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Why are Markets and Annuity Sales at All Time Highs?

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Equity markets increasing and annuity sales increasing at the same time is a little like cats and dogs playing together. It does happen, but an inverse relationship has been the norm.

Author Dan Kadlec (cited below) stated in his article that “Lifetime income has emerged as perhaps the biggest retirement challenge of our age. The gradual shift from defined benefit plans to defined contribution plans over the past 30 years has begun to leave each new class of retirees without [continued below video…]

Video: Watch the Annuity Guys, Dick and Eric, discuss about these and other possible explanations as to why annuities are now so popular.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

{continued] …the predictable, monthly stream of cash needed to cover basic expenses. ”

It is a fact that more and more employers are moving to a 401k style retirement plan and away from the defined benefit plans enjoyed by past generations. Some of the biggest national employers are doing everything they can to unload their pension obligations by offering lump sum buyouts or turning the pension program over to insurance companies.

So we can postulate that the reason for increased annuity sales now and perhaps in the foreseeable future have more to do with the financial needs of today’s retirees as compared to past generations; and some of the increased sales may also be the lack of safe money options from other sources such as low bank interest rates that have left income needy retirees without many other alternatives for safe income or moderate growth options.

Need Retirement Income? Here’s the Hottest Thing Out There

by  Dan Kadlec

Sales of fixed annuities are surging as income-strapped retirees seek ways to rescue their retirement plans.

Annuity sales are exploding higher as retirees look to lock up **guaranteed lifetime income in an environment where fewer folks leaving the workplace have a traditional pension. In a sign of wise planning, easy-to-understand basic income annuities are among the fastest growing of these insurance products.

In all, net annuity sales reached $56.1 billion in the first quarter—up 13% from a year earlier, based on data reported by Beacon Research and Morningstar. Variable annuities, often seen more as a tax-smart investing supplement for the wealthy than a vehicle for lifetime income, account for most of the market. These annuities, which essentially let you invest in mutual fund^s with some insurance **guarantees, saw first-quarter net sales of $33.5 billion—down slightly from a year ago.

Meanwhile, net sales of fixed annuities, which offer more certain returns, surged to levels last seen in the rush to safety at the height of the Great Recession—totaling $22.6 billion for the quarter. Fixed annuities come in simple and complex varieties—those indexed to the stock market can be confusing and laden with fees. But the subset known as income annuities—the most basic and straightforward of the lot—grew at a 50% clip versus 44% for the index variety.

Basic income annuities, also known as immediate annuities, remain a tiny portion of the overall $2.6 trillion annuity market. Yet they are what most investors think of when they ponder buying an income stream. With an immediate annuity you plunk down cash and begin receiving pre-set over a period of, say, 10 or 20 years, or life. Rates have been relatively low, as they are for most fixed-income investments. Recently a 65-year-old man investing $100,000 could get a lifetime payout of 6.6%, according to [Read more…]


Using OutCome Based Planning™ for Your Retirement

We practice and recommend a "Holistic - OutCome Based Planning™ process when considering annuities." This approach has the effect of balancing your overall portfolio so you can meet your retirement objectives by "first identifying the least amount of your investments or savings (if any) that should be considered for annuities." OutCome Based Planning™ analyzes and models multiple outcomes so you can clearly identify your best income and growth opportunities.

"The Annuity Guys will only call if you request help". Hence, when you are ready for specialized help we will be available.
"Working with an Experienced Fiduciary Financial Planner can help you Avoid a Trial & Error or Risk Based Retirement"

This type of approach does take considerably more time, effort and analysis which will show you mathematically the successful possibilities by comparing various outcomes rather than trying to sell or convince you of that "so-called one best solution." Clients frequently tell us that this process removes some of the confusion and emotion to help them objectively identify a better retirement plan; rather than just ending up with the most convincing salesperson or advisor.

When requesting help you can be assured of working with an experienced Annuity Guys' Retirement Planner who is independently insurance licensed and securities licensed as a fiduciary financial planner having access to the vast majority of annuity companies in helping you choose the best annuities using a holistic-outcome based planning approach. We consider the high quality advisor recommendations we make to our website visitors as a direct reflection back on our commitment to serve all client's with a high standard of excellence in financial planning for retirement.

Based on survey feedback on advisors from our website visitors, we eliminated about two-hundred local advisors and now only recommend a few that we consider experienced vetted Annuity Guys' Fiduciary Advisors. Many local advisors continue requesting us to recommend them as a vetted advisor. However, our reputation and future business is driven only by satisfied website visitors. So, unfortunately we've had to tell the vast majority of local advisors no, since we changed our business model four years ago. At that time we stopped trying to satisfy everyone with local advisors, we now primarily work with individuals who are comfortable using today's internet technology to their fullest advantage by working with a select group of vetted, experienced and knowledgeable Annuity Guys' Fiduciary Planners.


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Selecting the Best Annuity & Retirement Income Advisor

Are you willing to work with one of our retirement and annuity advisors based on their experience and expertise as a first priority rather than being limited by a local or regional area? The good news is that technology has forever eliminated our geographical limitations and leveled the playing field for everyone! As a result of today's technological advances, all of us can now work confidently with experts in any field including personal finance. We are no longer confined by regional or local boundaries limiting our choices and ultimate success. A high quality advisor is now as close as a click or phone call away.

Video:"Choose a National or Local Advisor"?
"There is no room for trial and error when it comes to choosing MarketFree® Annuities or a Successful Retirement Planner."
When you think about it, your money is almost always in some other state with a custodian; whether invested in the market or with an annuity insurance company, the advisors competence is primarily needed when positioning your money initially. So working with a specialized expert in a financial discipline like investments or retirement planning is imperative. There are no undo buttons in retirement! Once the annuities get set up correctly, it is customary and more efficient for owners to benefit by having direct access to the issuer instead of having to go through the agent. And, of course any reputable advisor, local or national, is more than willing to assist their clients if needed after they are implemented.
Video:"Why These 3 Types of Annuity Advisors are Not Created Equal"
"There are no undo buttons in retirement so it is vitally important that you do it right the first time!"

