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Fixed Index Annuities

Fixed index annuities provide the guarantees of fixed annuities, combined with the opportunity to earn interest based on changes in an external market index. But because you're not actually participating in the market, the money in your annuity (your "principal") is not at risk.

A fixed index annuity may be a good choice if you want the opportunity for accumulation, but don't want to risk losing money in the market.

Fixed index annuities can offer:

  • Principal protection from market downturns
  • Tax-deferred growth potential
  • One or more index allocation options
  • A choice of crediting methods
  • Income options, including income for life
  • Death benefit options

How do fixed index annuities work?

  • You give the insurance company money in one or more payments.
  • The insurance company then invests it on behalf of all annuity owners to support the benefits of the contract.
  • During the accumulation phase, your annuity will earn a fixed rate of interest that is guaranteed by the insurance company or an interest rate based on the growth of an external index.
  • You defer paying taxes on your contract’s interest until you receive money from the contract. Tax-deferred interest means the money in your contract can grow faster.
  • After a period of time specified by your contract, you may then receive the amount allowed by your contract in a lump sum, over a set period of time, or as income for the rest of your life. This is known as the distribution phase.

3 Simple Mistakes People Make When Saving for Retirement

With the recent market volatility, those saving for retirement may be becoming more and more nervous about the stability and security of their retirement savings. While Americans may not have direct control over the stock market, there are things they can control when it comes to saving for retirement, and simple mistakes they can and should avoid.

Here are 3 simple mistakes people make when saving for retirement and how to avoid them.

1. Underestimating medical expenses. When you’re healthy, it’s difficult to imagine spending a lot of money on medical expenses. However, as you get older, it’s nearly inevitable that your medical expenses will grow and while your money will no longer be flowing in through a consistent salary, it will be important to set aside money for healthcare expenses. In fact, the average 65-year-old couple will pay $240,000—that’s right $240,000!—in out-of-pocket costs for health care during retirement, according to Fidelity Investments – and that number does not include potential long-term care costs. It’s important to consider retirement products that can ensure lifetime income so you can be prepared for unexpected medical costs.

2. Waiting too long to start. Right now, the number of Americans who have student loan debt in some form has risen to more than 40 million, according to CNN. And while it’s easy to convince yourself you can put off saving for retirement until your debt is paid off, experts note that the most important asset you have when saving for retirement is time. Every six years you wait to get started doubles the required monthly savings you’ll need to reach the same level of retirement income – so it’s important to start saving early, even if you can’t save as much as you’d like. Every little bit counts.

3. Lack of Diversity. In order to ensure that your golden years can be spent enjoying traveling and time with friends and family, it’s important to diversify your portfolio and not to rely solely on one form of retirement income, such as a 401(k) or Social Security. In fact, The U.S. Department of Labor notes that diversity is important when it comes to retirement savings because it can actually help to reduce risk and improve return. Assessing your investment mix at different stages in your life is key – when you are young, a higher-risk investment strategy may be more effective, whereas the closer you are to retirement, the more important a low-risk portfolio may be, with more conservative products such as Fixed Indexed Annuities (FIAs).

Social Security Changes You Need To Know About Before It's Too Late

Included in the Bipartisan Budget Act of 2015 are provisions phasing out two Social Security claiming strategies.

Beginning in May 2016, married couples will no longer be able to file for and then suspend receiving benefits for the purpose of making their spouses eligible to take spousal benefits, and singles will no longer be able to file and suspend to have the flexibility of retroactively claiming benefits. Applications to restrict the claiming of benefits to just spousal benefits are limited to those who were at least age 62 as of the January 1, 2016. The ability to use restricted filings will be completely phased out in 2023 when the last of those eligible to use restricted filings turn age 70.

The changes simplify the decision process for claiming retirement benefits by removing two options. At the same time, the changes highlight the importance of calculating the various expected lifetime income streams from claiming at various ages. Often, the later in life that benefits are taken, the higher the lifetime income stream will be.

The downside of postponing the date when benefits begin is the risk of not living long enough to pass the breakeven date. The breakeven date is the month when the cumulative benefits from delaying the claiming date matches the cumulative amount that would have been received by having claimed earlier.

The trade-off means that both individuals and couples should consider their expected longevity as well as the risk of dying sooner or later than expected. The challenge of deciding whether to claim earlier or later also highlights the role of Social Security as a retirement income annuity that provides a hedge against a longer-than-expected life span.

Benefits Are Impacted by the Claiming Date

Social Security is a stream of income paid monthly to those who qualify. An individual’s Social Security retirement benefit is based on their primary insurance amount (PIA). The PIA is based on the highest 35 years of earnings (limits on maximum income for any one year exist and earnings before age 60 will be indexed.) In addition, married individuals may be eligible for benefits based on their spouse’s record.

Reduced monthly benefits can start as soon as age 62. Full benefits can be claimed at full retirement age (FRA). Full retirement age is 66 for those born between 1943 and 1954, increasing up to age 67 for those born in 1960 or later. Benefits can further be increased by delaying them up to age 70.

As explained in “Social Security Basics” (William Reichenstein and William Meyer, October 2013 AAII Journal), the reduction in benefits from claiming prior to full retirement age is 5/9% per month for the first 36 months plus 5/12% per month for months 37 through 48 for someone with a full retirement age of 66. If benefits are delayed until after full retirement age, the increase is 2/3% per month for each month benefits are delayed until age 70. This means a person with a full retirement age of 66 will incur a 25% reduction in benefits by claiming at age 62 and a 32% premium by waiting until age 70.

