Why Realtors Are Turning to Indexed Universal Life For Cash Accumulation

Every working realtor knows that their industry is unlike any other.  Each and every sale is dependent upon the functioning of several independent parties.  For example, once a prospect has decided to put an offer in on a new home; the bank must approve the credit and financing, the appraisal must come in at needed value, and the seller (listing agent) must agree to the terms of the sale.  Only when all of the stars are aligned can the sale be facilitated.  Without close attention to detail, it is unlikely for the close to happen.  

Since every real estate agent is commission based, most realtors look for 3 main components with respect to investing long term.  First, the product must be liquid.  Every commission based realtor knows first hand there can be down times from close to close.  Liquidity is precious during periods of stagnant sales, especially in off-season months.  Second, the product must be protected.  In cyclical volatile markets like we are experiencing today, the concern of losing your money can be quite the burden.  Third, the product must be flexible to accommodate sporadic funding throughout the year.  Its impossible to tell when all your closes will happen throughout the year, making flexibility of funding an important part.    

For these reasons, more realtors than ever before are turning to uncapped strategies within indexed universal life (IUL).  IUL strategies allow for flexible funding and uncapped earnings that are very attractive.  With a couple of strategies that exist today, there is no limit on how much interest can be earned through annual reset.  Annual reset allows for market upside while eliminating all of the market downside.  In fact, from 01/01/2001 to 12/31/2015 many IUL policies would have averaged an annual rate of return of over well over 8% before the cost of insurance is taken out.   Liquidity is also a vital component of an IUL policy.  Over 80% of the funds can be accessed at any time during the year for needed liquidity.  Every other tax deferred vehicle that's available comes with a penalty from the IRS if a withdrawal is made prior to 59 1/2 years of age.   Finally, and most important, is the capability to have your IUL policy structured to allow for withdrawals exempt from federal income tax.  Since all IUL policies come with an accelerated death benefit, if properly structured IUL policies can allow for a personal loan to be taken against the death benefit that will not have to be repaid until death.  Upon death, the loan is deducted from the face amount (death benefit) and the remainder is passed on to your beneficiary tax free.  Its no surprise that these “living benefits” have attracted several commission based employees as an avenue for long term growth strategies.

To learn more on how an IUL strategy can benefit your practice, please feel free to email me at CalB@SafeMoneyAustin.com.  

Will This Election Set Back Your Financial Timeline?

Historically speaking, most presidential elections have resulted in market downturns, especially when a lame duck congress is present. If you don't believe that the market will feel the pain for a couple of months prior to the election in November, I suggest you take a second look. There are a couple of reasons why another recession lurks around the corner. First off, outside of the upcoming election, we are exceeding the 7 years historical average of market downturn/recessions. More importantly, this is one of the only times in history that the market has surged to its highest point (brought on by an overly-successful stimulus) with middle-class income levels at historic lows. Unfortunately, with the contrary logic that the stimulus has shown over the last 8 years, these facts are being written off as a pessimistic and shrugged off. For example, how many times did the market surge in 2009 and 2010 on rumors that the Federal Reserve was going to open the printing presses for another round of quantitative easing? Any other time in US history news of buying our way out of a recession would have sent panic throughout Wall Street, putting the market in a deep red. Our rules are set in opposition, something that we will have to contend with moving forward.

The question is, how hard will the market get hit? A better question, how long will it take for the market to rebound? When the market fell in September of 2008, the Dow Jones had just broken 14,000. It took 6 years to get back to that point. After the market recovered, and all the retirees exited the workforce in 2014, a mass hiring of college graduates (60% of the entire labor force!) replaced the seasoned workforce, driving middle-class salaries down to new lows. If history repeats, what do you think will happen to your projected retirement date? Will you be able to contribute more to your retirement or less than what you have been contributing? The good news is you can lock in your gains at one of the highest points, thanks to the artificial growth of the stimulus! Moving forward, instead of absorbing risk within securities, you can redirect your strategy to mirror index earnings like the S & P 500 or the Dow Jones, while protecting 100% of both principle and earnings. There are dozens of different indexes available to choose from, with some designed to capitalize during market downturns. In fact, if properly structured, some of these indexing strategies can be positioned to create non-taxable income sanctioned by the IRS (rules and procedures must comply with the IRS guidelines).

What do you think your portfolio would look like if you were able to bypass all the volatility from the 2008 recession, and capture all the upside? Some of these strategies, if implemented prior to the recession, would have allowed your portfolio to double in just a few years. I'd be willing to bet you'd be in a much better spot today if you had put this change into effect back then! I believe this opportunity is going to present itself again, starting in just a few months. It's simple math. If you lock your gains in at the highest point, while removing all downside market exposure, you'll likely position yourself for an early retirement. Otherwise, you risk waiting on the market (assuming it rebounds in a reasonable time) and delaying your retirement for several more years. It's not only the volatility that sets you back it’s also the detour. Truth be told, this opportunity may not present itself for many more decades. It's a statistical marvel that we happen to be approaching the same stage that was set in 2008, only now we have the right financial tools to benefit.

Making the right change can give you the cushion you need in moving forward. If the market takes a downturn and salary levels continue to drop, limiting expendable income, you can contribute less without disrupting your financial timeline. Using this plan with the right process is the key to success. These types of strategies are designed to protect your interests over several years, assuming the right process is in place. The ultimate goal is to move forward and free from funding disruptions. Without the risk of taking a step backward, forward momentum takes over, protecting your timeline from the unforeseen.

Once a decision is made for change, the right process has to be put into place. Making the change to mirror index returns and capitalize on long-term growth rarely works as a long-term strategy if the right process is absent. Life often happens unpredictably and without the right process to navigate you through critical financial events of your life, the odds can be stacked against you. Critical financial events can be as simple as retiring, purchasing a new home, or preparing for a loved one's college education. They can also be unpredictable, such as the death of a spouse, a serious illness, or a career change. Failing to have a process to properly guide you through these events can be as detrimental as exposing yourself to volatility. Once again, the opportunity to make a positive change exists today. However, if this change is not accompanied by a refined process, you may be spinning your wheels. This is why it's important to work with a professional who can implement the right process for your situation. If one thing remains certain in our future, it's unpredictability. It's how we approach this change that will determine how our financial future unfolds.

Whether or not, it’s Clinton vs. Trump or Sanders vs. Cruz (or any other combination), it is no secret that change is amongst us. I can't recall any time in the past where the extreme viewpoints of each party have surfaced from frustration and distrust towards our leaders. As we get closer to the election, the tension brought on by the anxiety of change is likely to weigh the market down. How bad it gets crushed remains to be seen. We are truly at a time of the unknown and how we move forward will determine how our financial future/legacy shapes itself. With the market being at an all-time high within a struggling economy, this may be the best opportunity within our lifetime to make the necessary changes with the right process.  