We are fortunate to have a select few who we believe are truly the highest qualified advisors out of about two hundred licensed insurance agents that we eliminated. Your survey feedback is what helps us make these tough decisions. Our advisors have an independent financial practice, specializing in annuities and retirement planning, which helps ensure that you are given the best options available for your retirement planning.

Video: "How Much of Your Money Should You Consider Placing into Annuities"?
"It takes an experienced expert to know how to structure annuities for income, inflation, growth, return of principal, and tax advantage."

"Anyone can sell you an annuity; however, it takes a truly qualified and experienced advisor to know how to structure them for income, inflation, growth, return of principal, and tax advantage. Typically, there is not just one that can accomplish all of these objectives. It is how an advisor structures multiple annuities in balancing your total portfolio that makes it possible to achieve your most important retirement objectives."

Video: "How to Choose a Great retirement Advisor"?

Why Searching for the Best Annuities on Your Own Can be so Frustrating...

Almost everyone nowadays turns to the internet for answers on everything - from buying new widgets to researching just about everything under the sun; and finding the best annuity is no exception!At first, it may seem that researching will be straightforward but the more time you spend researching them, the more frustrating it can be. Why is this? First of all, it does not take long to realize that gimmicks abound - such as warnings and alerts from salesmen who just want your attention so they can sell you one or the "too good to be true" claims of 8% to 14% **guaranteed interest and of course the claim that you can get the full market upside with no downside risk! If you have done any research you have heard all of these claims in advertising which are mostly half truths and not fully explained.So how can you find the best annuities on the internet? The truth is... you can't! And what is even more frustrating is all the conflicting points of view from so called experts. There are well over 6,000 different annuities - all designed for different reasons, so is it any wonder that the deck is stacked against the average researcher or do-it-yourselfer. Add to that the fact that they pay high enough commissions to attract a plethora of both good and bad agents. This does not make annuities good or bad; they are simply a financial tool that truly benefit those who use them correctly.How can you find the best annuities for your unique situation?
  • Use the internet cautiously;
  • Work with a vetted and experienced specialist;
  • Do not settle for that one dubious best plan. Compare multiple Outcome Based Plans to decide on the one that is truly best for you;
  • Be keenly aware of scare tactics and hyperbole - avoid those advisors and websites;
  • Avoid websites that are focused on rushing free reports, rates and quotes to get your contact information they are rushing you to speak with them, instead, take your time and choose someone you are more comfortable with that works on your time-table;
  • Know the Five Vital Factors (listed above) that an experienced specialist must answer before helping you select the best options for your situation;
  • Watch this telling video "Avoid Annuity Gimmicks, Amateurs and Charlatans"...

Video: "Avoiding Gimmicks, Scams & Charlatans"

  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
They are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping our website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this website. He still maintains his insurance license in good standing and assists his current clients.
Our vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)


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  9. MarketFree™ Annuity Definition: Any fixed annuity or portfolio of fixed annuities that protects principal / premium and growth by remaining market risk free.
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Sell in May and Go Away or Buy Annuities?

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Life is full of profound statements and sayings that stick in our minds. For investors and brokers, the saying “sell in May and go away” has held some degree of truth for those who are looking to avoid the volatility and declines of the equity markets from May through October.

This topic seems to have some momentum among the popular investment media advisors where we have seen no less than a dozen Wall Street insiders telling everyone who will listen…[continued below video]

Video: Watch as Annuity Guys, Dick and Eric, discuss as to whether the best way is to sell in May.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued]…that this is not the year to sell in May. The question is… who do you believe the historical adage or the so called experts of our day? Or, is there a third option for those looking to avoid the volatile days and declines of summer by positioning some of their assets into a holding where they can take the risk of loss due to negative investment performance off the table? Using fixed or fixed index annuities as an alternative asset class is becoming more popular with people looking to mitigate the risk of potentially decreasing bond valuations based on rising interest rates and also to seek stock market protections from the current bull market possibly screeching to a halt.

Annuities may not be the right choice for everyone; but for those in or nearing retirement, they are certainly worthy of consideration. Annuities are the cornerstone of safe income options for many retirees but also offer some safe market upside growth potential to consider when evaluating whether to sell stocks in May and go away or buy annuities in May and go play!

[continued]

For stocks, the best time to sell and go away starts today

CHAPEL HILL, N.C. (MarketWatch) — Should you sell in April and go away?

It’s an odd question, I admit. Widespread talk of selling usually doesn’t begin until late April, when investors each year are reminded of the famous seasonal pattern “sell in May and go away.”

But it’s precisely because it is so well-known that some followers of this seasonal tendency wonder if they should act sooner rather than later. Waiting until May Day runs the risk of selling at the same time that a large number of other investors are doing the same.

Fortunately, we have real-world data on two attempts to get a jump start on the “sell in May and go away” pattern. The first is the “Almanac Investor Newsletter,” edited by Jeffrey Hirsch, and the other is Sy Harding’s “Street Smart Report.”

Both pursue surprisingly similar modifications to this basic seasonal pattern. Each relies on a technical indicator known as MACD to pinpoint the precise day on which they enter and exit the market. (MACD is a short-term momentum indicator, standing for moving average convergence divergence.)

The Hulbert Financial Digest has track records for both market timers’ modifications of this seasonal pattern dating to mid-2002, nearly 13 years ago. The HFD calculates their returns on the assumption that, when they are invested in stocks, they earn the return of the Wilshire 5000 Index; otherwise they are assumed to be invested in 90-day Treasury bills.

As you can see from the accompanying table, a buy-and-hold strategy since mid-2002 has produced a 7.7% annualized return. Automatically going to cash every May Day and re-entering the market on Halloween would have done slightly better with a lot less risk — which is why it comes out well ahead of buying and holding on a risk-adjusted basis (as indicated by a higher Sharpe Ratio). [Read More at MarketWatch…]


 

 

Market Volatility is Back! Are MarketFree™ Annuities an Answer?

By

Timing is everything. Unfortunately, 99 percent people who say they are only in the stock market when it is going up and then get out just before it goes down got lucky once, are delusional or lie!