Put another way, assume a person will receive $1,000 in retirement benefits (PIA) at a full retirement age of 66. If this person claims early at age 62, the PIA will be reduced to $750. If the same person waits until age 70 to claim benefits, the PIA will be $1,320—76% higher. This difference in monthly benefits will continue until a person dies (or the person’s spouse dies, if the surviving spouse has a lower monthly benefit, based on their own earnings record.)

This is why, even with the changes, Luke Delorme, a research fellow with the American Institute for Economic Research (AIER), says “Delaying Social Security benefits until age 70 in order to receive delayed retirement credits is still one of the best deals around.”

Longevity Risk and Breakeven

Social Security benefits are paid monthly until death. As such, the payment of benefits is akin to an inflation-adjusted annuity. A stream of cash flow is guaranteed and will be increased in the future in accordance with estimated inflation (via cost-of-living adjustments). Longevity risk is borne by the government and not the retiree.

Annuities are priced, in part, based on actuarial tables. The underwriters attempt to estimate the length of time payments will be made to help determine how much should be charged for the contract.

Social Security benefits, from the standpoint of claiming, are similar. The longer a person lives, the longer the period of time Social Security benefits will be paid. Thus, the monthly benefit increases the longer benefits are delayed, because the payments will have to be paid out over a projected shorter period of time. As such, Social Security is considered to be approximately actuarially fair: Assuming a single individual lives an average life span, cumulative benefits are about the same regardless of the claiming date.

This fact brings about two potential considerations when claiming benefits. The first is the odds of having a shorter- or longer-than-average life expectancy. Married couples need to consider the potential longevity of both spouses. The second applies to couples: Benefits can be thought as a first-to-die and second-to-die annuity if there is a survivor benefit.

Survivor benefits are paid to the spouse with the lower earnings record (“Low”) if Low’s PIA is less than that of the spouse with the higher earnings record (“High”) and Low outlives High. To keep things simple, assume both spouses are the same age and file at the same time and Low’s PIA is less than half of High’s. If Low lives longer than High, it is in the best interest of High to postpone claiming as long as possible to maximize the survivor benefit income stream that Low will receive after High dies. If Low should die first, High still receives the largest monthly benefit based on his or her earnings record by delaying benefits. The survivor benefit is the higher PIA of the two spouses.

Longevity comes into play when the breakeven age is calculated. The breakeven age is the age at which the cumulative benefits from delaying benefits matches the cumulative benefits that would have been received had Social Security benefits been claimed earlier.

Reichenstein gives an example of a same-aged, one-earner couple with a life expectancy of age 85 for High and age 91 for Low. They have reached full retirement age of 67. If High begins benefits at 67, then Low can begin spousal benefits at that time. If High delays benefits until 70, then Low would not be able to begin spousal benefits until that time. If High were to start benefits at age 70 instead of age 67, one spouse (Low in this example) would have to live to beyond 88 years and nine months to realize the higher lifetime income from doing so under the revised claiming rules.

Assuming a monthly PIA of $2,600 for High, this difference equates to approximately $7,500 extra every year that Low lives past the breakeven point. In other words, if Low were to live five additional years past age 88 and ten months, approximately $37,500 more in Social Security benefits would be received if High delays claiming benefits until 70.

The risk, of course, is that neither High nor Low make it to or live past this breakeven age. If both spouses have shorter life-span expectancies, then it can make sense to claim benefits sooner rather than later. Health and genetics (e.g., how long one’s parents lived) need to be taken into account when claiming. At the same time, realize that longevity is considered to be a “right-tail” risk in the world of finance: The longer one lives, the more money they will need. This why economists like annuity contracts—they transfer longevity risk from the individual to a third party.

(One big difference between Social Security and commercial annuities is that the government is not contractually obligated to pay benefits. Congress has the legislative ability to change benefits, alter the amount of Social Security benefits eligible for taxation, raise the ages at which benefits can be claimed and alter the amount of income subject to the FICA tax, which funds Social Security. The political willpower to do any of these things is a different issue and beyond the scope of this article. As far as the risk of insolvency is concerned, the Social Security and Medicare Boards of Trustees predicts benefits would be reduced by 25% starting in 2034 if nothing is done to shore up Social Security reserves before then.)

The New Claiming Rules

The 2015 budget bill took away two options that could be used for claiming Social Security: “file and suspend” and restricted applications. Both had allowed for more flexibility and a greater margin of error when filing.

Starting in May 2016, the file-and- suspend claiming strategy for spousal benefits will be disallowed. This strategy allowed a person to file a claim for benefits and then immediately suspend it, while still leaving spousal benefits and retroactive benefits available as options. For example, the High spouse could file for benefits at age 66 and then postpone taking benefits until age 70. This allowed High to maximize the PIA, while making Low eligible to claim spousal benefits.

Restricted applications allow a married person to file for spousal benefits only at full retirement age if their spouse has already filed (e.g., a working wife could file for only spousal benefits when she turns 66 if her husband has already filed for benefits based on his own earnings record). Restricted applications allowed a person to begin receiving spousal benefits, while postponing the date at which they claimed on their own earnings record.