Redefining Income Planning

It seems much longer than 8 years ago when income riders within Fixed Indexed Annuities (FIAs) provided guarantees never offered.  Historical income value roll up rates that were as high as 8% are now being outperformed by uncapped strategies.  To me, its amazing to see how the evolution of income planning has redefined itself, especially in under a decade.  Today, more financial professionals are redirecting retirement funds into FIAs that provide increasing income streams, as well as uncapped strategies, for life.   Depending on when you plan to retire will determine which increasing income strategy may be best equipped to meet your needs.  This is why it is important to work with a professional who specialization lies within income planning solutions.

The days of FIA annual point to point strategies that can only provide a return of 3.0% are well behind us, and good riddance.  Through many of today's specialized indexed strategies, policy owners within a FIA can now participate in 90% + of the market upside (within a predetermined indexed strategy) with absolutely zero downside.  This means that you can never lose your principle or earned interest moving forward, regardless of how the market performs.  As this past recession has shown, principle protection in down markets is key to making your retirement a reality.  These recent uncapped strategies are causing more financial professionals to redirect client funds into guarantees absent in a turbulent market.  Depending on what your individual circumstances (retirement time-line) are will depend on which strategy may best suit your needs.

Income payouts within FIAs can illustrate much higher than ever before.  Income Account Values (non cash values) used to determine income payouts can participate up to 250% of a selected index return while in deferral.   Additionally, annual income payouts can increase by up to 150% of the same selected index.  For example, one particular FIA that has a 6% annual return (of a selected index) would result in an income payout increase of 9%, never to decrease!   Furthermore, each year the selected index increases in value the income will continue to increase by 150% respectively. Within a couple of these strategies I have seen income payouts potentially double within a 15 year period, while continuing to increase for life!  These are income payouts that have never been seen before, specifically designed to protect retirees from absent pensions and a bankrupted social security system.

So how did this evolution happen?  Simple.  Over the last several years analysts have learned to maximize the upside potential within specified indexes, while protecting the profitability of the issuing company.   Because of the extreme market fluctuations we have seen since 2008 (the most volatility since the Great Depression) statisticians and actuaries have been able to capitalize on market profit points, passing on the gains to the policy owner.

Where the evolution of income planning ends up remains to be seen.   I can tell you from personal experience that today's potential income payouts and uncapped strategies were never contemplated 8 years ago.  FIAs today are replacing fears of inflation and market downturns with comfort and predictability.  Now, finally, retirement can be planned with a higher quality of life than ever before!

Navigating Through a Perfect Storm

Here we are starting the 4th quarter of 2015. Many of the gains have been erased for the year, with more volatility to follow. Yet, the market still stands near its highest point ever. All the result of over $5 trillion dollars (not including interest) being pumped into the market over the last 7 years, to offset the largest recession since the Great Depression. The question is, is the market's worst behind us, or is the reality of a struggling world economy going to correct an over inflated market? In other words, what does the big picture look like moving forward? In order to answer that question let's take a look at how we got to where we are today. The answer was simple, spend and spend. Through quantitative easing, the Federal Reserve has pumped trillions of dollars into the bond market in order to create a strong foundation, or safe haven, for investors from volatility. It was a part of an attempt to drive down interest rates while stabilizing a volatile market. Whether or not you are for or against government intervention to protect the market, it worked. The results of the Federal Stimulus was unimaginably successful. It was a game changer. It allowed the market to outrun the pace of the economy, which over the years was welcomed by investors with open arms.

[How many of you remember all the times from 2009 -2012 where the market significantly rose on the suggestion/speculation of the Feds involvement (anticipation of the Fed printing more money)? I remember discussing these huge market jumps on my radio show, almost in a state of disbelief. In fact, some of my earlier articles referenced this phenomenon.]

Federal spending pulled the market up at an alarming rate, well above the threshold of what the economy could realistically (naturally) support. An unnatural cash injection to prop the market up.
It was either that, or see how far the rabbit hole (market plummeting) went. When they announced the stimulus everyone knew there would be long term consequences to this action, just no one knew when. Additionally, everyone was well aware that you cannot buy off a recession in the long term. So fast forward the clock and here we are today. We have record levels in the market, a struggling economy unfit for a rate hike, all while knocking on the door of a volatile election year.

I see today's market as the best opportunity investors have had in the last 100 years. I sincerely do. An opportunity to lock in their gains at just under the highest point the market has ever been, optimizing long term performance. Let's face it, today the words "long term goals" are rarely ever heard. The market is still trying to figure out what is happening week to week, let alone month to month. It seems anything past a month out is too far for speculation. The truth is we are in uncharted waters trying to navigate forward. This is why the proper advice can create a huge opportunity for most investors, if the right picture is painted.

Think of it as the perfect storm. A rally of epic proportions that has capped out, causing what is arguably the highest market surge in US history.

Most investors saw a 300% increase in their portfolio from 2009 to 2015.

How could there be a more perfect time to help your clients re-position what they have accumulated from 2009? Since the Federal stimulus ceased a couple of years back, there is a grave concern with many financial analysts that the market is overly inflated, certainly not reflective of a struggling economy at near record market highs. Besides, what other alternatives are there? The only other option to locking in your gains is to try and wait out, or beat, the market. In order for the economy to support these market highs, oil would need to completely rebound, middle class incomes significantly rise, European markets take a turn for the best (eliminating any threat to the Euro), and that China overcomes all their woes, just to name a few. Unfortunately, those who decide to wait it out may disrupt their time horizon depending on how long it takes the market to overcome another market drop. Remember, it is very unlikely we will see another form of stimulus to pull any future bear markets out of the red. It's too damaging to long term interests. Just think about how far investors were set back from the recession in 2008 to the market highs of 2015. A significant market drop could easily take several years to get back to even. If this happens, the end result could be the client missing out on over $80,000 of income throughout retirement on just a $250,000 deposit or ending up with a much lower end account value; depending on how the market performs. Whereas, the investor could have locked their gains in at one of the highest points in history, essentially skipping over future market downturns. The truth is most investors would have made moves to protect against the volatility if given the chance in 2008. We know through multiple studies since the Great Recession that most investors prefer a moderate return with no downside over exposure to volatility.

Even among the perfect storm, most investors will not realize the significance to locking in their gains at this opportune point. This is especially true given the current financial climate. Their interests lie in their own careers and families causing many to be distracted from the rhetorical talking heads, focusing on insignificant minor details instead of the whole picture. Besides, traditionally speaking, gains are usually locked in at the end of a bull market when the economy is at its strongest, not the other way around like the market we are seeing. Others get trapped in the day to day, week to week progress of the market abandoning long term focus. Once again, you can't plan for, or see, the long term if your navigating through uncertain times. When the market is at an all time high amidst a struggling economy, all signs point to a bear market ahead. Not to mention an election year around the corner filled with significant change and fear of the unknown. The writing is on the wall.

When you take a look at the driving factors of today's market, sometimes it feels as if the rules are set in opposition. For example, just this week the market significantly rallied on the notion that the Fed was not going to raise rates for the rest of the year because the economy was too weak to sustain a rate hike. Does this sound like a legitimate reason for the market to rally? Is this statement conducive of a strong economy? This is a perfect example of why the market is not likely to hold as high as it is. This is the market looking to the Fed for growth. As mentioned earlier in the article, how many times did the market rally since 2009 on speculation that the Fed was going to print more quantitative easing? What do you think the result of the rally would have been without the stimulus? True market surges are lifted on the backs of a strong economy both domestically and internationally, not on scattered speculation within a struggling economy.