The level of recent volatility makes even the most staunch buy-and -hold investors take notice; and for those counting on their investments to fund an impending retirement, it can…[continued below video]

Video: Annuity Guys Dick and Eric talk about the roller coaster ride the market has experienced lately and how MarketFree® Annuities might help smooth out the ride.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

…create extreme anxiety and sleepless nights. For near retirees who have enjoyed the recent bull market run and feel positive about their ability to fund a comfortable retirement. Now may be a great time to secure that retirement by protecting some of those gains.

In 2008 and 2009, we spoke with numerous pre-retirees who were distraught because their retirement plans were decimated when their IRAs and 401ks lost 20-50% over the course of just a few months. Discussions went from talking about traveling and spending time with family to serious deliberations about working longer and downsizing homes. Now, does volatility of this level imply that a correction or bear market is imminent? We are not so bold as to predict it; but would it be nice to not  have to worry about it at all?

Some of the best conversations we have ever had were with clients who had allocated a portion of their portfolios to annuities in 2007. These clients were able to protect their gains by using MarketFree® Annuities thereby eliminating the market risk. By allocating a portion of their assets into annuities, they were able to smile knowing that they did not lose any of those annuity dollars during the severe market down turn of The Great Recession. In contrast to those who were  directly in the stock market of 2008-2009 who lost their money our MarketFree® annuity clients were actually making money!

One of my favorite phone calls of all time was in 2010 from a client concerned because his annuity payment had increased and he wanted to make sure he could keep the money. What he had forgotten was that his annuity contract provided for an increase to his income when his annuity grew. He was ecstatic – not only did he survive the recession with all his assets intact, he actually benefited from the market downturn which allowed his indexed annuity to reset to the lower level in 2009 and produce gains without having to overcome the 30% losses of the stock market first.

Using a MarketFree® Annuity to protect principal and provide modest interest gains coupled with for life can be a solid strategy for both retirees and pre-retirees. This strategy removes the uncertainties of requiring market performance and replaces it with safety of principal, income predictability and some interest gains from upward market movements .

 


 

A Lump Sum Buyout or Keep Your Pension – Which is Best?

By

It is a statistical fact that “Retirees love their pensions”. Studies consistently show that pensions are favored over qualified retirement savings plans like 401ks and IRAs. The comfort of knowing that one has an income that they cannot out live has been a stabilizing factor for many generations of retirees — until recently.

Please don’t think that we are anti-pension. We love pensions and the **guarantees they offer; however, lately we have been talking with people who were counting on pension benefits to be there when they [continued below video…]

Video: The Annuity Guys, Dick and Eric, discuss accepting pension buyouts. (sorry for an echo in this weeks video “technical difficulty”)

 Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued]…retired – yet are now fearful that due to “unfunded pension liabilities”, they may not receive the benefits they worked so long to achieve and now feel forced to take an unfair lump sum buyout.

Pensions are **guaranteed nationally by the Pension Benefit Guaranty Corporation (PGBC) and they help advise employees impacted by lost or failing plans. It should be noted that most pensioners receive their full benefits even when they are administered by the PGBC. So, why the concern? The PGBC is currently running over a 60 billion dollar deficit due to the number of recent bankruptcies. Congress is expected to try and close the gap by increasing the premiums due to the PGBC, which are charged on a per participant basis; however, many suspect that increases in those premiums will just continue to increase the number of companies dropping pension plans and programs altogether.

So, what happens when a solvent company wants to drop their pension program? The company typically has two options; they can offload the liabilities of the pensions to an insurance carrier to fulfill the obligation or they can offer a lump sum payment that covers pensioner’s benefit.

Just because you are offered a buyout does not mean you should jump at the option solely because of the risk of the entire system. Most pension benefits are “richer” than what is typically available from an insurance company issuing a new annuity in the commercial market. Thus, when you are offered a buyout, you have to examine the whole package and ask yourself a number of questions, such as;

  • What are the benefits offered versus what is available commercially?
  • What is the financial status of my company’s pension fund and why are they offering a buyout?
  • Do I need additional benefits for my family or spouse not covered under my existing plan?
  • What happens if the PBGC takes over my benefit?
  • When do I need the money?
  • Would I rather have more flexibility and manage my own money with securities, or annuities, or both?
  • Do I want a benefit/lump sum that could be passed onto my heirs? (Especially if you have a short life expectancy due to health)

If you determine that accepting a buyout is the best move, you still have the option of purchasing a level or increasing  now or in the future from an insurance company. We believe that highly rated insurance companies offer a higher degree of safety and stability than most financial instruments offer due to the high level of assets and reserves they are required to maintain. Also, with annuities, you have a number of options available that allow for income **guarantees combined with the flexibility of still maintaining full control over the majority of your dollars at all times.

In summary, if you are offered a buyout, take the time to carefully consider your options so that you can make the best decision possible. It would be wise to consult an advisor with experience and expertise who can help you carefully balance all the possible pluses and minuses prior to taking a lump sum buyout.

Here is an exerpt from Kiplinger’s that is a great read for anyone interested in more info on this topic.

Put Your Pension to Work

By Sandra Block, From Kiplinger’s Personal Finance, January 2016

How you decide to take this endangered asset may be crucial to a secure retirement.

Fretting about how to manage your pension is like complaining about the cost of winterizing your beach house. Lots of people would love to have your problem.

Only about 18% of private-industry workers have a defined-benefit pension. Less than one-fourth of Fortune 500 companies offered a defined-benefit plan to new employees at the end of 2013, down from 60% in 1998, according to Towers Watson, the human resources consulting firm. The number is much larger for public-sector workers; about 80% of them have a traditional pension.

If you’re eligible for a traditional pension, you’ll be faced with important decisions that could affect your financial security, and they’re usually irrevocable. That means when you retire, you’ll need to do more than turn in your security badge and wait for the monthly checks to roll in.

