GUARANTEED LIFETIME INCOME PROS & CONS
About the author: Randy Taylor
Randy Taylor has advised consumers on retirement solutions for over 21 years and has advised financial planners and insurance agents on which companies and products to use for an additional 10 years. The article and video below are not meant to be investment advice. Please consult with your financial advisor including tax or legal counsel before purchasing any financial instrument.
Question: How Can I have both safety of principal, guaranteed growth, and higher yields than
traditional savings accounts?
The Solution: A fixed indexed annuity offered by and insurance company can do just exactly that if your future goal is to take income payments that are available for life. A feature known as an "income rider can be added to provide a contractual guarantee of lifetime growth to your account combined with lifetime payments that can be as high as 6% for life for a 60 yr. old for example.
Complete details are offered below via video;regarding all types of annuities.
http://www.youtube.com/watch?v=5wFD-b5zwWI
Traditional Safe Alternatives for Retirement :
Bank C.D. accounts:
( To compare rates go to: www.bankrate.com)
Pros:
The deposit is backed typically by the F.D.I.C. for up to $250,000.
You know in advance that your principal is protected while the account also grows at a guaranteed rate.
Bank C.D. rates are typically higher than money market rates.
Cons: There are penalties for early withdrawal.
The interest is typically taxed as earned whether you spend it or not; unless it is part of a tax sheltered like an IRA.
Probate Fees: At death the account is often reduced by probate fees unless some estate planning is done in advance to prevent that. The fees of course reduce the amount of money available for your heirs.
Bond Funds:
Pros:
Interest crediting if held to maturity is often higher than bank cds.
They are issued by the federal government or corporations.
Your advisor can search for both higher yielding bonds that might have risk involved or for bonds with a higher safety rating.
Cons:
If you have to sell the bond early during an inflationary period, you might have to sell at a discount and are not used for retirement purposes as much as a vehicle designed specifically for retirement.
Insurance Annuities:
There are over 1,200 companies offering insurance annuities in most states.They typically look like a bank c.d. in that they have penalties for early withdrawal and usually have minimum guaranteed interest over a set term such as 5 or 10 yrs.
Pros:
Safety:
Annuities offer safety of principal if held until the end of the term period.
There are typically no upfront fees unless an income rider is attached.
Income rider fees do not reduce the guaranteed income payment.
There are normally no probate fees at death and the money goes to a named beneficiary
An income rider guarantees a scheduled payment after as little as 1 yr. of deferral that is typically higher than money market, c.d.s, bonds, or other safe investments. Some companies guarantee that the account will grow in 5 years to 1505 of the deposit and in 10 years to 225%; if used for level income payments for lifetime income.
The bottom line: The penalties for early withdrawal are longer with a fixed indexed annuity than they would be with a c.d. for example; but as a result: the annual crediting is much, much higher.. I personally feel that they are best suited as a long term spending vehicle that they are for short term accumulation in most cases. Therefore, I always tell my clients to consider adding the income rider which provides an annual crediting to the account of 6 % compound interest with many companies, regardless of what the stock market index credits. It is frankly hard to beat 6% compound creditng with a 6% payment for life for someone in the baby boomer age bracket. For more details; refer to the video link above; and contact me via the links below:
Phone number: (916) 601-5270
California Residents only.
Facebook Business Page: https://www.facebook.com/RandyTaylorFinancial