In summary, the market rally from 2009 to just recently, has been arguably the highest market surge in US history. Investors now have an unprecedented opportunity to lock in their gains at one of the highest points the market has ever climbed. Moving forward, investors can bypass all market downturns, ensuring their long term goals are not disrupted. Through proper planning dedicated to preservation and longevity, investors have the best opportunity of success to whatever the unforeseen throws our way.

Article Source: http://EzineArticles.com/9202481

How To Pick The Right Indexed Annuity

When it comes to lifetime income there are many options to consider within a fixed indexed annuity (FIA). Preferences may vary from hoping for upside market performance, to a more conservative approach with a fixed rate of return. It is important to assess each option to make sure you are picking the right FIA to meet your long term needs. Which way you decide to go can drastically effect the amount of income you can receive moving forward.

One FIA providing lifetime income will credit interest based on market performance. The better the market does, the better your income payout is down the road. In fact, there a few of these indexed annuities that provide increasing income in market up years that will not lose income down years. Typically, these kinds of annuities usually payout based on performances of a market index, like a spread on the Barclays Bond Index or a capped version of a like index. Choosing how your funds are allocated will determine what your future income looks like. Therefore, how your funds are allocated will dictate how much of a cap, or upside, you will make in a given year. The downside is that if the market performs poorly over a given time period, your starting income may be lower than anticipated. To help put it into perspective, insurance companies can provide detailed illustrations to show income performance based on the last 10, 20, and 30 year look backs. What this means is they show a period of time in the past as an example of how your annuity income may pay out moving forward. If you choose this type of payout for your annuity income within retirement, it is highly recommended that you use a diverse option with respect to allocation percentages to help balance unforeseen market events; which in turn can protect your payouts in the future.

The argument when choosing the best market based performance income annuity is in how to determine market performance moving forward. Factors such as domestic and global federal stimulus packages have deviated the market from its norm. It is evident that what caused market fluctuations over the last few years is completely different than what we have seen in the past 10, 20, or 30 years. So from a certain perspective, what we see moving forward may work in opposition to what we have seen in the past; especially given the state of our global economy.

Another option when considering lifetime income is the fixed option with the income account value (IAV). The IAV is a feature on some indexed annuities that is separate from the cash value, strictly used for income calculation purposes. Therefore your cash value and your IAV value will be of different values (the IAV value will likely be higher as time goes on) throughout the lifetime of your annuity. The IAV receives a predetermined rate of return each and every year until you start the income, guaranteeing a payout regardless of market performance. The risk being that extra income may be left on the table in the event of a strong market performance. Today, this rate of return will usually average 6 – 8% annually with a predetermined payout dependent upon age. The older you are, the higher the payout. Because this is more of a conservative approach, the insurance company may allow provisions within the IAV to allow increased income in the future when poor health follows in retirement. The purpose is to provide the retiree with additional income for external costs associated with long term care or the need of nursing assistance. Once again, this type of FIA is generally for the more cautious retiree who wishes to leave nothing at chance with his/her lifetime income. With this strategy the retiree can purchase this annuity and know exactly what income they will qualify for up to 10 plus years in the future.

One of the main dilemmas on choosing the right IAV within your FIA is both the income and interest crediting options your contract will come with. I always use the analogy: what you don't make on the popcorn you make on the peanuts; meaning you may sacrifice a lower rate of return on your cash value in exchange for a higher lifetime income payout within the IAV. Typically higher lifetime income payouts within the IAV come with lower caps on the cash value which can restrict the amount of interest you can earn. Remember, pretty much all FIAs today give the option of partial withdrawals to lifetime income (within the surrender period) as a liquidity feature. This gives the retiree the flexibility to stop and start his/her lifetime income at their discretion and instead take a partial withdrawal. The partial withdrawals are contingent upon the cash value, not the IAV, so how much interest you earn on the cash value can be detrimental to how much you can withdrawal over retirement (assuming the lifetime income is not elected). Furthermore, the cash value is usually passed on to the beneficiary in the event of death, not the IAV. This is why it is important to find a professional that can show you a perfect balance between your earned interest on your cash value and your IAV payout.

When choosing the right FIA for your income needs it is crucial to determine what your risk level is. The more aggressive, optimistic approach generally follows the direction of the lifetime income that can increase over time and is solely dependent upon market fluctuations. Whereas the more conservative approach will tend to lean towards the fixed rate of return with the IAV while adding long term protection, providing a guaranteed payout regardless of market performance. Whichever way you go on your lifetime income, it's crucial to know the facts to make the right decisions for retirement income.  

Why Investors Should Be Concerned About the Market

At the time of writing, the market has recently begun to nosedive in response to news of the Federal stimulus coming to an end, the troubled financial state in the EU, and other influences.

I am of the opinion that the market will continue to deteriorate to counter balance the unprecedented market surge brought on by the Federal Stimulus, especially as the market's correction was almost solely based upon quantitative easing.

How far the market will fall remains to be seen; however, I feel that it will be significantly greater than a 15% correction. In October 2014 the Federal stimulus, known as quantitative easing, is ending with a Federal balance of $4.4 trillion dollars (not including interest). If it took trillions of dollars to inflate the market, what do you think is going to happen when it is taken away?

In the wake of the 2008 financial meltdown, the Federal Government was forced to act with an initial bailout of $800 billion to prevent a “Financial Armageddon.” Now, six years later, we have trillions added to our deficit due to quantitative easing. Granted, the Federal stimulus did protect the market from imploding in the short term, pulling the market up to record-setting levels; however we are now walking into the long term consequences of this act of socialism.

This is because both investors and the market alike have become complacent about the Fed purchasing trillions of dollars of bonds to artificially create a solid foundation under the market.

Now, with the foundation likely to stop being laid out or maintained, the market will have to wean itself off of this government intervention. This could be a blessing or a curse depending on the moves you make during this time.

If the market does take a significant drop, no one can say they didn't see it coming. This was not the case in the latter part of 2007 at the start of the Great Recession. The difference being that you can lock in your gains to make sure you don't ever take a step backwards. What many fail to realize is that if a percentage loss is immediately followed by the same percentage gain you will still end up losing value.

Think of it this way...

If four quarters (one dollar) lose 50% of their value, you have two quarters left over. If you then immediately apply a 50% gain back to the two quarters, you only increase by a single quarter and still finish up one quarter short. This is why it is crucial to lock in your gains to ensure you never take a step backwards, especially if you are dependent upon that money to live on during retirement.

However, parking your portfolio in cash over the next couple of years to weather the storm will still set you back. This is because most money market accounts will pay less than .01% interest, which usually equates to pennies of interest earned in a year, basically pausing your momentum. Instead, it is important to look at your long term goals, making sure that your momentum is never disturbed by market downturns.