The Bipartisan Budget Act of 2015 contained language requiring spouses take the highest benefit they are eligible for. The law reads, “If an individual is eligible for a wife’s or husband’s insurance benefit…in any month for which the individual is entitled to an old-age insurance benefit, such individual shall be deemed to have filed an application for a wife’s or husband’s insurance benefits for such month.” In other words, a spouse cannot receive spousal benefits while delaying claiming on his or her own earnings record until age 70 if his or her PIA is equal to or greater than one half of the other spouse’s PIA. Using a hypothetical same-age couple named Bob and Mary, if Mary’s PIA is $1,500 and Bob’s is $2,000, Mary would be ineligible to claim the lower spousal benefit (one half of Bob’s, or $1,000) at full retirement age while postponing benefits based on her own earnings record.

The rules still allow someone to suspend benefits at full retirement age or later and earn delayed retirement credits when benefits are unsuspended, such as at age 70. At the same time, the law prevents individuals from claiming benefits on their spouses’ earnings record if the other spouse is not currently receiving benefits. The law states: “In the case of an individual who requests that such benefits be suspended under this subsection, for any month during the period in which the suspension is in effect… no monthly benefit shall be payable to any other individual on the basis of such individual’s wages and self-employment income; and…no monthly benefit shall be payable to such individual on the basis of another individual’s wages and self-employment income.”

In other words, once a person files for Social Security, the maximum benefits will be paid based on what he or she is eligible for. Spousal benefits will be paid if High is already receiving benefits and Low (whose PIA is less than one half of High’s) files. If neither spouse has filed, benefits will be paid on the individual’s earnings record. A married person is “deemed” as having filed for both individual and spousal benefits if the other spouse has already filed. Going back to Bob and Mary, Mary is deemed as filing based on her earnings record because her PIA is greater than the spousal benefit. If Mary’s PIA was $700 instead, she would be deemed as filing for the spousal benefit and would receive a benefit of $1,000. [Technically, if Mary files at full retirement age, the Social Security Administration gives her her own PIA of $700 plus spousal benefits of $300 ($1,000 – $700), for a total of $1,000.]

The New Social Security Rules

The Bipartisan Budget Act of 2015 eliminated two options for claiming Social Security benefits. The act did, however, include two windows for certain individuals and couples to take advantage of the older rules. In doing so, the law segmented people into one of three age groups:

  • Group 1: Those born on April 30, 1950, or earlier and, thus, who will attain full retirement age (FRA) by April 29, 2016;
  • Group 2: Those born between May 1, 1950, and January 1, 1954, who attained age 62 by the end of 2015 (Social Security considers someone to attain an age one calendar day prior to that person’s actual birthday);
  • Group 3: Those born on January 2, 1954, or later and, therefore, who did not attain age 62 by the end of 2015.Here’s a summary of how the rules apply to each of the three age groups:

The file-and-suspend strategy is available to those in Group 1 as long as benefits are filed for and suspended by April 29, 2016. (Given the uncertainty of the deadline at press time, the deadline should be assumed as actually being April 29, 2016, unless the Social Security Administration states otherwise.)

Restricted applications can be filed and used by those in Group 1 and Group 2 if the spouse has already filed for his or her own benefits. To file a restricted application, a person must have attained their full retirement age of 66.

Those in Group 3 cannot file for one type of benefit at full retirement age and then switch to another benefit at a later date. Rather, they are “deemed” to be applying for their own benefits plus, if eligible, a spousal benefit whenever benefits are applied for.

Source: “Social Security Claiming Strategies After the Recent 2015 Changes,” Social Security Solutions.

Determining When to Claim

The changes simplify the claiming decision by removing two options. The new rules make determining when to take benefits largely a claim now or claim later decision for married couples. (It has generally been this way for singles.) Even so, the decision of when to claim remains a complex one. Assuming a person or a couple is able to voluntarily choose when to retire, forethought and the willingness to calculate cumulative differences in claiming at one age versus another is required.

Single individuals have the easiest decision. Divorced persons ineligible to claim benefits based on an ex-spouse’s earnings record should delay claiming as long as possible given their health and expected longevity. Those who have a reasonable expectation of not living past 80 can claim earlier, though delaying results in higher lifetime benefits at age 80 and beyond versus claiming earlier. Waiting until age 70 to claim ensures higher lifetime benefits for those who live into their 90s or longer.

Married couples face a bigger challenge because two benefit amounts are in play: that of the high earner and that of the low earner. The reason is not only the survivor benefit, but also the spousal benefit. If both spouses have enough work history to qualify for Social Security benefits, Low has the flexibility of claiming early while High delays. Doing so may make sense even if Low’s PIA is less than half of High’s PIA. Judith Ward of T. Rowe Price explains, “If a lower-earning spouse can file on their own work history, the other spouse can delay for as long as possible, since they are the higher earner. This maximizes the survivor benefit.

Then when the higher earner files for their own benefit, the spouse who had been receiving the smaller benefit may get a bump up in monthly income if the spousal benefit (half of High’s PIA at full retirement age) is higher than their own.” The lower-earning spouse is able to receive benefits based on the higher-earning spouse’s record if Low is at least 62 years of age. (Special rules apply if a child who is under the age of 16 or disabled is being cared for. See the Social Security’s Web site for more information.)

She added, “In single-earner households there is less incentive for even the higher earner to delay because the non-working spouse depends on that income as well.” The timing of when income is needed is key because once High files, Low will receive benefits on High’s earnings record. Unlike the old rules, effective May 2016 High can no longer file for benefits and then suspend them in order to allow Low to start receiving benefits. In a couple with one non-working spouse, Low will only receive benefits when High does. (Those who file and suspend before the May 1, 2016, deadline can take advantage of the older rules.)

