ability to act as a buffer, he says

LONDON (MarketWatch) — You ain’t seen nothing yet, when it comes to market wreckage from a financial crisis, according to J.P. Morgan boss Jamie Dimon.

In his annual letter to shareholders, the bank’s chief executive warned “there will be another crisis” — and the market reaction could be even more volatile, because regulations are now tougher.

He argued the crackdown on the financial sector, added to more-stringent requirements for capital and liquidity, will hamper banks’ capacity to act as a buffer against shocks in financial markets. Banks could become reluctant to extend credit, for example, and less likely to take on stock issuance through rights offering, which would essentially create a shortage of securities.

Such factors “make it more likely that a crisis will cause more volatile market movements, with a rapid decline in valuations even in what are very liquid markets,” Dimon said in the letter. “Recent activity in the Treasury markets and the currency markets is a warning shot across the bow.”

The J.P. Morgan JPM, +0.05% CEO pointed to the 40 basis-point move in Treasury securities on Oct. 15 as one of those warning shots. The move — though “unprecedented” and “an event that is supposed to happen only once in every 3 billion years or so” — was still relatively easily absorbed in the market and no one was significantly hurt by it, he noted.

“But this happened in what we still would consider a fairly benign environment. If it were to happen in a stressed environment, it could have far worse consequences,” Dimon said.

There’s also the issue of clearinghouses. Clearinghouses sit between the two sides of financial trades and have, since the financial crisis, worked as risk managers for global markets. But that could also exacerbate the next crisis, according to the J.P. Morgan chief.

“Clearinghouses are a good thing, but not if they are a point of failure in the next crisis,” he said. “It is important to remember that clearinghouses consolidate — but don’t necessarily eliminate — risk.”

But here’s for the good news. Banks won’t be at the center of the next crisis, Dimon believes. His view is that while they may not be able to act as a shock absorber because of tight regulations, they are overall safer and stronger than before.

“Fundamentally, as long as the economy is not collapsing, financial markets generally recover,” he said.


America’s senior citizens have their backs to the wall financially a new study confirms. Professor John Pottow, a law professor at the University of Michigan, reports that the rate of United States (U.S.) seniors entering into bankruptcy is on the rise.

Pottow’s study reveals that the U.S. recession has taken its toll on seniors. The number of seniors in bankruptcy already surpasses the 178% bankruptcy rate for Americans between the ages of 65 and 74 from 1991 to 2007.

With the threat of financial ruin so prevalent, seniors need to take concrete measures to protect their financial health. That’s not a luxury–it’s a necessity. According to the Center for Retirement Research at Boston College, the average married couple will need $197,000 to cover overall health care costs, and that doesn’t count nursing home care.

High health care costs are a big problem, but an annuity, properly used, can help seniors significantly mitigate the high costs associated with health care for the elderly.

Annuities Explained

What’s an annuity? In a word, it’s a contract between you, the annuity owner, and an insurance company. In return for your payment/investment, your insurance carrier agrees to give you either a steady stream of income or a lump-sum financial payout at some future time, usually after you retire.

What kind of annuity you need depends on myriad factors, none more important than your age.

Types of Annuities

In general, there are two types of annuities: an immediate or a deferred annuity.

  • Immediate Annuities – With an immediate annuity, you start to receive payments immediately after making your initial payment. Immediate annuities are best for investors who require immediate income from their annuity.
  • Deferred Annuities – With a deferred annuity, you’ll receive payments at a later date, usually at retirement. There is a caveat. Most deferred annuities allow for systematic withdrawal payments beginning thirty days after the purchase of your annuity, up to 10% per year, in most cases. With a deferred annuity you can invest either a lump sum all at once or make periodic payments, either fixed or variable. That money grows tax-deferred until you wish to start receiving payments. Studies show that deferred annuities comprise the vast majority of all annuity sales in the U.S., and are best suited for the long-term costs of health care for the elderly.

Advantages of Annuities

The good news is that new rules from the federal government make using deferred annuities to pay for health care for elderly seniors a simple proposition. As part of the Pension Protection Act of 2006, seniors can use such annuities to pay premiums for long-term care insurance.