The more momentum you have moving forward, the better position you will be in the long term.

When the market crashed in 2008, the Dow Jones was just over 14,000. At the lowest point of the recession, on March 5th, 2009, the market hit 6,594. At that point investors were in a state of shock, realizing what they had lost in just over a year. Because of the $4.4 trillion the government added to our deficit, the market soared to new highs, breathing hope back into both investors and Wall Street.

And yet, even though the market reached record levels, investors distrusted the reality of the situation and they turned to the Fed as insurance from volatility, conveniently turning a blind eye to the reality that the Federal Stimulus would end one day.

Well, here we are, with the Federal Stimulus coming to an end. The NASDAQ has already been officially categorized as being in a correction with pretty much everyone expecting more losses. Many recent articles are saying “Don't panic, stay the course,” or “We are still way ahead and corrections are natural.” I could not disagree more. The writing is on the wall, meaning if the market does take a big hit there was plenty of warning.

If you do not have a pension, you are responsible for taking care of your own retirement instead of looking back and pointing fingers. Added to which, if the market does take a big hit, you may have to work for several more years to make retirement a reality. There are, however, several variations of safe money options to make sure that your financial interests are covered moving forward, regardless of the Texas two-step the Fed is playing with Wall Street.

One of the most viable safe money options falls within a strategy of “indexing,” where many top-rated insurance companies will absorb all market losses in exchange for a variety of capped interest options paid out monthly or annually. Many of these insurance companies are the same ones that serviced and backed the pensions of the past and have recently redirected their interests.

Now, instead of the insurance company backing an employer's pension (group annuities), they have shifted the benefits to the consumer in the form of fixed indexed annuities (FIA). These FIAs usually come equipped with lifetime income benefits that can easily be used as an alternative to the pensions of the past. These income payouts can be stopped and started at the owner's discretion while still allowing access to the cash value.

Over the last 15 years these strategies have performed stride-for-stride with the market without any Federal Government bailouts while having explicit guarantees. In fact, many of these lifetime income payouts can be structured to increase over the years as the market increases (while also never decreasing), showing impressive payouts.

Moving forward, investors can choose to stay the course, putting their money into cash or money markets with near zero returns, or they can look to other strategies to protect their long-term interests. Whatever choice they make, I believe they should be aware of the volatility coming around the corner from the weaning of the Federal Stimulus.

The bottom line? Our global economy is not in a position to perform anywhere close to that which our over-performing market suggests. Once again, the writing is on the wall and it is up to you to decide how to prepare for this.

How Lifetime Income Stemmed From Permanent Financial Changes

 Believe it or not, less than 20 years ago lifetime income did not exist; nor did the fixed indexed annuity (FIA). It wasn't until 1997 that the first FIA was launched, with lifetime income coming into the picture almost a decade later. Today these products are used for long term retirement planning, ensuring that your retirement income will not be dependent upon external market events. However, these products would have never come into the picture if it wasn't for the financial changes that started taking place in the late 1980's.

From the end of the Civil War to the late 1980's, pensions were the safety net that employees could rely on for their golden years. It was common for an employee to work for a firm for 20 plus years, get a gold watch, and enjoy a pension for life throughout retirement; a fair tradeoff to say the least. Then the inevitable happened. Through a combination of medical advancements and market turmoil from a deregulated financial system in the 1980's, retirees started living longer than expected and financial hardships started taking place for big business. The combination of these events caused the pension to vanish, giving birth to the deferred compensation plan. Now the obligation of retirement was placed on the employee, a burden that few ever saw coming. Because of the absence of these pensions, the insurance industry focused on the needs of the individual and brought forth a new hybrid product, the FIA.

The FIA gives all the flexibility that the traditional pension failed to provide. Now the employee can redirect a lump sum (401k, IRA, or non-qualified savings) of cash into a vehicle that will guarantee a lifetime income independent of market fluctuations, while still maintaining access to the cash value. The cash value in an FIA can earn interest through a variety of options while never losing value to market performance. This is a huge benefit compared to a pension. Pensions, in turn, were group annuities where employees would contribute gross monthly installments in exchange for an income stream after X amount of years. Once the income was activated there was no cash value and income usually stopped at death. Let's take a closer look at how the FIA can provide an income stream for life.

An FIA usually comes equipped with a lifetime income benefit rider (LIBR). Basically, an account known as an Income Account Value (IAV) grows within an LIBR at a set rate each and every year regardless of market performance. The IAV is a non-cash value used as a formula to calculate the income you will be eligible for in the future. This formula will tell you exactly what you can expect for an income stream up to 15 years down the road. For general purposes, the more you fund the FIA with the more guaranteed income you can have access to. For this reason alone, many investors are redirecting a portion of their nest egg into these products simply as a substitute to the pension.

Today, billions of dollars are being repositioned into FIAs each and every year for retirement income that is guaranteed for life. With the obligation falling now on the employee to prepare for retirement, a shift in annuity income planning moved from a group of participants (pensions) to the individual (FIAs). Change is inevitable in a growing and volatile market place, especially if you are in the 95% of working Americans that do not have a pension. This is why it is important to embrace these individual income planning tools. Understanding how these positive changes can help you achieve your retirement goals is monumental to your long term success. As always, I highly recommend that you explore these options with a trusted licensed professional to help understand how an FIA could be of benefit to you in your retirement years.

Keeping Retirement Simple

It seems as though over the last couple of months there are three factors that have had control over the market fluctuations. Three factors outside of your control that can have you gravely concerned about your future nest egg in a matter of seconds. First, the concerns over the Russia – Ukraine crisis. How many times has the market gained and receded based on a one or two line quote from Putin? Second, the ongoing crisis in the Middle east, particularly issues in Israel and Iraq. As much as we hate the reality of it, this crisis has been going on for centuries, it is not going to change any time soon. Lastly, the falsified security of the federal stimulus. It is almost an automatic reaction, stocks take a hit and Wall Street looks to the Federal Government for more monetary assistance (Quantitative Easement III). Remember, the more we spend now the more we pay in taxes moving forward. How many of these concerns are in your control?

Obviously none of the mentioned concerns are in your control. Yet the future of your nest egg is dependent on what happens on a daily basis in the market. It does not have to be that way. You can take control of your own destiny regardless of external events. Assuming there is an American Flag flying over our country moving forward, guarantees are possible in retirement. It is quite simple. Don't focus on a dollar amount you are trying to reach (example: “I need $1 million to retire”), instead focus on a cost of the lifestyle you want to pursue in retirement. Ask yourself how much monthly income will you need in retirement for life, regardless of how long you may live. Everyone is living month to month. Those monthly expenses do not go away in retirement, instead they hopefully go down. Nonetheless, there will be monthly bills throughout each of our lifetimes. This is my recommendation of focus.

