A Bear-Proof Way to Ride the Market
Using equity indexed annuities to eliminate risk to principal. If you could flip a coin where heads you win and make money and tails you stay even, would you flip that coin ALL DAY LONG? Me too! If you have lost money in the past several years, if you are like most people chances are you haven't made it back. IF you could go back to the years that you lost and went backwards and could exchange those with zeros, just break even, how much more money would you have today? That is exactly what equity indexed annuities; also called EIAs can do for you. An EIA is like insurance to keep you from losing on Wall Street, but allows you the potential for greater gains than you can achieve with regular fixed annuities, CD's, etc. EIAs are also fixed annuities, but they have the added benefit of allowing you to link to market indices such as the S&P 500, DJIA, NASDAQ, and fixed accounts. EIAs pay a percentage of the index fund you choose as well as a guaranteed minimum. The percentage, called the participation rate, varies depending on the company that issues it. One of the main factors of any EIA is the participation rate. These can range from as low as 30% to as high as 125%. Another important factor is how the percentage is calculated. Some use a point to point method, some use monthly averaging, some use a high water mark method, and some use annual ratchets or a combination of these. Each one has benefits for certain persons, we really have to look at each person's financial goals and expectations to assess which product will be right for them. Another important factor to consider are the fees charged by some companies. These fees can be quite high, but there are some companies that issue annuities with no fees at all. These companies replace the fees with a performance cap above which the company makes its money. The third way that companies charge is called a spread. For example if you had an EIA with a spread of 2% and the index return was 12% you would receive 10%. Equity Index annuities are excellent for an up and down market like we are in currently. When you combine the potential for higher returns with the lack of downside risk it is hard to beat equity-indexed annuities for long term safe investing which also makes them an excellent place for retirement accounts, because you know when you get ready to retire your money will be there. That's an important feature to have given what has happened with many 401k's lately. From 1998 through 2004 these indexed annuities have averaged over 7% per year, let us visit with you and discuss how they may be implemented as a very important part of the growth and preservation of your assets. How much more money would you have today if you had averaged over 7% the last five years? Safety and Guarantee of Principal Guarantee of Principal- Premiums deposited into an equity index annuity are guaranteed never to go down due to market downturns. No one has ever lost a nickel due to an insurer going out of business either. Minimum Interest Guarantee- A minimum amount of interest is credited regardless of market performance, the rate varies with each company. Power of Tax Deferral- All annuity values accumulate on a tax-deferred basis until withdrawn, giving a triple compounding effect due to interest on principal, interest on interest, and interest on the amount you don't have to pay in taxes which allows you to accumulate more money over a shorter period. This is also the feature that can help you to reduce or eliminate the taxes on your Social Security. We can help you with this. Liquidity Features- All companies allow withdrawal of funds (subject to applicable surrender charges and IRS penalties), many companies allow penalty free withdrawals up to 10% per year and some have clauses which allow access to more in the event of catastrophic illness. In my practice I have found the liquidity in annuities more than sufficient since most of my clients who withdraw funds only take 4-5%. Guarantee of Lifetime Income- Annuities can provide you with a guaranteed income for a certain period or even for as long as you live if you choose. With nonqualified plans, a portion of each income payment is considered return of premium that is not taxed, thereby reducing the tax liability from your income payments. This type of payout can also be used to fund wealth replacement policies, which can be left TAX FREE to you heirs. This is especially attractive to clients who wish to leave large IRA's to their children but are concerned about the tax burden. Bypass Probate- Like all annuities, EIAs also bypass probate. This is an important feature to have when considering the expense and delay of putting an estate through probate. The average fee is 4-8% and the average time it takes is over 2 years! Creditor Proof - In the State of Florida annuities are given protection from creditors according to Florida Statute 222.14. In this day and age of frivolous lawsuits it is good to know there is a place you can put assets that cannot be sued against. According to a Florida Supreme Court ruling on a case for Dr. Alan Goldenberg in 2001, "the proceeds of an annuity contract where there is a surrender penalty are exempt from legal process.." Tax deferred annuities offer a wide array of benefits, which we have only touched on here. They can be used to fund retirement accounts such as IRA's and SEP's. Also IRA's and 401k's may be rolled over into annuities without penalty. They can be used to lower the taxes on one's social security as we mentioned above, as well as lowering taxable interest. You may also transfer an annuity you currently have that is performing poorly or a variable that is losing money, we may be able to help you so you don't lose! Gregg Hall is a senior financial advisor, licensed with the Florida Department of Financial Services and focusing his practice in retirement and Estate Planning for seniors. He gives free seminars to groups and associations as well as working with the clients of local CPA's and attorneys. Gregg taught a financial planning class for seniors at the Fort Walton Beach, FL campus of UWF for 4 years.
www.onlineannuityinfo.com
About the Author
Gregg Hall is a senior financial advisor, licensed with the Florida Department of Financial Services and focusing his practice in retirement and Estate Planning for seniors. He gives free seminars to groups and associations as well as working with the clients of local CPA's and attorneys. Gregg taught a financial planning class for seniors at the Fort Walton Beach, FL campus of UWF for 4 years. www.onlineannuityinfo.com