That’s a big tax advantage for annuity users. Prior to 2006, annuity payments were considered gains by the Internal Revenue Service, and were thus taxed at ordinary-income tax rates. But with the new pension act, those withdrawals are now tax free.

Perhaps the easiest way to use annuities to pay for long-term health care costs is to buy a “hybrid” insurance policy that includes both annuities and life insurance that includes long-term coverage. That way, you can use the proceeds for health care costs if you need them or for other needs if you don’t.


Tax day is coming up in just a few weeks and while tax filing will never be fun, some planning now can make a big impact down the road when it comes to dealing with taxes during retirement.
As with many financial considerations, planning ahead is key. By beginning to think about retirement years ahead of time and organizing a financial strategy that allows for guaranteed income and security, retirement can be one of the most rewarding periods of your life.

  1. Once you retire, financial flexibility becomes more important than ever. Flexibility allows you the freedom to enjoy new hobbies, travel or spend time with family and friends. What’s more, it allows for you to control your income throughout the year and stay in lower tax brackets, minimizing your annual taxes. One important way to improve your flexibility is to eliminate major expenses before you retire. For example, paying off your mortgage—one of most households’ largest expenses— can allow you to use your retirement income for a variety of other purposes or simply continue to save.
  2. Develop a withdrawal plan that lets you stay in lower tax brackets. Many retirement-focused vehicles are tax-deferred, meaning that you are only taxed on them once you withdraw funds. By planning in advance and developing and sticking to a budget, you can make sure you don’t exceed certain tax brackets and are able to limit income tax.
  3. A Fixed Indexed Annuity, or FIA, can play an important role in your retirement planning process as it provides a low-risk vehicle that can provide guaranteed lifetime income. What’s more, FIAs can help you minimize your tax burden. This tax deferral is important because it allows even faster growth of the annuity. In addition, FIAs don’t have government-mandated contribution limits. That means you are allowed to save as much as you would like. Finally, once you begin to withdraw (or annuitize) the funds, only the interest will be taxed – leaving your principal tax-free when you need guaranteed income the most.

Taxes are a key consideration in any financial planning. In order to enjoy a secure and comfortable retirement, take the necessary steps now to minimize your tax burden and develop a diversified portfolio of products which will provide the most financial security. For more information on how to reduce taxes in retirement, check out this interactive calculator that will allow you to prepare for multiple scenarios.


This time last year, President Obama announced a new initiative aimed at helping Americans save for retirement – My Retirement Account, more commonly known as myRA.

A year after the initial launch, we take a look at what’s happened since the announcement and myRA’s progress in its first year.

What is myRA?

MyRA is a retirement savings program targeted toward low and middle-income Americans who don’t have access to employer-sponsored plans, which, according to the Obama Administration, is half of all Americans.

The program provides starter government-guaranteed retirement accounts that follow you from job to job, charge no fees and allow you to contribute directly from your paycheck. Anyone in a household earning $191,000 a year or less can use myRA to plan for their financial future with an initial contribution of as low as $25.

Is MyRA working?

A year later, myRA is off to a slow start and it is still unclear how many Americans have signed up for myRA accounts.
In late December 2014, myRA accounts officially became available for public use, and as part of its launch, the U.S. Treasury department announced it would run a small pilot program.

While anyone who has direct deposit for their paycheck can sign up to start a myRA account, there is no active push to encourage Americans to sign up or to recruit businesses to offer their employees myRA accounts. Additionally, as the program currently stands, the only way to contribute to a myRA account is through payroll deduction.

In the coming year, the Treasury department has said it is working on creating additional ways for Americans to make contributions to myRA accounts and will begin a more robust, broad promotion of the program, according to CNN Money.

Is myRA the solution to America’s retirement crisis?

Though the myRA initiative is a step in the right direction as it encourages Americans to invest in their retirement, for most it will not be enough. The accounts have a maximum limit of $15,000 before they are required to be rolled over into a traditional IRA, proving they are not intended to be Americans’ primary retirement vehicle.

You would likely need 30 years to double your investment in myRA, signifying the importance of a diversified financial plan and one that starts early. Additionally, it is important to think about how to convert your portfolio into income that will last throughout retirement. Fixed indexed annuities can play an important role in strengthening your retirement plan by providing that vehicle of guaranteed income.