As long as the spousal benefit is a consideration, the numbers on the breakeven age must be calculated. For a same-aged couple with PIAs of $2,600 and $600, the breakeven age for High postponing until age 70 instead of claiming at age 67 is almost 85 years and 10 months, assuming High lives to age 85 and Low lives to age 91. If Low has a shorter life span, then claiming earlier is more beneficial. If Low has a longer life span, then Low is penalized by High’s decision not to wait until age 70. These scenarios are based on numbers calculated by Reichenstein.

A big loss for married couples is the flexibility that the file-and-suspend strategy provided . File and suspend gave couples the upside of receiving income sooner and a bigger survivor benefit. Now, couples must weigh the need for income sooner against the potential longevity of the longer-living spouse. Depending on the age differences between spouses, their individual PIAs and anticipated longevity, the optimal age(s) for claiming will vary. There is simply no substitute for running the numbers based on various claiming dates to determine what claiming strategy is best for a specific couple.

There are some general guidelines, however. The rule of thumb to delay the claiming date up to age 70 still holds, but with some exceptions. Delaying maximizes the survivor benefit for married couples. If Low is younger, then it is often better for High to file when Low’s full retirement age is reached as opposed to delaying until age 70. This will give Low the full spousal benefit and often gives the couple greater income. (This will not be an option if the age difference is greater than eight years. In such a situation, it usually makes sense for High to delay to age 70, which would maximize Low’s survivor benefit.) If Low’s PIA is greater than 50% of High’s but still less than High’s, then it can make more sense for both spouses to delay until age 70 (or at least for High to) since the spousal benefit is no longer an option, but the survivor’s benefit is. If both High and Low do not expect to live much past the age required to realize the higher income of delaying, then it can make sense to claim benefits earlier.

Again, the key is to run the numbers based on various claiming dates to determine what strategy makes the most sense. PIAs, longevity expectations and ages all will influence the outcome. The more likely it is for the surviving spouse to pass the breakeven age, the more it makes sense to delay filing. When in doubt, it may make more sense to assume a longer life span than a shorter one.

Limited Opportunity for File and Suspend and Restricted Applications

At the time of publication, there is still time to take advantage of file and suspend and restricted applications for those meeting specific age requirements. Individuals and couples who attain at least age 66 as of the end of April 2016 can file applications for Social Security benefits and immediately suspend them. Married individuals who were born January 2, 1954, or later can file restricted applications until they turn 70.

The ability to file and suspend ends 180 days after the enactment of the Bipartisan Budget Act of 2015. The exact deadline is uncertain because May 1, 2016, is on a Sunday. As of the date this article was sent to the printer, the Social Security Administration had yet to announce whether or not it would extend the deadline to Monday, May 2, given the weekend deadline. The law itself does not list a precise deadline either. Rather it says, “The amendments made by this subsection shall apply with respect to requests for benefit suspension submitted beginning at least 180 days after the date of the enactment of this Act.”

Given this, it is prudent to treat the deadline as being April 29, 2016, until an actual deadline is announced. If at all possible, file and suspend before that date or at least set up an appointment to meet with the local Social Security office to file before that date. You want to avoid any potential difficulties due to a large number of individuals and couples filing in the days leading up to the deadline.

Filing and suspending benefits provides flexibility in claiming benefits. For example, consider a hypothetical couple, Mike and Mary. If Mike files and suspends at his full retirement age (FRA) of 66, Mary can claim spousal benefits when she reaches her full retirement age based on Mike’s earning record. In the meantime, Mike can wait until age 70 to take his benefits, which will increase due delayed retirement credits. In order to file and suspend, a person must have attained age 66 by the May 1, 2016, deadline.

Restricted applications are another useful tool. If Mike files or files and suspends, and Mary was born prior to January 2, 1954, she could file a restricted application for just spousal benefits at full retirement age. This would give the couple income now, while giving Mary four years to postpone taking benefits based on her own earnings record. This strategy increases the couple’s lifetime earnings stream.

The deadline for file and suspend is key because if Mike suspends taking his benefits in June 2016 instead of April, Mary’s spousal benefit will stop being paid until Mike reinstates his benefit. Under new law, benefits are only payable on a spouse’s earnings record if benefits are being paid to the primary spouse. It will still be possible to suspend benefits after May 1, 2016, thus earning delayed retirement credits, but all benefits based on the person’s earnings record will stop being paid.

Those born on January 2, 1954, or later can still use restricted applications to create a similar strategy, however. If both spouses have earnings records and one spouse files for benefits based on their own earnings record, the other spouse, if at least full retirement age, can restrict their application to only spousal benefits. This allows the second spouse to delay claiming on their own earnings record until they reach full retirement age or older. At age 70, the benefit paid to the second spouse will be the higher of spousal benefit or PIA, adjusted upward to reflect delayed retirement credits.

Those (both married and single) born on or before April, 30, 1950, should file and suspend before the deadline even if they intend to begin taking benefits sooner rather than later. Given the forthcoming changes, filing and suspending now gives the greatest amount of flexibility in determining what the best claiming strategy is. Married individuals born between May 1, 1950, and January 1, 1954, who “attained” at least age 62 by the end of 2015, will attain an age no older than 65 as of the start of May and are not married to a spouse who will have attained age 66 by the May 1 deadline will only be able to take advantage of a restricted application.

Happy 21st Anniversary Fixed Indexed Annuities!

