Annuities - Who Cares?

Friends, family and acquaintances often ask me, "What are annuities?", "Why did I enter the annuity business?" and, basically, "Who cares?"

Though annuities have been around for some years, I believe that the current economic crisis, though ostensibly mitigated by today's "jobless recovery," has brought increased attention to annuities. While terrified of market risk only a few short months ago, most investors are still, with good reason, extremely cautious of risks inherent in today's financial markets. So, to answer the question, "Who cares about annuities?" - Anyone who cares about avoiding significant losses of principal via market volatility should care about annuities. That's why I am passionate about clearly communicating what annuities can do, especially to those over fifty (50).

To put it in its simplest form - annuities eliminate market risk while still offering the potential for healthy returns.

I know doctors, lawyers, dentists, bankers (you name it) who own investment portfolios with, perhaps, seventy percent (70%) of their money in equities. Much of these investments may be under the umbrella of 401ks or IRAs. (When savings are held in 401ks and IRAs, many people don't know where the money is invested, but assume it must be safe. In contrast, such funds are often invested in stocks, mutual funds and bonds - all of which can be significantly impacted by market movements.) While these folks are delighted at the startling market recovery these past months, they don't have the time or energy to consider the likelihood of another sharp "pull-back" in the market, what it may do to their investment portfolio and/or retirement savings, much less whether there is a wiser place to stash their lifetime savings.

The troubling aspect of all this is that, should we see a significant pull-back in the markets, many baby boomers would lose huge amounts of their savings and be forced to work many more years than they anticipate and/or retire on a modest or meager income, while foregoing their retirement dreams of travel, fun and worry-free relaxation.

As an illustration, suppose John and his wife, Pat, own an a $1,000,000 401k which has allocated 70% of their money to stock mutual funds (which they consider conservative) and 30% to high grade bonds. A 40% market contraction in the stock markets might reduce their 401K value from $1,000,000 to $720,000. The $280,000 loss may postpone retirement plans for many years, or simply require John and Pat to reduce their annual retirement budget and lifestyle significantly.

Hypothetically, had John and Pat moved $400,000 from the stock mutual fund into a fixed indexed annuity ("FIA"), they could have reduced their portfolio loss (or contrarily, increased their portfolio value) by $160,000. At the same time, the FIA has the potential to participate in market growth (via links to the S&P 500 index or and other indices) up to a certain cap - typically in the 6 to 8% range, depending upon the carrier and the annuity product. So, when the market bounces back up, the FIA, having lost ZERO value in the downturn, can pick up a good portion of the next upward bounce. By the way, with the 40% market drop, John and Pat need a 67% market gain to get back to square one regarding their stocks. I didn't understand the mathematically devastating impact of principal losses until I was fifty, and I have a CPA and MBA. I know - shame on me.

The basic math fact which kills investors regarding principal losses is that any percentage loss requires a greater percentage gain to breakeven. Thus, a 50% principal loss requires a 100% principal gain to return to square one. For example, a stock at $10/share drops to $5/share (a 50% loss). That $5/share must increase by $5 (a 100% gain) to get back to $10/share or break-even. Principal losses destroy our financial future!

So, who cares about annuities? Well, I suppose I can't really answer who cares, but I can answer who should care about annuities.

Who Should Care About Annuities?

1. Those who have significant assets in the financial markets which they cannot afford to lose (especially if they are nearing or at the end of their earnings years).

2. Those who own an IRA or 401k which holds significant investments in the markets.

3. Those who do not want to be forced to work an additional five or ten years, should the markets freefall again.

4. Those still working who are relying on welfare for retirement (it's $7 Trillion in the hole!). Instead, they might be placing savings in deferred annuities.

6. Those who dislike the stress of market spikes and dips and would sleep better if they could ignore them.

7. Anyone with substantial savings in the financial markets who cannot afford to lose those savings.

So, ask yourself, "Do you fall in any of the above categories. Should you care about annuities?

I have found two categories of people who, legitimately, don't need to concern themselves with annuities: (1) those who are so wealthy that, should the stock market turn deeply south, they would be alright. They have such deep and diversified financial pockets that a big market loss wouldn't change their lifestyle much, or at all; and, (2) those who have so little in the way of liquid assets (e.g. under $20,000), and are no longer working, such that they can't take advantage of the risk-mitigating (and/or guaranteed lifetime income) features of annuities.

There is nothing in this life without risk. While annuities take market risk out of your savings, you still carry the risk of the financial strength and longevity of the insurance carrier from whom you buy your annuity. That is why I only recommend dealing with the financially strongest annuity carriers (e.g.. those rated A, A+ or A++ by A.M. Best Rating Services for financial strength.) But remember, financially strong insurance carriers are much safer than the markets. Historically, insurance carriers are much safer than banks. The question is not "What is a risk free place to protect and grow retirement savings?" The question is, "What carries the least risk in protecting and growing my retirement savings?"

As a final note, there are many who are becoming comfortable again with the financial markets and have returned to "business as usual." I don't have a crystal ball, but the unprecedented national debt (approximately $53 trillion), annual deficits (currently about $2 trillion), and continued rising unemployment rates should give us all reason for extreme caution.