Backing away from defined benefits

The move away from traditional pensions reflects several trends. Employees are living longer, which increases the cost of providing a lifetime monthly payment. Low interest rates have reduced pension funds’ investment returns, requiring com­panies to put more money into their plans to avoid a shortfall. Government regulations designed to protect pension participants have increased the cost of offering and maintaining defined-benefit plans. Finally, companies used to view pensions as a way to attract and retain good employees. But these days, a benefit that rewards longevity is a lot less valuable because workers change jobs every 4.6 years, on average, according to the Bureau of Labor Statistics.

Even if you’re among the minority of private-sector workers covered by a pension, you’re not immune from efforts to reduce pension costs. AT&T, Boeing and IBM have joined other companies with big pension obligations in switching to a cash-balance plan. These hybrid plans combine features of a 401(k) and a traditional pension. Benefits from a traditional pension are typically based on a participant’s salary during the final years of employment, but with a cash-balance plan, benefits are accrued evenly over time. When a company converts, participants are usually entitled to the benefits they’ve earned to date under the traditional formula, with future benefits based on the cash-balance calculation. For longtime employees, the shift can result in a big cut in benefits.

Other companies have frozen pension benefits. The number of plans with frozen benefits rose from 10% in 2003 to 32% in 2011, according to Russell Research, a financial research firm based in East Rutherford, N.J. Many companies have cushioned a pension freeze by providing higher contributions to workers’ 401(k) plans. That could pay off for young workers who haven’t accrued much in the way of pension benefits, but a freeze can be costly for mid-career workers. Their future raises and years of service won’t be factored into their pension, and they’ll have less time to make up the difference by contributing to a 401(k), even if it comes with a generous employer match.

In the past, pension participants could count on the payouts they were promised once they started receiving benefits, but that’s changing, too. A new law allows multi-employer pension plans to cut benefits for current and retired workers. These plans typically provide coverage for union members who work for different companies, usually in the construction, manufacturing and trucking industries. Because of a decline in employment in those sectors, the plans have come under severe financial stress. In October, the Central States Pension Fund, a multi-employer plan that covers more than 400,000 participants, proposed cutting its benefits by an average of 22%. Some retirees will see their benefits cut by up to 60%.

A nice problem to have

Carin Hoch, 58, vice president of real estate for NuStar Energy in San Antonio, vividly recalls a meeting she and her husband, Ron, had about five years ago with their financial adviser to discuss financing a retirement home. After reviewing their salaries, retirement savings and other assets, the adviser turned to Ron and said, “She’s a keeper.” The reason: Hoch will retire with a traditional pension.

Hoch hasn’t decided whether she’ll take her pension as lifetime payouts or a lump sum when she retires. The Hochs have other sources of retirement income, including 401(k) plans, but having a pension in the mix has given them options they wouldn’t otherwise have. It has made it possible for Ron to retire at age 59 so that he can help care for Carin’s father, who is 93. It will allow Carin to retire in four to six years. It even helped them get a lower interest rate on the mortgage for their retirement home because it showed “financial stability.”

The couple plan to use the income from Carin’s pension and Social Security to pay for their living expenses. They’ll spend money from their 401(k) plans on travel and other discretionary items. Considering what can happen in the stock market, Carin says, having a pension “really gives us a comfort zone.”

Not only that, but retirees like the Hochs can invest money in their retirement accounts and other savings more aggressively, which offers the potential for higher returns. A monthly annuity payment “is like a bond portfolio,” says Charles Sachs, a certified financial planner in Miami. “You can buy riskier assets because you have this cushion of dollars coming in.”

Lump sum versus lifetime payout. If, like Hoch, you’re covered by a pension, this decision may be the most important one you’ll face when you retire. As employers look for ways to rid themselves of costly pension liabilities, they’re increasingly offering to pay departing employees a lump sum in lieu of a lifetime annuity payout. Figuring out which option is right for you will depend on a number of factors, ranging from the size of the lump sum to how long you expect to live.

See more information and details at Kiplingers.com


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New Social Security Cuts are Effective NOW

By

Last week, we had no idea that congress and the president would act so quickly on such an important issue!

Social Security changes: How will they impact your retirement plan?

This new budget bill will significantly impact the retirement plans of many individuals nearing or in retirement. Beginning in 2016, the bill would stop the benefits of…[continued below video]

Video: The Annuity Guys, Eric and Dick examine why this change to Social Security could be debilitating to so many retirees.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During these segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Video: In case you missed last weeks video where Dick and Eric discussed the proposed changes to Social Security.

[continued]…spouses, divorced spouses or children on the work record of a spouse, ex-spouse or parent who has suspended his or her Social Security benefit with the plan of restarting their benefit later. This strategy is often referred to as the “file and suspend” strategy. However, these recent changes eliminate the said strategy effective May 2016 for all future retirees.

If you have not planned to use “file and suspend” or implemented this Social Security  strategy, you might just be saying “so what?” But as financial planners who pride themselves in helping clients optimize their retirement income, congress has just undone tens of thousands of optimized retirement plans across this nation, especially for those who do not reach full retirement age by May of 2016. They will not be grandfathered in and are directly affected in an adverse way by these changes. What these Social Security changes effectively do is to possibly cause couples to file for their own benefits earlier than they would have under the old rules in order to meet their retirement spending needs. For many, this loss can be a significant portion of their total retirement income.

So, in order to protect retirement lifestyles,  many couples will have to file for each of their Social Security income benefits simultaneously and earlier than planned. By filing earlier, they are losing out on the compounding growth available to individuals who delay taking Social Security until as late as 70. One major impact this will have is on the additional compounding effect provided by the cost of living adjustments (COLA); that under the old rules, Social Security payments could have been deferred longer by one of the spouses to lessen the impact of inflation by creating a larger benefit base for (COLA) income benefiting both spouses.

For many Americans, Social Security is a cornerstone of their retirement income plan. It is unfortunate that with the raise of hands, congress has undone the retirement benefits promised to so many American families.

Updated related article by Michael Kitces from Wednesday, November 4th.