We celebrate the 21st anniversary of Fixed Indexed Annuities (FIAs). And, what an anniversary it is! On February 15th, 1995, Fixed Indexed Annuities were first introduced to consumers as a key product for helping plan a secure, dependable source of income for retirement.

FIAs were first created in reaction to the economic volatility of 1994, offering consumers the ability to retain their principal while accruing a certain degree of growth – no matter the market conditions. Throughout the decades, consumers looking to have a predictable monthly income stream in retirement increasingly turned to the insurance product to balance their retirement portfolio. In the first quarter of 2015, sales of FIAs reached $11.6 billion, a 3.1 percent increase from sales in the same quarter of 2014. Additionally, FIAs now represent more than half – 55.6 percent – of the fixed annuity market during the quarter, a new record share, according to this LifeHealthPro article.

Yes, FIAs have become a mainstay product in retirement planning. But, what’s to come?

The Demographic of the FIA Consumer is Changing

The older millennial crowd, ages 27-34, is starting to find a nice momentum in their career and beginning to plan for retirement. But, this group also had a front-row seat to the great recession, leaving them to seek out products that offer the perfect blend of growth and balance. The IALC recently conducted a survey and found that 52 percent of millennials – more than any other age group – are interested in FIAs. As millennials continue to grow their retirement savings, FIAs will likely continue to shift to a younger demographic.

FIAs will continue to Evolve

The retirement landscape is shifting. Pensions are being cut and Social Security is less secure. Additionally, people are living longer. The lasting success of FIAs throughout the decades is part and parcel of the product’s ability to continually evolve to meet the changing needs of today’s consumer planning for retirement. Companies and agents are continuing to find innovative ways to incorporate new indexes and benefits into the products to offer consumers greater choice and flexibility. As the retirement landscape continues to shift towards a more pay for yourself era, FIAs will continue to change to cater to the needs of today’s retirement saver.

FIAs will Become More of Traditional Retirement Product

Because of the shifting retirement landscape, people are becoming more active retirement savers. Instead of expecting our retirement portfolio to just work in the background, savers are working more with their financial advisors. As a result, FIAs will likely become more of a mainstay retirement product, as savers look to diversify their portfolio with products that offer market growth and market protection.

These past 21 years of FIAs providing balance to retirement portfolios has been exciting – and fruitful. And, the future looks just as bright, as the product continues to progress and younger consumers continue to crave balance and security in retirement.

Happy 21st anniversary FIAs!

I Give a Damn About Annuities – You Should Too

by Sheryl J. Moore

I recall well my entrance into the life insurance market. Nearly 20 years ago, I was a single mother with three babies in diapers; wondering what career I could hold in Des Moines, Iowa that was stable. Aha! Insurance. Before becoming a homemaker, I had managed a grocery store, so working in a life insurance home office was completely foreign to me.

There was a lot of new information thrown at me very quickly in those first few days as an insurance professional. None of this information could have been more important than the enrollment information for my 401(k). Had I only known it at the time…

A 401(k)? What was it? I didn’t know. My only experience with retirement savings had been an Employee Stock Ownership Program (ESOP). My new employer assured me that a 401(k) was good, and something I really needed to participate in, as the 4 percent employer match was “free money.” After much prodding, and feeling a lot like I didn’t know what I didn’t know, I enrolled in the savings plan, and logged-in to the website to manage my 401(k).

How did I choose which funds to put my money into? I had no advice; no direction. I could have read the prospectus that I received at enrollment – yeah, right. As if I had a bunch of free time in between working full time and all those diaper changes. I was inexperienced in investing. I didn’t know what I had purchased. In short, I had no business owning a 401(k).

And I finally realized it when the dot.com bubble burst. Being a woman who relied on her church to help feed my children, I was devastated when I found out that (GASP!) you could lose money in a 401(k)? What? Why hadn’t anyone told me this when I enrolled into this savings vehicle? I didn’t feel comfortable losing money and now I had lost A LOT of money. What could I do now? I didn’t want to lose more money. I couldn’t afford to lose. I turned to the person I respected most in the financial services industry, my boss.

After explaining my dilemma, he inquired, “Why didn’t you buy an indexed annuity?”

“What’s an annuity?!?” I asked. I had no idea what the word meant. None.

After my boss responded, and let me know that an annuity was a type of retirement accumulation vehicle that would guarantee me an income I could never outlive, I was intrigued. I’d heard a lot about American’s longevity extending, so I understood the importance of an annuity. Plus, I was uncertain about the future of our nation’s Social Security program, so I wanted to make sure I was saving for retirement on my own. My boss further explained that an indexed annuity was a type of annuity that earned limited interest based on the stock market’s performance, but would never lose money as a result of market declines. Sign me up! This sounded exactly what I wished I would’ve purchased before, instead of the crummy 401(k) I ended up with.

“Where can I buy an indexed annuity?” I asked.

My boss just stared at me in disbelief. “The company that employs us is the No. 1 seller of indexed annuities in the country.”

WHAT?!? The company I was employed by had pushed me into a 401(k), but didn’t even tell me about a product, which they were experts at selling, and was better-aligned with my risk-averse profile?

I felt horrible. Uncomfortable. This should not have happened to me. But wait…what if this happened to my grandparents? At least I was young, and learning what I’d done wrong early. Yet, if it had happened to my grandparents…my grandma had more than 40 years with her employer. She would lose far more severely than me – not just thousands, but thousands and thousands.

