Retirement Investments & Fixed Annuities
An Important Part of Your Retirement Portfolio

       The Golden Years - A time to relax, catch up on the good life and enjoy the new surprises that each day may bring. Retirement is the time to learn a new hobby or to see the world. This isn’t the time in your life to to worry, not about what tomorrow brings and definitely not about your money! Retirees are in what is called the “preservation phase” of life. No longer are you working for an income. You’ve built your retirement nest egg: it now needs to be preserved and be able to last the rest of your life. No retiree should have to face financial uncertainty in risky investments or the possibility of outliving their savings.

       According to the 2000 U.S. Census Bureau, retirees today are living longer, healthier lives. A retirement account needs to mirror this finding and be able to supply an income well into the golden years. Retirees are finding their nest eggs drying up as they live longer and experience longer retirements. Money should be preserved for this reason. A high risk investment with the chance of losing principal does not create peace of mind. A volatile account or one with any degree of risk at our ages is not where one’s retirement savings should be held. Money can be protected and grow at the same time. Enjoy your retirement, Create peace of mind. Retirees can find savings alternatives that do not have risk to them. Explore the possibility of Fixed annuities, an important part of retirement planning.

       There are basically two types of annuities, Fixed and Variable. A variable annuity is just as it implies – an annuity whose return is not certain! The deposits are invested in securities and Risk to the principal is certain. It is an inappropriate investment for retirees due to its extreme risk level! A fixed annuity is a financial vehicle used primarily for retirement. Not only can Fixed annuities protect all deposits made, but can also create a steady stream of income that can continue throughout the annuitant’s entire life. Annuities are contracts with insurance companies who are at least equal in financial stability with the U.S. Government. Once a deposit or premium is received, the money goes to work immediately, protecting your savings and earning interest as it grows. Fixed annuities are tax-advantaged accounts that continue to grow, provide safety, and peace of mind for the policyholder, can avoid probate and may possibly protect from Medi-Cal spend-down rules and creditors.
      
       There are two types of Fixed annuities that are popular, each with different options of financial growth. A multi-year guarantee annuity is an annuity that has a set interest rate, and grows at this fixed rate year after year for a set amount of years. Historically, interest rates for these types of fixed annuities pay 1% to 4% higher than a bank issued certificate of deposit (CD). The other option is an Equity Indexed Annuity (EIA). This type of annuity is geared toward the client who wants to participate in stock-market gains with NO risk of losing principal. An EIA provides these potentially higher-yielding rewards WITHOUT the risk. Should the stock market decline, no loss would be taken from your account! In addition to fixed interest rates and stock market linked crediting options, annuities credit more money to the principal through triple compounding of interest! The first year principal is in an annuity and it would accumulate interest based on the fixed rate or the stock market linked gain – and lock in the growth! In year two, compound interest is earned. Compound interest simply means interest on the principal is earned, interest on the interest is earned AND interest on the untaxed gain is earned. Most annuities allow monetary contributions to be made at any time the policyholder chooses, to further fuel financial growth. Most annuities also allow 10% withdrawals annually after the first anniversary of the policy with NO costs or fees to the annuitant!

       Since annuities are Tax advantaged vehicles, no taxes are paid until money is withdrawn. Not only is interest accruing on principal and interest, interest is accruing on the untaxed dollars as well! Even when annuitization, or structured withdrawals begins, tax is only paid on the amount withdrawn, allowing even more time for interest to build. This is different from CDs, where the interest  accrued is not tax deferred, but rather taxed every year. Since no tax is due on an annuity until you annuitize or make a withdrawal, the interest earned throughout the year does not count as income on your tax return. For example, the Social Security benefits tax and the income tax are not paid on the interest earned from an annuity UNTIL money is actually withdrawn. If you are using an annuity as a savings account until you need the monthly stream of income, or you are accumulating money for your children and/or grandchildren, you will take advantage of these exemptions and see a much faster rate of growth within your account! Safety is the principal reason people purchase fixed annuities! According to Gordon Williamson’s book All About Annuities, no one has ever lost a dollar in a fixed annuity through an insurance company. Because of the need for safety, insurance companies have gone to great lengths to protect contract holders and guarantee their funds. Insurance companies must maintain a reserve, similar to U.S.banks having the FDIC. While the FDIC and the FSLIC have approx. $1.00 on hand for very $100.00  ( 1% ) deposited in their respective banks, the insurance companies that hold annuity contracts MUST have approximately $1.10 on hand for every $1.00 deposited in an annuity ( 110% ) !!!

       Most annuities provide the option of annuitization. Annuitization means creating a stream of monthly payments to the policyholder from a combination of principal and earned interest. Insurance companies guarantee these monthly payments to last the rest of your life, no matter how much money was deposited. You cannot outlive an annuity! Another option is to take systematic withdrawals from your annuity. These withdrawals can be set up to distribute monthly, quarterly, or annually, allowing you to receive the accrued interest of an annuity while maintaining the full value of you principal.

       Probate, the legal proceedings to prove a will, can be very consuming and costly to beneficiaries upon the passing of a loved one. Assets within an annuity can be passed on to younger generations without the lengthy proceedings of probate. By designating beneficiaries and heirs on the policy contract, probate can be avoided. Without additional planning and a Senior Financial Advisor, annuities could still be subject to estate and income taxes, but the annuity proceeds would not go through probate. Annuities come with many other advantages and benefits that differ from state to state. In some states, fixed annuities and some life insurance policies can be protected from judicial orders or creditors. Fixed annuities can also be used to protect assets from nursing home expenses. When a retiree places assets into a “Medi-Cal” Qualified Annuity, the deposits may be protected from Medi-Cal spend-down rules, meaning Medi-Cal would assist in nursing home care, without forcing the owner to forfeit their annuity benefits. Annuities are a great way for Americans who might have started saving late in life to build retirement wealth. The principal grows faster because of the triple compounding of interest! There are a number of advantages of annuities in the retirement years. Please contact our office for a more thorough discussion and explanation of how an annuity can benefit You during your retirement!