Think of it this way... Which scenario do you think hurt an investor more with their nest egg in 2006, prior to the financial crisis? The investor who's nest egg was dependent on day to day activities in the market, or the investor who knows they will get the same result regardless of the outcome? Now ask yourself the same question in today's volatile financial arena. This is the #1 reason why many future retirees, and retirees alike, are looking for protected income results independent of external market events. With hindsight being 20/20, how many of those investors would go back and trade the daily risks of retirement for a guaranteed result? If your goals can be met without risk, why would you roll the dice? Granted, you may miss out on a huge market rally; however, you would bypass the huge market falls as well. I believe this comes down to how much stress you are willing to endure in your lifetime.

To reiterate, turmoil in the market will always be there. This is a constant phenomenon. You will rarely, if ever, have control of these events; hoping the current will take you to shore. Unfortunately, there are many still at sea who thought they would hit land long ago. This is a risk you do not have to take on. There are viable solutions that will guarantee your results of lifetime income, regardless of what the market may throw your way. It is imperative to explore these solutions that have been available now for decades. I believe the only way to eliminate the stresses approaching or within retirement is to remove yourself from the situation. On a closing note, make sure to explore these options with a trusted licensed professional who thoroughly understands the ins and outs of lifetime income solutions.   

Why You Shouldn't Have a Dollar Amount Goal For Retirement

I'm pretty sure everyone has heard the retirement analogy of how much money you need to retire. As in, what is YOUR number for retirement? In other words, how much money (the actual dollar amount) do you need to retire with. I've always had a hard time wrapping my hands around this concept. To me, that number is totally contingent upon an unpredictable market. I'm sure that if you asked the average investor that question in 2006 you would have a much different response to an investor today. Today's investor seems to have become either complacent or numb to volatility, believing that the ups and downs in the market is a new norm. Since elements of the market are out of the investors control, not much time is spent worrying about it; out of sight, out of mind. This is especially true for those who plan to retire within the next 10 years. The truth is we don't know what lies around the corner, nor do many know how or when retirement is going to be possible. So what if, instead, you didn't have to worry about a number; only a guaranteed monthly income check down the road? Not a pension, rather a strategy like a liquid pension; if one were to exist.

I read a friend's book, “Savior Retirement”, that talks about a retired pilot, who knows regardless of market conditions there was going to be a check in his mailbox (before direct deposit was the norm) every month for the rest of his life. These were the good ol' days of working for one job for life, with a gold watch and a pension at the finish line. Today pilots do not have pensions, only 401ks to count on. Today it's more like “what is YOUR number going to be for retirement?”. That belief is a misconception. With the market being at the highest its ever been, you can exchange “what YOUR number is going to be” with a check to ensure your retirement will never be disturbed, regardless of what the market throws at us. A monthly payment you can turn off and on each month like a light switch while having access to your cash value simultaneously. So, how can you do this?

You can only accomplish lifetime income through fixed indexed annuities (FIA). These products are usually backed by multi-billion dollar insurance companies, many of which funded the pensions in the past. The difference being, pensions were funded by group annuities provided through an employer, whereas a FIA is an individual annuity funded by a lump sum payment. Only an FIA will provide a lifetime payment with all the flexibility a pension fails to provide. Monthly payments within an FIA can start on the first month or on the 10^th year. Typically, the longer you wait for a monthly check the higher the payment will be. FIA's are able to do this through Income Account Values (IAV) that grow at a predetermined interest rate. IAV's grow separate and independent of the cash value and serve as a formula to determine what the monthly payment will be down the road. The IAV makes sure that your monthly payment will be guaranteed regardless of how high or low the market may go. Bottom line, the IAV does not guarantee a lump sum payout, but instead a guaranteed monthly payment. A monthly payment that you can start and stop at your discretion while having access to the cash value. The balance being, the more cash you take out with a lump sum the lower your payment for life will be adjusted respectively.

Because of the disappearing act of the pension, investors are turning to the FIA to maintain their quality of life in retirement. Investors are turning their backs to how high they can grow their portfolio, rather focusing on how much monthly income they can count on for all their retirement needs. Investors are starting to realize that the roller coaster in the market over the last several years is likely to continue, making it impossible to determine the dollar amount they need in time to retire. They want to know what they can count on when the time comes for retirement. Furthermore, that their day to day obligations and quality of life in retirement will be there for life.

When considering an FIA to meet your retirement needs, it is important to discuss your options with a licensed professional who specializes in FIAs. There are to many instances where financial professionals make the wrong recommendation to the client, meaning the recommendation was not the best for the client's needs. There are a lot of moving parts, like how the cash value accumulates interest, that need to be addressed prior to the recommendation. With the right FIA you can guarantee a monthly check for life throughout your retirement that specifically meets your needs.

Why Underwriting Is Crucial for Life Insurance

Have you ever wondered how a death benefit is determined in a life 

insurance contract? Whether or not you choose a term life, whole life, or 

universal life insurance contract, every contract comes equipped with a tax free death benefit, otherwise known as a face amount. But how does the insurance company come up with the magic number for a death benefit? It's all based on mortality tables using the health and age of the proposed insured. Let's take a closer look at how insurance companies rate each policy and how underwriting determines the outcome.

We have all heard of the term underwriting. However, underwriting can be used to analyze either the health of a person or the justification of a financial transaction, like a home mortgage loan. For our purposes we will be concentrating on the underwriting of an individual for a life insurance policy. Once a person has done the adequate research to determine what type of policy would be the best fit, the underwriting process of gathering information follows the signed application. After the application, the insurance company will set up an appointment with the proposed inured (the person applying for insurance) with a para med (usually a mobile nurse or health careequivalent). The para med will take down vital statistics of the proposed insured, including a blood test and urine analysis. This information is then sent to a laboratory to be analyzed for the insurance company.

Outside of the initial physical of the para med, other information is also gathered to determine the face amount of the policy. The age and sex of the insured is considered. Additionally, past medical records will be summoned from the acting physician to be reviewed by the insurance company. The lifestyle of the proposed insured is also reviewed, as a motocross racer has a much higher chance of being killed on the job than a receptionist. Lastly, the insurance company must consider the financial state, or suitability, of the client to determine if the recommended policy will meet the client's needs.

Once all of this information is gathered for the insurance company, the underwriter will then analyze this information and come up with a tax free death benefit. The underwriter basically calculates all of the risk (chance of death) of the provided documentation against set mortality tables before an offer can be considered. Generally speaking, the mortality tables provide a societal average of what a reasonably healthy person will live to be. For example, females tend to live longer; therefore, on average the death benefit for a female is slightly higher than a male. Mortality tables provide the insurance company with a time line of profitability to make sure the death benefits they offer do not put them in the red over the long term. Because of this life insurance payouts are much higher today then they were 50 years ago, as people are living much longer; translating to higher profits for the insurance company.

Only when all of this information is analyzed can an offer from the insurance company be made. This is why it is important to speak to a reputable agent discussing the financial needs of your life insurance policy. If the wrong policy is recommended based on absent facts, the long term financial consequences could be severe. For example, a person who wants a higher death benefit would be better off with a whole life policy as opposed to a universal life policy which concentrates on cash value accumulation. Pertinent questions must be addressed upfront at the time of the application to adequately determine the right policy. Bottom line, underwriting is a proven method that can help the proposed insured come up with the appropriate face amount for their family's needs if properly addressed.  