I was resolved. I needed to make certain that my grandparents learned about annuities. I wanted to make sure that everyone learned about annuities. No one should have to go through the painful exercise that I just had, just to learn that a 401(k) is not the only option for a retirement income vehicle.

Ten years after starting my own business, this is still what I am doing. Americans are looking for information today, more than ever before. We are taking control of our health care, our families, and our finances. You would be surprised how many people want to know about annuities. We receive thousands of inquiries about annuities from consumers each year through my second business, Wink, Inc.

Last year, I became the President of a non-profit organization called The Society for Annuity Facts and Education (SAFE). Our mission is solely to provide factual, reliable information about annuities to consumers, so that they have the information that they need, in order to make decisions about whether or not an annuity is right for them. It is a mission that I am passionate about. I hope my experience will infect you, and cause you to support SAFE’s initiatives. Embrace Annuity Awareness Month, and help us to educate our nation on this valuable insurance product.

Shedding light on the myths of retirement

Key Points:

  • Having the right retirement plan and withdrawal strategy can help make your savings last.
  • Health care is one of the largest expenses in retirement. Are you prepared?
  • It's important to have realistic expectations about what you'll pay in taxes and spend in retirement.

These six retirement revelations may help set the record straight.

The magic number

Too often, retirement savers of all ages pluck an arbitrary number out of the air and call it a savings goal. And, often, retirees think if they withdrawal only 4% from their retirement savings each year, they'll have enough to last a lifetime. But, there's no one right number for either.

Your retirement plan and solution, and withdrawal strategy should be as unique as you are, taking into account your current finances, future income picture and goals and dreams, along with many other considerations.

What's more, your plan and withdrawal rate may change as your circumstances change. Your advisor can help you calculate — and recalculate — what retirement savings goals are right for you and your retirement savings withdrawal strategy.

Medicare will cover my health care needs in retirement

While Medicare can be a godsend for doctor visits and hospitalization costs, it does not cover most long-term care needs such as extended nursing home stays, assisted living and many types of home health care. In fact, the average couple age 65 needs to save $255,000 to have a 90% chance of having enough for health care expenses in retirement, according to the Employee Benefit Research Institute. That's why keeping health care costs in mind is a vital part of retirement planning.

I can't count on Social Security

Here's a nice surprise. According to Ameriprise Senior Economist Russell Price, Social Security is probably more secure than people think. Adjustments made to Social Security back in 1983 have done a lot to improve the program's long-term viability, he says.

Of course, you can't count on Social Security payments to cover all your retirement needs. But, it can make sense to estimate what your payments will be as part of your overall retirement planning and budget. And keep in mind, if you delay Social Security payments beyond your full retirement age up until age 70, you may receive significantly larger monthly checks.

I can work as long as I have to

It's true that longer life spans mean more years in retirement and possibly more years working past age 65. Remember, however, that half of all early retirements are due to illness or disability. In addition, finding good paying jobs later in life can be difficult. The bottom line: Working past retirement age because you want to is a great goal, but it's probably best not to rely too much on this income when making your retirement plans.

I'll spend less and pay less in taxes in retirement

There's a widely quoted rule of thumb that your expenses in retirement will be about 70% or 80% of what they were when you were working. But, depending on your goals, you may actually be spending more in retirement than you thought, especially if you are travelling, visiting children and grandchildren and pursuing new hobbies and activities.

Another related misconception: You'll pay less in taxes now that you're retired. But that assumes you'll have less income. If you end up with the same amount of income in retirement as you had when you were working, you may not be in a lower tax bracket. Also, you may qualify for fewer tax breaks such as mortgage and college savings deductions. At the same time, tax rates may rise in the future.

I'll live in the same place throughout my retirement

You may figure that by the time you retire your mortgage will be paid — or maybe it already is — and your housing will be taken care of forever. In reality, moving is often a major part of retirement. You may decide to move closer to family members or into an urban area for the culture and convenience. You may find you need an assisted living situation or an area with more transportation and maintenance services at hand.

At age 75, housing accounts for 38% of retirement expenses, according to the U.S. Bureau of Labor Statistics' “Consumer Expenditure Survey,” 2012. That's a big chunk of retirement income. You'll want to make sure possible future housing costs are included in your retirement planning.

WHAT DO PEOPLE NEED TO KNOW ABOUT ANNUITIES?

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.

Beware of These Four Retirement Pitfalls

With average life expectancies increasing, it is critical to have a thorough retirement plan that provides for adequate income to last a lifetime. To make sure your income lasts as long as you need it to, here are a few retirement pitfalls to avoid:

1) Not Saving Early Enough. The earlier you start saving, the more likely you are to have enough money to last you a lifetime. Even if you can only contribute a small percentage of your income each year, it’s better than nothing. These calculators can help you see how much you should be saving given your age and your retirement goal.

2) Underestimating How Long You Will Live. It’s important to take into consideration that people are living longer, so the more you save, the better. Forty-eight percent of pre-retirees reported that their longest living family members reached age 91 or older, so remember to save accordingly to ensure having money that lasts as long as you do. As you approach retirement, it may be time to look at products that offered guaranteed lifetime income like Fixed Indexed Annuities.

3) Lack of Balance in Your Portfolio. It’s important to have a balanced and varied retirement portfolio in order to reduce risk. One common pitfall is relying too heavily on one savings vehicle – it will be difficult to obtain consistent growth if your portfolio lacks diversity. For example, one product that can nicely supplement a 401(k) is a Fixed Indexed Annuity (FIA), which protects your principal from the uncertainty of market volatility.