Navigating The Effective Date Deadlines For The New File-And-Suspend And Restricted Application Rules

With last week’s “surprise” legislation that revealed Congress is killing the File-and-Suspend and Restricted Application claiming strategies for maximizing Social Security benefits, even those who weren’t previously aware of the strategies are now wondering whether it’s something to take advantage of before the new rules go into effect.

Fortunately, though, the new rules do not kick in immediately. Those who are already receiving benefits are not impacted at all. And those who are full retirement age – or will reach it in the next 6 months – will still have the opportunity to file-and-suspend before the crackdown takes effect after April 29, 2016. Furthermore, anyone who was born in 1953 or earlier (or January 1st of 1954) will still be able to do a Restricted Application for spousal (or divorced ex-spouse) benefits, even if the filing doesn’t occur until years from now.

Nonetheless, the next 6 months do mark an important transition period that merits a close look at Social Security claiming strategies, for the brief time window that all of the tools remain on the table, whether it’s an individual filing and suspending for a potential lump sum reinstatement in the future, a couple claiming spousal benefits, or a family claiming dependent or disabled child benefits while delaying individual retirement benefits until age 70. And for those “lucky” enough to be born in 1953 or earlier, only a few years remain to consider a Restricted Application, before that deadline ends, too!

The Near-Term Expiration Of The File and Suspend Strategy For Married Couples
How File-And-Suspend Used To Work
The original version of File-And-Suspend allowed someone, upon reaching full retirement age, to file for Social Security retirement benefits, and then immediately suspend them. The fact that benefits had been filed for meant a spouse became eligible for spousal benefits (as spousal benefits cannot be claimed until the primary worker also files for benefits). However, the fact that benefits of the primary worker were subsequently suspended – and therefore were not actually received – meant that the original filer could still earn delayed retirement credit increases of 8%/year for waiting.

Example 1. John and Mary are both age 66, and have been married for 40 years, in a household where John was the primary breadwinner and Mary never worked outside the household. John is eligible for a retirement benefit of $2,000/month at his full retirement age, and Mary at her full retirement age will have no retirement benefit of her own, but will be eligible for a spousal benefit of $1,000/month, equal to 50% of John’s full benefit.

John wants to delay his benefits until age 70, increasing his benefit by 4 years x 8%/year of delayed retirement credits to $2,640/year (plus subsequent cost-of-living adjustments). Doing so not only boosts his own benefit, but increases the size of John’s survivor benefit that would be payable to Mary if John dies first.

However, waiting until John turns 70 means that Mary won’t receive any of her $1,000/month spousal benefits until then either, since Mary cannot get spousal benefits until John actually files for his own. And since there are no delayed retirement credits for spousal benefits, the extra 4 years of waiting just means Mary permanently loses those 4 years of $1,000/month benefits with no benefit in return!

To resolve this issue, John would File-and-Suspend upon becoming eligible at his full retirement age of 66. By doing so, Mary becomes eligible to claim her own $1,000/month spousal benefit (which she can receive in full, since she too is age 66), accumulating 4 years’ worth of spousal benefits she otherwise wouldn’t have received. (If Mary had been younger, she could have also claimed, but her spousal benefits would be reduced for starting early.) And John still gets the 8%/year delayed retirement credit increases for delaying his own benefits until age 70.

The fundamental point – with File-and-Suspend, John could allow Mary to get her spousal benefits, while still delaying his own benefits to earn the 8%/year delayed retirement credits.

How File-And-Suspend Will Work Now
Under the new rules in Section 831 of the Bipartisan Budget Act of 2015, when John suspends his benefits, he will suspend not only his own benefits, but any/all benefits payable to other individuals based on his earnings record. And since Mary’s spousal benefits are 50% of John’s benefits – and therefore are based on his earnings – then the entire File-and-Suspend strategy is effectively dead.

Now, if John were to file-and-suspend, he will suspend his benefits and Mary’s benefits, so no one gets any benefits. Which means if John wants to delay his benefits to earn delayed retirement credits, Mary will have to wait on claiming her spousal benefits, too. [continue reading about the changes at kitces.com]


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Is Strong Growth from Annuities Likely in The Looming Bear Market?

By

Strong growth is a matter of perspective, and when your basis of comparison is a decrease of 20 to 30 percent, even zero growth is strong by a matter of comparison.

Many economist and market watchers have been proclaiming an end to the bull market for months and the recent drops have sent many investors scrambling for safety. Now that we have seen many indexes drop into “correction level” (a polite way of saying they have lost 10%) the big question is … [continued below video]

Video: Watch as Annuity Guys, Dick and Eric, discuss the growth potential of annuities in a declining stock market…

 Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued below]…are we poised for a new bull run or are we in for a more serious drop of another 10 to 20 percent or even far more?

Can you get strong growth from an annuity during a bear market? Certainly! You can even utilize a fixed annuity and typically **guarantee a fixed return of 2 to 3 percent at present rates. However, a fixed index annuity (hybrid style) can benefit from resetting during a bear market, which typically creates more growth potential because fixed index annuities can reset to a new lower indexing point during a bear market – they do not have to grow back to their high point to begin accumulating gains. According to various studies of past performance, index annuities have the realistic potential to earn from 4 to 6% interest annually while protecting principal!

Trying to time the market can be extremely difficult for professionals, especially for individual investors. Riding out a bear market for some is “un-bearable” – they cannot handle the emotional roller coaster. Annuities can be an answer for those people hoping to move a portion of their portfolio into a safer financial growth alternative – safer option that offers a far greater upside potential than just sitting in cash or riding a market down.


 

Read more on this subject in this article:

 Shiller: Average CAPE Ratio Puts S&P at 1,300, Dow at 11,000

Nobel laureate economist Robert Shiller of Yale University says his indicator shows that the current stock market values are overinflated and will only crash even lower.

Shiller invented the cyclically adjusted price to earnings ratio (CAPE), a key indicator for stock market crashes.

“It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly,” Shiller wrote in the New York Times.

According to Shiller’s CAPE ratio, the stock market is significantly overvalued. The metric modifies historical price-earnings ratios to account for business cycles. Between 1881 and 2015, CAPE averaged a ratio of 17, well below today’s reading of 27.