Where Will We Be 10 Years From Now?

Today, thanks to the effort of the Federal Stimulus, the Dow Jones is at the highest point we have ever seen. Considering that interest rates are at historic lows and the Federal Government is still spending $30 billion per month (now the 5^th round of Federal Stimulus in the last 6 years), this recent market surge can easily be viewed as a statistical marvel. Not to mention that our nation's highest income tax bracket is at 35%, almost half the historical average. Yet, against conflicting economic data, here we are in the best possible position we could ever hope for. The question is, given the volatility we have had over the last decade, what do you think our financial world will look like in 2024?

However the stage is set 10 years from now, there are moves that you can put into place today to help protect yourself against inevitable changes. For starters, Federal tax rates have nowhere to go but up. Make no mistake about it, tax rate hikes are just around the corner. There is only one way for our nation to pay back the $4 trillion dollars we have spent over the last 6 years: raising taxes. Let's take a closer look at this for clarification. Historically, since 1913, that average marginal Federal tax rate exceeds 60%. This is a far stretch from our highest tax rate today of 35%. Given we have accumulated more debt over the last decade (by over 10 times faster) than any time period in US history, how long do you think it will be before we see our first Federal income tax increase? So, what does this mean for you 10 years from now?

It means you will have less net income than you have today. If we assume that the Federal tax rate jumps by 7% over the next decade, with inflation averaging 3% annually, you will have well over a 30% decrease in net spendable dollars with the income you make today. When you take into account that the main source of retirement income for the working class is in the form of a 401k, IRA, SEP, or similar type of pretax dollar investment, it becomes very clear how much spending money you stand to lose to Uncle Sam. This is why it is crucial to protect your future income from imminent tax hikes, while locking in market gains at their highest point.

One way investors are able to protect their future income is through Indexed Universal Life (IUL) policies, a form of permanent life insurance. These vehicles allow you to accumulate funds exempt from any market volatility, providing impressive moderate returns, while also allowing for tax free withdrawals throughout your retirement years. In order for IULs to have tax advantaged withdrawals, your policy must be set up as a Non Modified Endowment Contract (Non MEC). Non MECs have to pass the seven pay test (a funding formula derived from the IRS for purposes of tax free income) in order to enjoy an income exempt from Federal income tax. If any IUL policy fails the seven pay test, then all withdrawals are taxed as ordinary income tax on a First In – Last Out accounting basis. Non MEC policies have all the same tax free exemptions as a Roth IRA without many of the restrictions. Non MEC IULs do not have low annual limits or withdrawal penalties prior to age 59 ½ like a Roth IRA does. Nor do Roth IRAs pay out accelerated death benefits based on the amount of premium you fund the policy with.

Lets take a closer look at how a Non MEC IUL can provide a moderate return amidst a volatile market. Since an IUL is a fixed product, if the market goes down you will have a minimum guaranteed (floor rate) return regardless of how far the market may fall. These guarantees can be as high as 2% depending on which policy you chose. Conversely, if the market goes up, these policies will match you dollar for dollar up to as high as 14% (cap rate). Because these products protect you against market loss, you cannot earn above the cap rate. Insurance companies are able to offer these returns through concepts of annual reset and indexing. Each year, on the anniversary of the policy date, a chosen market index (such as the S & P 500) determines how much interest is to be credited to your policy. There are different variations of interest crediting, which can include dollar cost averaging. Just imagine if you were able to eliminate the downside of the market prior to 09/11/2001 with a cap of 14%. Although not typical of past market results, you would have drastically outperformed the stock market.

With a Non MEC IUL policy you will be able to protect your money from both market downturns and the imminent threat of rising taxes. Given that the market is at its highest level, what better timing could you ask for? Top financial institutions are warning of a market correction around the corner and the Federal Government is looking for an end to the Federal stimulus for good. Yet today the market is at the highest levels and Uncle Sam is still pumping in $30 billion monthly of Federal stimulus. Over the last several years the rules that govern the economy seem to be set in opposition, and I fear that this trend will continue, followed by tax increases and periods of volatility. Without taking precautions against these financial threats, how do you intend to offset the volatility and rising income taxes? These concerns have prompted many investors to look into Non Mec IULs as a viable solution to an unpredictable market.

A Correction Around the Corner

Recently, the market has climbed to an all new high. Yet the higher the market goes, the less investors seem to care. One of the main reasons for this is that only about 20 companies of the S & P 500 reached 52 week highs in the market; the lowest number in a year. Furthermore, the benchmark US 10 year note saw a drop in yield of 2.44% last week, which is the lowest in 12 months. So, why is the market at an all time high? How can the market justify this growth? It's the Federal Stimulus along with the government holding down interest rates.

The Federal Stimulus, which exceeds $4 trillion since 2008, continues monthly at $35 billion. This is a huge unnatural catalyst for the market. Granted, the Federal Stimulus has proven successful; however, it is only a short term solution with negative long term effects. The Federal Stimulus can only push the market so far through monetary injections before drastic volatility follows. Investors are well aware of this. Over the last 6 years the market has been quite the roller coaster. Only now we are at the highest point of the roller coaster with nowhere to go but down. In a phone interview with Bloomberg, Hayes Miller, head of multi-asset allocation for Baring Asset Management Inc, said “Breadth is suggesting that the market is stopping. This is not a good starting point for buying equities at this price.” This suggests a correction is around the corner. Citi Group CFO John Gerspach said last week that trading revenue could fall as much as 25% in the second quarter, and JPMorgan Chase & Co. estimated a 20% drop. The question is will the cycle of stimulus continue like it has over the last few years? The evidence seems to point that way. If the market does take a 25% drop, how much Quantitive Easement will the Fed pump into the market to offset the correction? How much will that add to our Federal Deficit, and how much longer can Wall Street ride on the coat tails of Uncle Sam?

Volatility is a trend that we will see for the next several years. Fortunately today, investors have been able to recoup losses over the last decade thanks to Uncle Sam's efforts. However, with a growing Federal Deficit and extreme deflation, volatility will continue. With the market at its highest level in history, there couldn't be a better time to redirect your portfolio to financial guarantees. Now is the perfect time to use the Federal Stimulus to your advantage before it may be to late. Differentiated strategies must be explored to keep financial goals for your portfolio on track. So how do you navigate through a choppy market to achieve retirement goals? You simply trade away the down side of the market with a moderate return, known as annual reset. Annual reset is a concept that requires financial institutions to match deposits into fixed assets on a dollar for dollar basis, as opposed to leveraging assets with ratios as high as 20:1, which cannot bypass volatility. Annual reset will ensure that you can never go backwards on the growth of your portfolio. Truth be told, this strategy has outperformed the market since 2000. Investors and retirees alike are repositioning leveraged assets to products offering annual reset for several benefits, including both lifetime income and exempting themselves from any volatility in the future.