4) Not Taking Into Account Healthcare Costs. No matter how hard you try to predict your expenses during retirement, the rising cost of healthcare has the potential to add financial stress to your golden years. According to data from the Employee Benefit Research Institute, a 65-year-old married couple with average prescription drug expenses is projected to need $241,000 in retirement savings to have a 90 percent chance of covering their healthcare expenses during retirement. That being said, it’s important to assume high healthcare costs during retirement and plan accordingly.

Fixed Annuities Must Tell A Simple Story

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.

Time for Ferris Bueller to Consider an FIA

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.

Using fixed indexed annuities for retirement income

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.

Conclusion

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.

Using fixed indexed annuities for retirement income

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.

Conclusion

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.

IALC Glossary: Explaining Annuity Jargon

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.

Answering Retirement’s Most FAQs

In order to ensure a relaxing and secure retirement, planning ahead is key. It’s something we all know, but let’s face it — figuring out where to start can be daunting. That’s why the Indexed Annuity Leadership Council (IALC) compiled and answered some of the most frequently asked questions when it comes to planning for retirement.

How much do I need to save for retirement?

As life expectancies continue to rise, more money is needed for retirement to cover everyday costs. A general rule of thumb is you should aim to save 10 to 15 percent of your annual salary. However, how much you should save for retirement depends on your personal goals and how you envision spending your golden years—whether it’s travel, time with family or taking up new hobbies.

What age do I need to start saving for retirement?

Don’t wait! It is crucial to start saving for retirement as early as you can – the earlier you start saving, the more likely you are to meet your retirement goals. It will be nearly impossible to catch up if you wait too long, so save early and save often.

Even if you can only contribute 1 percent of your annual salary, anything is better than nothing and it can add up quickly! Additionally, if your employer does offer a retirement savings plan, take advantage by contributing as much as possible.

What type of retirement vehicles are best?

Financial experts agree that your portfolio should be balanced and include a variety of products. It is important to diversify your savings if you want to reduce risk and improve return. Contributing to your company’s 401(k) is a great way to start a retirement portfolio, but relying too much on one vehicle is a common mistake when preparing to retire. And, as the economic recession of 2008 illustrated, supplementing your 401(k) is important to ensuring your retirement security. One product that can help augment a 401(k) is a Fixed Indexed Annuity (FIA), which protects your principal and can provide a steady income stream for life.

Making sure your savings strategy matches the stage in your life is also critical. For instance, putting your money into high-risk vehicles might make more sense when you’re a young professional, but the closer you get to retirement age, it is a good idea to shift to a lower-risk portfolio. Talking with a financial planner can be a great resource when identifying what financial tools make the most sense for your portfolio at any age.

How much do retirees spend on average per year?

Although it can vary based on the individual situation, the standard guideline for ensuring a sustainable rate of spending is that you should aim to only withdraw about 4 percent of your retirement savings per year.

Products like Fixed Indexed Annuities can serve as a solution to budgeting issues, as they allow you to turn on lifetime income. This can help not only with budgeting monthly expenses, but it can also guarantee that you won’t outlive that income.

How much do medical expenses cost on average in retirement?

According to a recent estimate by Fidelity Benefits Consulting, a 65-year-old couple retiring this year will need an estimated $220,000 to cover medical expenses throughout retirement. That’s why it is so important to make savvy financial decisions and start planning for retirement early so you’re prepared for not only any medical expenses, but are also able to enjoy retirement.

How do I create a retirement plan?

Sit down and determine your fixed and variable expenses and use a simple budget worksheet like one from your finance expert. In addition, working with a financial planner to project how expenses might rise in the future is another way to help ensure that you are budgeting properly.

THE CHANGING FACE OF RETIREMENT

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.

Stock market rigging is no longer a ‘conspiracy theory’

The stock market is rigged.

When I started making that claim years ago — and provided solid evidence — people scoffed. Some called it a conspiracy theory, tinfoil hats and that sort of stuff. Most people just ignored me.

But that’s not happening anymore. The dirty secret is out.

With stock prices rushing far ahead of economic reality over the last six or so years, more experts in the financial markets are coming to the same conclusion — even if they don’t fully understand how it’s being rigged or the consequences.

Ed Yardeni, a longtime Wall Street guru who isn’t one of the clowns of the bunch, said flat out last week that the market was being propped up. “These markets are all rigged, and I don’t say that critically. I just say that factually,” he asserted on CNBC.

Yardeni’s claim is the most basic one: that the Federal Reserve won’t do anything that will upset Wall Street and, in fact, is doing all it can to help the stock market.

But there are other recent claims that come closer to the bull’s-eye, even if the archers don’t quite see what they are hitting.

The Wall Street Journal carried an intriguing story on March 11 about how the Bank of Japan was “aggressively purchasing stock funds.” (The Journal is owned by News Corp., the parent of The Post.)

“By directly underpinning the market, [Bank of Japan] officials have tried to encourage private investors to follow suit and put more money in stocks in the hope of stimulating the economy and increasing inflation,” read the report with a Tokyo dateline.

That’s called rigging the market for a higher purpose, or hoping people who can afford to invest in stocks will make lots of money and spend it. The benefits, Japan’s central bank believes, will then trickle down to the rest of the economy.

The Journal provided lots of details that I won’t get into here. But the paper also presumed that all these central bank stock purchases were being done on the Tokyo market and that only the shares of Japanese companies were being rigged.

That’s not necessarily the case. The Bank of Japan — and other central bankers around the world — could easily be purchasing shares of American companies to help out the US stock market.