Dean C. Lovett is a CPA and obtained his MBA from the Wharton School. As an entrepreneur of twenty years, he has created and operated approximately ten businesses. He launched AnnuitySpeak ([http://www.annuityspeak.com]) and Annuity Speak TV to provide video analysis of fixed annuities and reviews of fixed annuity products in laymen's terms to enable baby boomers to better plan retirement in today's unstable markets.

Article Source: http://EzineArticles.com/expert/Dean_Lovett/518383

Information About American Equity Annuities

American Equity Annuities provide different options for investors. One of them that features so prominently is the traditional fixed annuity. This is usually a contract between the investor and the company, whereby the annuity earns a competitive interest rate, which is declared by the board of directors.

The interest is guaranteed and is given over a specific period of time. The annuity also comes with a guaranteed minimum interest during the period in which the contract lasts. There are usually no tax deductions with this option until the investor withdraws the earnings.

Some of the benefits that come with the annuity include a tax deferred growth as well as a competitive renewal and current interest rates. There are other options to choose from. These include immediate and deferred investments, although the choice depends on the individual needs of the investor.

Another advantage of the fixed annuity is that there is a guaranteed return on principal. This means that the principal value of the interest does not fluctuate. One will find that most of the fixed investments have guarantee on the return of principal payments. This is inclusive of surrender charges and net of withdrawals. There are also guaranteed interested rates whereby, they can fluctuate depending on the financial conditions but they do not go below the minimum rates stipulated in the initial agreement.

Taxes on interest in the investments are deferred until such a time when the investor will be willing to withdraw funds. There can also be other advantages on tax depending on the method of withdrawal that one settles for. The investments come with flexible income options since there are various ways in which the investor can withdraw money from the account.

One fact concerning the fixed investments is that assets in this annuity are transferred to the named beneficiary and they can also be passed outside the probate process. It is also important to note that there are no upfront charges on the sales or withdrawals and that one can either choose a single or flexible premium.

The annuity offers a great opportunity for systematic withdrawal of interests in a bid to comply with IRS minimum distributions. One can have additional liquidity in the event that the investor is confined into a nursing home or is diagnosed with a terminal illness. Early withdrawals might incur surrender charges but these can be waived in case of death.

American Equity Annuities also come in form of indexed annuities whose interests are linked to an external bond or equity index. The values of the indices can vary on a daily basis and they are hardly predictable. Purchasing them requires the investor to have an annuity contract that is backed by America Equity. The benefits include lifetime income benefit, flexible or single premiums, the choice of the index to be used for the calculation of interest and also the lack of upfront charges. Some of these are subject to change and therefore it important for an investor to keep checking so as to avoid inconveniences in future.

Visit http://www.annuitycampus.com for more Annuity and Life Insurance Tips and Tricks.

Call Robert Eldridge directly at 800-643-7544.

Robert Eldridge holds over a decade of experience as a multiline agent in multiple states and currently serves on the membership council of the National Association of Insurance and Financial Advisors

Article Source: http://EzineArticles.com/expert/Robert_C_Eldridge_Jr/567280

Benefits of Fixed Indexed Annuities

What are some of the benefits you can get by investing in fixed indexed annuities? Well one thing is you may be able to help save up for your retirement with triple compounding interest, and have it grow about 2-3 times greater than a bank CD. They can also provide a guaranteed income for life, and with so many things happening in the world, it's hard to imagine that social security will be around for much longer. So wouldn't it be smart to have a back up plan to replace a potential social security income? They can also be a good option if you are in the middle of a 401k rollover.

In the past many people had a choice of getting a safe way of making money, but not the chance of higher returns. Or they could try for those higher returns, but would also run a risk of losing a lot of their principal investment. However, with fixed indexed annuities you have a shot at both without putting your principal at any risk! Offering you a guarantee for the principal, but also a link to the market, however, even with those downturns in the market, you wouldn't lose principal.

Fixed indexed annuities may also be termed equity indexed annuities. They will provide you both features in one, a guarantee for that principal. But you can also see a fluctuation due to the market performance, but you will never lose any of your principal. You also lock in any gains that you earned in a certain period. It's definitely a solid option when you are doing a 401k rollover.

The great thing also about a fixed indexed annuity is that you can defer taxes until you've taken the money out. That means you will be able to build up more money because you can earn more on the interest. But they also can offer you at times where you can take out a certain percentage of money without a penalty being paid, usually up to 10% per year. Most other IRA's don't allow that.

With the purchase of fixed indexed annuities you will be able to have a guaranteed income that will come in for the rest of your life. There are many different annuity payments that you can choose also. It gives you plenty flexibility and is a great option during an IRA rollover or 401k rollover.

Fixed indexed annuities are possibly one of the best options when it comes to saving for retirements. It is definitely something that is well worth your time of looking into. The fixed indexed annuities definitely have a place in today's volatile market, especially during a 401k rollover.

To find out more about Fixed indexed Annuities call P&G Financial Group, Inc. at: 1-888-701-3222 or visit: [http://www.pngfinancialgroup.com].

Article Source: http://EzineArticles.com/expert/Jason_Pollington/317717