Without financial concepts that use annual reset, how can you ensure your financial goals are met? What many fail to realize is how disastrous a market downturn really is. Let's take a closer look at this. Let's assume for simplistic purposes that the market takes a 50% downturn. If that downturn was followed by an immediate 50% upturn, you are still down 25%. An easier way to see this is to start 4 quarters and take 2 away (50% loss). A 50% gain of $0.50 is $0.75, putting you a quarter short of where you started. So respectively, any loss must be followed by a much higher gain in order to get you back to even. The question is, how many downsides can you endure before you are unable to pull your portfolio above water, let alone achieve your financial goals. Annual reset bypasses this negative event and allows you to only move forward.

With unnatural solutions like the Federal Stimulus, the market will continue to have extreme highs and lows contrary to what the natural numbers represent. A sure way to navigate through these extremes is to trade away all future volatility with moderate upsides. This will ensure that unforeseen events brought on by a struggling economy will not disrupt your personal financial goals.

Protecting Income Benefits From One Generation to Another

One of the biggest misconceptions in retirement today is to think that the benefits for income planning cannot be passed on to the next generation. With multi-generational family planning, the owner of the policy can benefit from all the growth and tax advantaged withdrawals of a Non MEC Indexed Universal Life policy, while at death passing on the withdrawal benefits to the named insured without closing out the policy. This allows the money saved for college and retirement planning to pass on to the family survivors without disturbing any of the benefits.

Not only can the benefits of multi-generational policies be passed on, the owner of the policy does not have to be underwritten. Instead, the named insured is underwritten in anticipation of one day taking over the insurance policy (when the owner passes), and the third generation can be the beneficiary. For example, a father that is 75 could open up a multi-generational policy with his son who is 45 (and in average health). The son would be underwritten and the policy would not pay out a death benefit until both the owner and the named insured (son) pass. During the accumulation phase, the owner would fund the policy within the thresholds of a Non MEC (in order to set up tax free withdrawals in the form of a loan). At the point of the father's death, the son would default to the owner of the policy and would have all the benefits his father had. Once the benefits transfer, the son could use that money for whatever he saw fit. He could use that money for his heir's college expenses (the father's grandkids), or simply use the money as another income stream in retirement. Down the road when the named insured passes, the tax free death benefit would be paid out to the named beneficiaries. This allows the accelerated death benefit to be paid out to the third generation, with the first two generations enjoying the benefits of the policy; thus being multi-generational.

With the absence of pensions in today's labor market, many investors are using this strategy to secure an income stream for the generations they will leave behind. With an Indexed Universal Life policy, investors know that when the market goes down the policy will guarantee them a floor rate while providing an attractive cap when the market goes up. Additionally, the policy owner can take advantage of flexible withdrawals exempt from Federal income taxes, having total liquidity, and protecting the interests of 3 generations. Lets take a closer look at how these unmatched benefits are possible.

Insurance companies can provide these financial guarantees through the unique concepts of annual reset and indexing. Annual reset allows the cash value of the policy to avoid market loss while providing a cap on what the policy can earn. Interest is credited though a method known as indexing. When participating in indexing, the insurance company is prohibited from investing the money in risky accounts such as mutual funds. Instead, they place the funds in safe money accounts, like insured bonds, to protect the money from market risk. The strategy being, its better to have a moderate return with no market loss as opposed to playing the market in a win some and lose some game. If you look at the last 15 years of the stock market, although not typical, financial products utilizing annual reset and indexing drastically outperformed the market with no downside exposure. There are several ways to allocate your funds with a named index, including dollar cost averaging, so it is important to discuss these options with a licensed representative to find the option for you and your family.

With the absence of pension plans being offered in the workplace, a Multi-genrational Indexed Universal Life policy could be the perfect fit for a family that intends on protecting money for up to three generations with just one policy. This takes a lot of the stress of college and retirement planning off the table for future generations. Tax advantaged withdrawals no longer have to vanish upon the death of the policy owner, while the next generation enjoys a moderate return with the same benefits. Not to mention that the owner of the policy does not have to be underwritten, just the named insured; allowing families to pass on living financial benefits regardless of health issues.

The Flaws of Unemployment

The Dow Jones Industrial average sits just over 16,500; quite a comeback over the last few years. In fact, just recently the Dow Jones hit its highest mark yet in US history. What is causing the market to rise to new highs? Is this conducive of an economy pulling itself out of a global recession? There is very little evidence to support this market surge. Lets take a closer look as to why our economy is not reflective of this market rally.

Historically, any significant jump in the Dow Jones would signal a strong and healthy economy with all the opportunity in the world. Meaning that there would be little, if any, layoffs and unemployment would be at it lowest levels. Today that is not the case. Common economic indicators, such as the unemployment rate show sluggish results at best; while conveniently painting a picture of unrealistic momentum in the work force.

In order to understand the true numbers of the unemployment rate, it is imperative to understand what each number represents. The Federal Government uses workforce and non workforce percentages of Americans over the age of 16. The workforce numbers represent those who recently had a job and are actively looking for another job, thus being eligible for unemployment benefits. The non workforce population represents those who do not work, had a job, cannot find a job, and have been nonactive in job searching (unemployment benefits being expired). The number of non workforce Americans in April of 2014 was 92 million. Conversely, the number of workforce Americans was 155.421 million in the same month. However, the Federal Government only uses the workforce numbers when calculating the unemployment, excluding the non workforce numbers from the formula. In April, those who are actively looking for a job represented 9.73 million of the workforce. Therefore, the “unemployment rate” in April was 6.3%. However, if you use the relevant non workforce numbers the unemployment rate is much higher; as by definition those who have given up looking for a job still do not have one. Additionally, there are many not counted in the unemployment rate that continue to look for a job; simply because they lost their benefits. The question is, why doesn't the unemployment rate factor those who can work but have given up?

In addition to the skewed numbers of unemployment, when you look at the salaries of those working another unrealistic picture is being painted. Of the 155.421 million working Americans, approximately 40% are making poverty level wages. Furthermore, over 20% of the workforce made more in 2006 than they did in 2013. These percentages of the labor force are not reflective of a market being at its highest levels. Yet here we are with the market rallying at its highest point.

Indicators like the unemployment rate can show counterproductive numbers of growth because of the continuation of the Federal Stimulus. Regardless of how high the Dow Jones has jumped, the Federal Government still feels that $40 billion per month of treasury bond purchases is necessary to sustain today's unpredictable market. Granted, the Federal Government has dropped these monthly purchases from $85 billion per month to $40 billion; yet still the overall toll of the Federal stimulus is over $4 trillion dollars since the market crash of 2008. The Federal stimulus keeps interest rates low, while keeping a tight leash on inflation. Without the Federal Stimulus, the Dow would not be where it is today. Because of these cash injections, factors like the unemployment rate often speak to the contrary of a rallying market. As we continue with the Federal Stimulus, our long term debt continues to grow. The question is, how long can we sustain this high point in the Market while adding an additional $480 billion to our National deficit this year?

Until we answer that question, indicators such as the unemployment rate will continuously show data non reflective of a healthy economy. Because of conflicting reports like unemployment, many financial firms are predicting a sizable correction of up to 20% coming right around the corner. Bottom line, whichever way you choose to redirect your retirement nest egg, make sure to you understand the unbiased numbers in order to help guide you in the right direction.