And Japan could even be doing it with the blessing of Washington, which is afraid any direct intervention in equities on its part would be discovered by nosy people like me.

Last fall, we learned that one American exchange has made intervention in — rigging — foreign governments easier and cheaper to accomplish. In October, it emerged that CME Group, the Chicago exchange that trades options and commodities, had an incentive program under which foreign central banks could buy stock market derivatives like the Standard & Poor’s futures contracts at a discount.

As I’ve reported many times, S&P futures contracts are the vehicle of choice for rigging the market. They are a cheap and very powerful way to cause an artificial buying frenzy.

After the market’s sizeable drop on Wednesday — the Dow alone lost 292.60 points — be on the lookout today for aggressive S&P futures buying today. It could start in Asia or Europe, but it almost always occurs.

Foreign central banks, of course, really don’t need a discount to buy S&P futures contracts. That’s like billionaires clipping cents-off coupons. But what the CME’s discount tells us is that the Bank of Japan and other central banks are probably already customers.

So the rigging of US stock markets by foreign entities has likely been going on for some time.

Has the US ever directly rigged the stock market? I’m sure it has. The sloppiest attempt seems to have occurred in 2008 during the financial crisis, when Washington was sure our whole financial system was toppling.

Phone logs that I received showed numerous calls between Treasury secretary Hank Paulson and Wall Street banks — Goldman Sachs, in particular — that seemed to coincide nicely with stock market rallies.

Unlike the Bank of Japan, Washington would have been coy about rigging the stock market and probably would have used proxies. The New York Federal Reserve Bank, for instance, would wink and nod at its favorite banks, and trades that turn the stock market upward would suddenly be made.

There’s another kind of market rigging that is also going on. This is being done by companies themselves.

Since corporate profits and revenues aren’t growing enough to justify current high stock prices, companies have been aggressively buying back massive quantities of their own shares.

By doing this, companies reduce the number of their shares owned by the public. This accounting trick boosts the calculation of profit-per-shares because the numerator of the equation (earnings) remains the same while the denominator (outstanding shares) is reduced.

Okay, so the markets are rigged. Basically everyone now agrees on that. But should we care?

America was built on capitalism and free and fair markets. Today’s markets aren’t fair. In fact, they are unfair because they are putting lots of money into the pockets of a small number of Americans.

The bigger problem is this: If stock prices are artificially inflated, nobody can tell what a company is really worth. And banks are going to be hesitant to lend money to companies with fuzzy valuations.

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:

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.

Conclusion

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.

Retirement, What is a Fixed Annuity?

What is a Fixed Annuity?

Fixed annuities are essentially CD-like investments issued by insurance companies. Like CDs, they pay guaranteed rates of interest, in many cases higher than bank CDs.

Fixed annuities can be deferred or immediate. The deferred variety accumulate regular rates of interest and the immediate kind make fixed payments - determined by your age and size of your annuity - during retirement.

The convenience and predictability of a set payout makes a fixed annuity a popular option for retirees who want a known income stream to supplement their other retirement income.

NEXT: What are its advantages?

Fixed annuities pay guaranteed rates of interest, which makes them appealing to investors wary of the stock market's ups and downs. What also makes them appealing are their low investment minimums - usually $1,000 to $10,000 - and the fact that the interest they pay escapes taxation until you pull it out.

How do I know if buying one is right for me?

If you're worried about coming up short, a fixed annuity can help you sleep at night. Because of their stability, fixed annuities might be well suited to those who want to make sure their money will be enough to carry them through retirement, and at least cover the bare minimum of fixed expenses.

Health Care For Elderly Seniors: Can Annuities Help Cover the Costs?

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.

Three Ways to Minimize the Tax Burden on Retirement Income

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.

index weekly table

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.

Fixed Index Annuities

Fixed index annuities provide the guarantees of fixed annuities, combined with the opportunity to earn interest based on changes in an external market index. But because you're not actually participating in the market, the money in your annuity (your "principal") is not at risk.

A fixed index annuity may be a good choice if you want the opportunity for accumulation, but don't want to risk losing money in the market.

Fixed index annuities can offer:

• Principal protection

• Tax-deferred growth

• One or more index allocation options

• A choice of crediting methods

• Income options, including income for life

• Death benefit options

• Optional benefits that may help protect your retirement assets and income (available at an additional cost)

How do fixed index annuities work?

1. You give the insurance company money in one or more payments.

2. The insurance company then invests it on behalf of all annuity owners.

3. During the accumulation phase, your annuity will earn a fixed rate of interest that is guaranteed by the insurance company.

4. You defer paying taxes on your contract’s interest until you receive money from the contract. Tax-deferred interest means the money in your contract can grow faster.

5. After a period of time specified by your contract, you may then receive the amount allowed by your contract in a lump sum, over a set period of time, or as income for the rest of your life. This is known as the distribution phase.

Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan.

Bonus annuities may include annuitization requirements, longer annuitization or surrender charge periods, higher surrender charges, lower interest rates, lower caps, higher spreads, or other restrictions not included in annuities that don't have a premium bonus feature.

Any distributions are subject to ordinary income tax and, if taken prior to age 59½, a 10% federal additional tax.

Guarantees are backed by the financial strength and claims-paying ability of the individiual Life Insurance Company.

• Not FDIC insured

• May lose value

• No bank or credit union guarantee

• Not a deposit

• Not insured by any federal government agency or NCUA/NCUSIF

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