“Levels higher than that have occurred very few times, including the years surrounding the stock market peaks of 1929, 2000 and 2007. In all three of these instances, the stock market eventually collapsed,” he said.

Shiller said his indicator would put the S&P closer to 1,300 from around 1,988 on Friday, and the Dow at 11,000 from around 16,643.

“We are in a rare and anxious “just don’t know” situation, where the stock market is inherently risky because of unstable investor psychology,” he said.

“There are reasons to question whether this was a quick, effective slap on the wrist, or if the market is still too overactive, and thus asking for a more extended punishment,” he said.

“Ten percent drops in the S&P 500 in just five trading days — such as what we just experienced — have not been common. Out of the 29 corrections since 1950, only nine happened in five days or less,” he said.

“Most of those happened since 2000, possibly because of the Internet and faster communications. Such rare sharp drops are psychologically significant; an extreme one-day collapse seems to create anxiety that imprints on people’s memories and could contribute to a downward momentum.”

The CAPE is a valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings (Moving average), adjusted for inflation. As such, it is principally used to assess likely future returns from equities over timescales of 10 to 20 years, with higher than average CAPE values implying lower than average long-term annual average returns.

All of the recent market volatility could help drive investors away from stocks for years, says ace hedge fund manager Doug Kass, president of Seabreeze Partners Management. [Read More at NewsMax]

 

The China Affect on Annuities…

By

There has been no shortage of China headlines as their economy faces major headwinds. It would be naive to think that the second largest economy in the world, that is close to becoming number one, would somehow not affect the US economy adversely if they go into a free-fall. Even a small country like Greece going in and out of default cast economic turbulence on larger successful countries. So, imagine how much worse it could be for the world if… [continued below video]

Video: Watch as Annuity Guys, Dick and Eric, discuss the not so good “China Affect” on annuities!

 Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued below]…China does not get its house in order soon!

So why should retirees who own annuities or those with plans to purchase them care about what is happening in China? Simple. When markets become unstable and volatile, investors flee to safety; this often leads them to purchase short-term US government bonds. As demand for US treasuries rise, bond prices increase which in turn lowers the yields on bonds as their price is bid up by demand. Hence, the annuity companies that rely on higher bond yields to remain profitable and solvent must react to these lower bond yields by cutting costs which translates into **guarantees and benefits being reduced as a cost cutting measure. Due to increased demand for bonds, most annuity companies feel this financial pressure and are now positioning for changes. So, if you are close to moving annuities into your asset mix, now may be an excellent time to lock in better **guarantees and benefits before they are reduced by the China Affect!.

How severe will it get in the market before another stable uptrend is underway? This is a question with no certain answer. Many believe that there will be a 20 to 40 percent drop before things get back on track; others believe we have already seen the worst. Regardless of which scenario is correct, you must ask yourself how much are you willing to lose and “that is the amount you should consider for stock market risk” especially if you are in or near retirement. Annuities and other insured or **guaranteed financial products are where the balance of your money needs to be if safety is one of your important objectives.

 


 

Read more on this subject in this article:

10-year Treasury yield hits 2-month low after China’s yuan devaluation

By Ellie Ismailidou

Demand for Treasury bonds jumped Tuesday, driving yields down to their lowest level since May 29, after a surprise devaluation of the Chinese yuan by the People’s Bank of China sparked flight-to-safety flows into haven assets, like Treasurys.

“A devaluation implies even slower growth in China, and that’s driving an aggressive risk-off trade, with the rates markets taking back all of Monday’s losses,” Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said in a note.

The yield on the 10-year Treasury TMUBMUSD10Y, -0.12% tumbled 9.9 basis points to 2.139%, the largest one-day decline since July 6, according to Tradeweb. Bond yields fall as prices rise and vice versa. Read More…

 

How are Annuities Affected by the New 2015 Rollover Rules?

By

The Internal Revenue Service is changing the IRA rollover rules this year – if you don’t know about this change it could hurt you.

Beginning in 2015, you can only make one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own. The limit will apply by aggregating all of an individual’s IRAs including SEP and SIMPLE IRAs, as well as traditional and Roth IRAs effectively, treating them as one IRA for purposes of the limit.

Does this mean you are limited to a single transfer from a 401k or IRA to a new investment or annuity firm in 2015? No. There is no limit on custodian to custodian transfers – sometimes referred to as rollover transfers.  The rollover situations that are impacted are those where an IRA custodian creates a check and disburses those funds to the account holder. Once the account holder takes possession of their funds, the account holder has… [continued below video]

Video: The Annuity Guys, Dick and Eric, discuss the new IRS rollover rules and how it could impact your money movement in 2015.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

…sixty days in which they can “roll” the funds over into another IRA to avoid paying taxes or penalties on the disbursed dollars. (The IRA account holder previously had the ability to rollover an IRA once per year per IRA; however, at present, it is only once for all the IRA account holders aggregated IRAs.)

Why does this matter? There are a number of advisors who prefer to do rollovers so they can more efficiently expedite the movement of funds from a custodian that is being replaced into their control. Doing this now still works… but if you do this twice – knowingly or unknowingly – you could trigger a taxable event on ALL the dollars involved in all of your aggregated IRAs..

Want more information, here is an article from the IRS…

IRA One-Rollover-Per-Year Rule

Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement  2014-15 andAnnouncement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

  • Trustee-to-trustee transfers between IRAs are not limited
  • Rollovers from traditional to Roth IRAs (“conversions”) are not limited

Transition rule ignores some 2014 distributions

IRA distributions rolled over to another (or the same) IRA in 2014 will not prevent a 2015 distribution from being rolled over provided the 2015 distribution is from a different IRA involved in the 2014 rollover.

Example: If you have three traditional IRAs, IRA-1, IRA-2 and IRA-3, and in 2014 you took a distribution from IRA-1 and rolled it into IRA-2, you could not roll over a distribution from IRA-1 or IRA-2 within a year of the 2014 distribution but you could roll over a distribution from IRA-3. This transition rule applies only to 2014 distributions and only if different IRAs are involved. So if you took a distribution from IRA-1 on January 1, 2015, and rolled it over into IRA-2 the same day, you could not roll over any other 2015 IRA distribution (unless it’s a conversion).