Locking In Your Gains For Lifetime Income

In September of 2008, the Federal deficit just barely crossed the $10 trillion mark. Today, 5.5 years later, the deficit stands at $17.5 trillion. This is over a 70% increase to our National debt in less than 6 years. This debt is not going to pay itself off. The writing is on the wall; Federal income tax rates have nowhere to go but up. Today, the top Federal tax bracket is just over 35%; almost half the historical average since 1913. What do you think the highest Federal bracket will be in 2024?

When you take into account that the vast majority of all deferred compensation plans (401k, IRA, TSA, etc) are all taxable upon withdrawal, it goes without saying that every dollar you save for retirement needs to be working in your favor. This means you will need to have solid percentages in order to offset the additional income you stand to lose to Uncle Sam. Unfortunately, the last 13 years have been anything but solid. In fact, most investors have just been able to recoup the losses they incurred over the last several years. There has been extreme volatility due to a domestic terrorist attack and a Global recession, just to a name a few. The market has endured with the assistance of Federal Stimulus, but not without consequence. This is a long term problem we have to endure with no history lesson as a guide.

I believe the only way to plan for retirement today is consistency. A steady return that can achieve the desired income results over a specific time period. There is no way to give a guaranteed return on your cash of 7% per year. However, you can add 7% to a non cash value to determine what income you will be eligible for while exempting your cash value from volatility; an income stream you can count on for life regardless of future market performance. Furthermore, an income stream that can be stopped and started at your discretion while you still have access to the cash value.

Lifetime income is aggressively being pursued by both retirees and future retirees through an income stream that is guaranteed for life, regardless of what may lie ahead. These are guarantees that many Americans are seeking instead of rolling the dice in the market. I remember about a year ago I met with a prospect (now a client) that said “I don’t know what I have in my 401k (the current balance) because I don’t need that to live. That money is bonus money that is off limits today. All I want is to know that I can keep the lights on and enjoy the little things in life without having to go to work every day”. The fear of not having enough money in retirement is a common concern that I hear on a regular basis, especially with the terrible state that Social Security is in. The average American wants relaxation and comfort in retirement without the worry of where their check is coming from. Lifetime income provides all of this and more.

Make no mistake about it; rising taxes are just around the corner. The Federal deficit has increased by 70% over the last 5.5 years. The Federal Government is still purchasing Government bonds today at $45 billion per month with QEIII (Quantitative Easement III) to help the economy along. Without financial guarantees of lifetime income, what solution can you rely on to give you the comfort in retirement you deserve? How else can you ensure that money will be there when you need it down the road? We have all been exposed to how much money you can realistically lose in the market. Granted, the market is on a rebound; but for how long that will last is anyone’s guess. There may not be a more perfect time to lock in your gains for a guaranteed check for life.

Protecting Against Uncertainty

This morning I took my son to a local diner for breakfast. During the meal, I couldn’t help but overhear the couple in the next booth, discussing how to protect a lump sum of money as they busily entertained their three-year-old. The topic at hand was a five-year CD option and I found the husband’s remark interesting. “Five years from now,” he said, “who knows what will happen in the market. By then, it could be a whole different world.” The more I thought about that statement, the more I think he hit the nail on the head.

In order to better understand this, let’s take a look at the financial arena today. The market is rallying to all new levels, while the Federal Government is still pumping $35 billion per month into bonds and mortgage-backed securities, as a counter measure to a fragile market. Ironically, a fragile market that’s somehow at an all time high even though interest rates remain at an all time low. The rules are literally set in opposition and the outcome is impossible to determine. We know that everyone who lost big in the market has had the good fortune to recapture his or her losses. We also know that the federal stimulus has managed to lay a foundation of confidence under the average investor. This mentality however, is short term in nature. Long term planning on the other hand, has taken a back burner to day-to-day market fluctuations, which unfortunately seems to discredit the reality of a strong economic turnaround.

When you talk about long-term goals (5 to 15 plus years out), identifying the right financial plan can prove to be quite the conundrum. To reiterate the remark spoken by the man in the booth, given the current financial climate, how can you even begin to assess what the future will hold? Surprisingly, this interesting question is failing to be addressed in most income and retirement planning models.

If we are printing over $400 billion dollars per year, how long will it take us to pay it back? As inflation creeps up, what will happen with the market? How high will federal taxes climb, considering the average marginal tax rate since 1913 exceeds 60 percent? These are just a few of the many questions investors should be addressing within their retirement planning.

 I don’t think today’s investor distrusts the market, they simply don’t like the unpredictability that comes with it. Why should they? These investors have already been exposed to the most volatile decade on record, watching their portfolio fluctuate like a roller coaster the past few years. The only difference now, is that their eyes are wide open, knowing anything can happen. Are you willing to roll the dice moving forward or will you take precautions to lock in financial guarantees to protect your long-term financial goals?

When you take into account that more than 90% of working Americans are without a pension, along with employees paying into a bankrupted social security, it’s clear to see an income epidemic is right around the corner. Where is your future income going to come from? Can you count on social security along with a 401k to be a solution to your financial security within retirement? Without taking precautions to exempt your money to an uncontrollable financial climate, you may be inadvertently placing yourself in a dangerous spot. Once again, given current market conditions, anything is possible.

The only remedy to an unpredictable market lies within concepts such as annual reset, which provides true financial guarantees. Guarantees, that expel any future volatility with long-term growth potential and lifetime income. These concepts reposition your portfolio from securities to fixed, asset-protected concepts. Simply put, deposits are protected within this concept through reserve pools mandated by the state in order to offset the most extreme financial circumstances. Institutions that offer these products front large sums of liquidity to match all deposits usually do so on a dollar for dollar basis.

There is a reason why you might not have heard of this philosophy. The massive reserve requirements needed for annual reset usually pose a conflict of interest to security-based firms offering deferred compensation plans. Instead, traditional securities, or stock-based plans, usually rely on leveraging assets to drive in additional income. Companies that use leverage assets, by default, cannot afford to front reserve pools in order to protect the money, as it is a conflict of interest. Leveraging assets, or borrowing against funds, are the exact opposite of placing cash into reserve pools. Therefore, it should be of no surprise that in the wrong financial environment, leveraging could prove to be of severe consequence. To put it into perspective, many experts believe the fall of MF Global stemmed from a leveraged asset as high as 43 to 1. This means for every dollar deposited, $43 dollars were borrowed in hopes of trying to drive in profit. So, when the market crashed, excessive debt obligations effectively rendered the company insolvent. Since the assets within these plans were leveraged, the money in turn was completely exposed to volatility.

As of now, what happens in the market remains to be seen. Those concerned about unanticipated market downturns should educate themselves on concepts that provide true financial guarantees. This is especially true for those who strive for a comfortable lifestyle in retirement, regardless of how the market performs. However, before you start exploring safe money solutions that incorporate annual reset, it is highly recommended that you seek the advice of a financial professional. Doing so, will help determine if these products are right for you.