Background of the one-per-year rule

Under the basic rollover rule, you don’t have to include in your gross income any amount distributed to you from an IRA if you deposit the amount into another eligible plan (including an IRA) within 60 days (Internal Revenue Code Section 408(d)(3)). Internal Revenue Code Section 408(d)(3)(B) limits taxpayers to one IRA-to-IRA rollover in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication 590, Individual Retirement Arrangements (IRAs) interpreted this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual. However, the Tax Court held in 2014 that you can’t make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21).

Tax consequences of the one-rollover-per-year limit

Beginning in 2015, if you receive a distribution from an IRA of previously untaxed amounts:

  • you must include the amounts in gross income if you made an IRA-to-IRA rollover in the preceding 12 months (unless the transition rule above applies), and
  • you may be subject to the 10% early withdrawal tax on the amounts you include in gross income.

Additionally, if you pay the distributed amounts into another (or the same) IRA, the amounts may be:

Direct transfers of IRA money are not limited

This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.

 


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Can Hybrid Annuities Beat Market Returns?

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Do you remember the story of the tortoise and the hare? Hybrid annuities might be compared to the tortoise in Aesop’s fable because often slow and steady does indeed win the race.

Just like  the tortoise in Aesop’s story, hybrid annuities are steady and consistent in their pace; and while they may take an occasional break, they never go backwards. Like our friend, the hare, the equities markets at times run so fast and hard – they occasionally get out of control and crash…[continued below video]

Video: Annuity Guys, Dick and Eric, discuss hybrid annuities competing with the stock market.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 


 
…and when the (market) hare crashes, the tortoise just keeps on going and can get to the finish line first.

Will the tortoise win every time? No. Nor will the hybrid or fixed index annuity beat the equities markets most of the time. Like our friend, the tortoise, index annuities are designed for steady consistent results.

There are thousands of varieties of index annuities and strategies that can be chosen and some have more growth potential than others based upon their design . Everyone would like to have their cake and eat it too; but let’s be frank, some annuities perform better for income and others have greater growth potential – while others try to balance both growth and income (unfortunately, not excelling at either). Now, we don’t mean to shock you. But all of these annuities can beat the market – given the right conditions.

In a down market, even an annuity that only credits a zero surpasses the losses of 20 or 30 percent. Hybrid style annuities (aka fixed index annuities with an income rider) have the best opportunity to beat the  popular market indexes during periods of higher volatility because they can capture a portion of the upside market gains without experiencing any of the losses. So when the market acts like a roller coaster – shooting up and down  – index annuities have an advantage by periodically locking in their gains. However, based upon history, we can assume that eventually the markets will surpass the gains made by any annuity – given that you have enough time. Unfortunately, many retirees don’t have time to recover or the fortitude to accept the uncertainty of what the future may hold.

The elimination of investment risk and pension style income **guarantees are key factors for most retirees. Annuities can provide safety, security and peace of mind to retirees who know they may need their money to last twenty to thirty years or more while enjoying this stage of life. Hybrid annuities may occasionally beat the market but it is their rock-solid contractual **guarantees that more often than not make them attractive options for retirees.

Would you like to see the  Wharton Study Dick mentioned in the video – Wharton Study of Index Annuity Returns.


Using OutCome Based Planning™ for Your Retirement

We practice and recommend a "Holistic - OutCome Based Planning™ process when considering annuities." This approach has the effect of balancing your overall portfolio so you can meet your retirement objectives by "first identifying the least amount of your investments or savings (if any) that should be considered for annuities." OutCome Based Planning™ analyzes and models multiple outcomes so you can clearly identify your best income and growth opportunities.

"The Annuity Guys will only call if you request help". Hence, when you are ready for specialized help we will be available.
"Working with an Experienced Fiduciary Financial Planner can help you Avoid a Trial & Error or Risk Based Retirement"

This type of approach does take considerably more time, effort and analysis which will show you mathematically the successful possibilities by comparing various outcomes rather than trying to sell or convince you of that "so-called one best solution." Clients frequently tell us that this process removes some of the confusion and emotion to help them objectively identify a better retirement plan; rather than just ending up with the most convincing salesperson or advisor.

When requesting help you can be assured of working with an experienced Annuity Guys' Retirement Planner who is independently insurance licensed and securities licensed as a fiduciary financial planner having access to the vast majority of annuity companies in helping you choose the best annuities using a holistic-outcome based planning approach. We consider the high quality advisor recommendations we make to our website visitors as a direct reflection back on our commitment to serve all client's with a high standard of excellence in financial planning for retirement.

Based on survey feedback on advisors from our website visitors, we eliminated about two-hundred local advisors and now only recommend a few that we consider experienced vetted Annuity Guys' Fiduciary Advisors. Many local advisors continue requesting us to recommend them as a vetted advisor. However, our reputation and future business is driven only by satisfied website visitors. So, unfortunately we've had to tell the vast majority of local advisors no, since we changed our business model four years ago. At that time we stopped trying to satisfy everyone with local advisors, we now primarily work with individuals who are comfortable using today's internet technology to their fullest advantage by working with a select group of vetted, experienced and knowledgeable Annuity Guys' Fiduciary Planners.


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After confirming your request for help and shipping address by phone, we will immediately send your FREE personally signed Library Edition of our popular Annuity Reference Book "The New Retirement" plus Fact-Filled, Full Video Access!


Selecting the Best Annuity & Retirement Income Advisor

Are you willing to work with one of our retirement and annuity advisors based on their experience and expertise as a first priority rather than being limited by a local or regional area? The good news is that technology has forever eliminated our geographical limitations and leveled the playing field for everyone! As a result of today's technological advances, all of us can now work confidently with experts in any field including personal finance. We are no longer confined by regional or local boundaries limiting our choices and ultimate success. A high quality advisor is now as close as a click or phone call away.

Video:"Choose a National or Local Advisor"?
"There is no room for trial and error when it comes to choosing MarketFree® Annuities or a Successful Retirement Planner."
When you think about it, your money is almost always in some other state with a custodian; whether invested in the market or with an annuity insurance company, the advisors competence is primarily needed when positioning your money initially. So working with a specialized expert in a financial discipline like investments or retirement planning is imperative. There are no undo buttons in retirement! Once the annuities get set up correctly, it is customary and more efficient for owners to benefit by having direct access to the issuer instead of having to go through the agent. And, of course any reputable advisor, local or national, is more than willing to assist their clients if needed after they are implemented.
Video:"Why These 3 Types of Annuity Advisors are Not Created Equal"
"There are no undo buttons in retirement so it is vitally important that you do it right the first time!"

We are fortunate to have a select few who we believe are truly the highest qualified advisors out of about two hundred licensed insurance agents that we eliminated. Your survey feedback is what helps us make these tough decisions. Our advisors have an independent financial practice, specializing in annuities and retirement planning, which helps ensure that you are given the best options available for your retirement planning.

Video: "How Much of Your Money Should You Consider Placing into Annuities"?
"It takes an experienced expert to know how to structure annuities for income, inflation, growth, return of principal, and tax advantage."

"Anyone can sell you an annuity; however, it takes a truly qualified and experienced advisor to know how to structure them for income, inflation, growth, return of principal, and tax advantage. Typically, there is not just one that can accomplish all of these objectives. It is how an advisor structures multiple annuities in balancing your total portfolio that makes it possible to achieve your most important retirement objectives."

Video: "How to Choose a Great retirement Advisor"?

Why Searching for the Best Annuities on Your Own Can be so Frustrating...

Almost everyone nowadays turns to the internet for answers on everything - from buying new widgets to researching just about everything under the sun; and finding the best annuity is no exception!At first, it may seem that researching will be straightforward but the more time you spend researching them, the more frustrating it can be. Why is this? First of all, it does not take long to realize that gimmicks abound - such as warnings and alerts from salesmen who just want your attention so they can sell you one or the "too good to be true" claims of 8% to 14% **guaranteed interest and of course the claim that you can get the full market upside with no downside risk! If you have done any research you have heard all of these claims in advertising which are mostly half truths and not fully explained.So how can you find the best annuities on the internet? The truth is... you can't! And what is even more frustrating is all the conflicting points of view from so called experts. There are well over 6,000 different annuities - all designed for different reasons, so is it any wonder that the deck is stacked against the average researcher or do-it-yourselfer. Add to that the fact that they pay high enough commissions to attract a plethora of both good and bad agents. This does not make annuities good or bad; they are simply a financial tool that truly benefit those who use them correctly.How can you find the best annuities for your unique situation?
  • Use the internet cautiously;
  • Work with a vetted and experienced specialist;
  • Do not settle for that one dubious best plan. Compare multiple Outcome Based Plans to decide on the one that is truly best for you;
  • Be keenly aware of scare tactics and hyperbole - avoid those advisors and websites;
  • Avoid websites that are focused on rushing free reports, rates and quotes to get your contact information they are rushing you to speak with them, instead, take your time and choose someone you are more comfortable with that works on your time-table;
  • Know the Five Vital Factors (listed above) that an experienced specialist must answer before helping you select the best options for your situation;
  • Watch this telling video "Avoid Annuity Gimmicks, Amateurs and Charlatans"...

Video: "Avoiding Gimmicks, Scams & Charlatans"

  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
They are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping our website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this website. He still maintains his insurance license in good standing and assists his current clients.
Our vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)


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Can a Hybrid Annuity Uncapped Index Pay Higher Interest?

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Should annuity buyers be giddy because they can own an annuity with no limiting upside cap and of market loss? Well, maybe, since we are now in the new annuity era of the low volatility index.

If you are a prospective annuity buyer you should consider this new strategy for good reason. First and foremost, these are uncapped indexes with seemingly unlimited upside potential; however, before any irrational exuberance kicks in… [continued below video]

Video: Annuity Guys Dick and Eric discuss the pros and cons of the new low volatility indexes.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

and you sign the next annuity contract you see, please understand that each of these volatility control indexes does have some limiting factors. One such limiting factor used to increase upside potential is the result of a mathematical formula that works similar to a tactically managed investment account that moves in and out of market allocations based upon predetermined triggers. For example: in times of higher volatility these indexes will often move more toward a safe money strategy of weighting more of the index in a cash or bond position. Conversely, when the volatility is low the index will be weighted more toward the equities side.

Another limiting factor of these uncapped indexes is the ability for the insurance company to apply a standard fee or a spread charge. The spread charge/fee is the most common cost associated with these uncapped indexes. It allows the insurance company to take the first few percentage points of growth (typically 2-4%) and then credit your account with everything above that amount. For example: if the spread is 2.0% and the index gains 8.0%, your account will be credited 6.0%. What makes these spread fees more attractive than other charges? If the index has a down or negative year, there is no charge or cost to your account. Just to be clear, with all fixed index annuities your principal is protected and if the index finishes negative, your account will be credited at 0% – it will never reduce your account balance.

Not all of these uncapped indexes were created the same – some are easier to track and have ticker symbols and locations you can find online. Others appear to have been created just for the insurance company and the only research available on them is available through the insurance companies brochures.

Perhaps the biggest warning we can share with these uncapped volatility indexes is the need for realistic expectations. We have seen the historical numbers showing annual gains of 15-20% and they look wonderful, but don’t be wowed by the outlying numbers. Realize that these indexes were designed to provide modest gains that should allow you to share in a portion of the success of the index in the good years while protecting you from losses in the bad years. If you enter an annuity contract expecting stock market type returns, you will likely be disappointed.

This strategy is the current “rage” in the industry. It seems like every insurance company has released a new annuity or a new indexing strategy which utilizes an uncapped low volatility index. So you need to understand how these newer indexes work and if this strategy fits your risk profile.

As annuity guys, we appreciate this innovation and this strategy because it is easier for most clients to understand and grasp than explaining participation rates and index cap limits.