Reviewing Certificate of Deposits, Mutual Funds, Stocks, Annuties and Secondary Annuities for Retirement Planning
Pros & Cons of CDs, Mutual Funds, Annuities and Secondary Annuities
We all would love to buy new cars. We love the smell and the feeling of accomplishment when we buy a car new off the lot, but for the more financial minded individual a new car is not the best option. Why? As soon as a new car leaves the lot, the value drops by over 10%. Losing 10% in a deal doesn’t make good business sense. The savvy car buyer scours the internet looking for the car they want with very low miles. They let the first purchaser take the depreciation and they get the car at a discount. What does this have to do with retirement?
Some retirement products are like buying new cars. What’s a new retirement product?
CD (Certificate of Deposits): Retirement Investment Option
Here are three of them: first, you have bank who wants to sell you a CD. The CD is like the compact car of the group. The CD is not meant to hold a lot of retirement funds and certainly isn’t fun to own. The rates are terrible, below 1%, but CDs are reliable and will pay the same amount throughout their lives.
Another new retirement product is mutual funds and stocks. Mutual funds and stocks are like the sports cars of the group. They grow fast, slow, then fast and can cause an awful accident injuring your retirement account. 2008 saw a lot of mutual fund and stock pileups on the highway to retirement. Sure, over the extra-long hall these funds always grow, but with retirement looming, most don’t want to take a hit after they are done working.
Annuity: Retirement Investment Option
With a large chunk of money, a new off-the-lot retirement product is an annuity. An annuity is like an expensive luxury car. The annuity costs a lot of money, but it’s safe, reliable and comfortable for the long haul. There are no changes in the amount annuities pay out, but they only pay out 1-2% these days. They will continue to pay out this 1-2% until the predetermined time period is up. Pay a lot at the beginning and relax in comfort and watch the small trickle of money come in. These are the big “off the lot” depreciators of the group.
Secondary Annuities: Retirement Investment Option
Secondary annuities are pre-owned annuities. They have been owned by someone else who won the lottery, a lawsuit or a settlement. Secondary annuities are assigned by a court and backed by large reliable insurance companies. The certified pre-owned low mileage luxury sports car of the group. They can be fun to own as there are a myriad of different ones with different payouts and prices and time limits. All kinds of accessories are available: lump sum payouts, monthly payouts, yearly payouts and combinations of all of the above. Secondary annuities are also reliable because they are backed by insurance companies, certified by a court and they won’t change. Whatever payout you purchased is what you are guaranteed to receive.
To get back to the car analogy, the first person that owned the annuity took the big depreciation. Now they want to get the cash for their annuity. They have to sell their rights to all of the future payouts at a discount so that they can get that lump sum of money. To do that, they have to sell it at a used car discount price. That discount price is passed on to the secondary buyer.
How much of a discounted price? Well, secondary annuities can pay out the equivalent of 5-10% interest. That sure beats the CDs and the brand new annuities. The secondary annuity luxury sports retirement investment may even beat the mutual funds and stocks in any given year, with one exception: secondary annuities won’t break down.
Year after year, you’ll get what you paid for backed by the insurance company and the courts. That’s like having all maintenance paid for throughout the life of the annuity. Hey, even if one owns a sports car or two, they usually have a more comfortable and reliable car to get them around town. The secondary annuity will get you to and through retirement with a great rate, reliably and consistently. Sometimes a new-to-you car makes the most financial sense. With retirement, the new-to-you annuity offers the best of all makes, models and styles.
Recent history suggests that the tried and true retirement tools are still being tried, but aren’t so true. The traditional way of saving for retirement may not be the best way anymore. Take, for example, Bob and Marge who retired in 2005. Bob and Marge saved up their entire life so that they could move to Florida and enjoy the fun and sun. They put most of their money into mutual funds and when they had a sizable amount, they sold their house and moved to sunny Florida.
Every month, Bob and Marge received a good amount of returns on their investments. They had plenty to pay their new mortgage, taxes, entertainment costs and for activities of daily living. Marge and Bob were living the highlife. Then 2008 rolled around and the market crashed. Stocks lost their value. They were getting more than 20% less from their investments than before. They could no longer afford the beach front condo they had moved into and they couldn’t afford to sell it because the bottom fell out of Florida property values. They were broke and under water. The bills began to pile up and their stress level eventually threatened to ruin their retirement. Bob and Marge wondered if they could have done something differently. What could have they done differently?
Well, if Bob and Marge chose an investment strategy that was stable, then they could have continued to enjoy their retirement. Most people retire around 65 and may live for 20 or 30 more years. No one can predict what the stock market is going to do 20 years from now. So why have the majority of your retirement in something that no one can predict. Chances are, sometime during that 20 to 30 years, the market is going to do something that will hurt retirement funds. CD’s would be a safe alternative, but they have a lousy return and it is hard to retire on a lousy return. So the popular choices are the volatility of the stock market, CDs or savings accounts (which have a worse return than CDs. A safe investment with a good return is hard to come by these days. Bob and Marge should have looked outside of the box to a safe investment with a better return.
Secondary annuities could have helped Bob and Marge enjoy their retirements far into the future.
Yes, secondary annuities could have helped Bob and Marge, but why and how? The reason is that secondary annuities are guaranteed. When you purchase a secondary annuity, you know exactly what you are getting and when you are getting it whether the purchased annuity promises monthly payouts of $400 or a lump sum payout of $400,000. Unlike the 401k which is pegged to the stock market coupled with the mistaken belief that the market will always increase, the secondary annuity is fixed. Whatever the payouts were that you purchased will still be the payouts no matter what happens to the stock market, the price of oil or pig futures.
Not only do you know what you are getting, the payments are guaranteed. The payments are guaranteed by highly rated insurance companies and they are often guaranteed by the state in which the structured settlement began. These secondary annuity payments are secured by a huge insurance company that is probably owned by another huge company. The security of secondary annuities can be compared to that of a large banking institution. Unlike their 401k, Bob and Marge would certainly know how much, when and that they would be getting paid, guaranteed.
So, secondary annuities are safe, but what about the rates? The current equivalent rates of return on secondary annuities beat out CDs by a mile and often beat current stock market/mutual fund returns without the risk. A secondary annuity gets the equivalent of a 5-10% return. A bank isn’t going to come close to that rate. Also, there are many different types and schedules of payouts of secondary annuities so there are always choices that fit each person’s retirement plan.
Relying solely on volatile investments for retirement doesn’t make sense. Risking a portion of retirement may make sense, but the best bet is to find something, like secondary annuities, that are guaranteed and still pay out at a great rate. The savvy investor doesn’t have to worry about the market at all, because they put their money in a secondary annuity and enjoy the income and their retirement without stress and worry.
Most people today love a bargain. Just walk into any TJ Maxx, Marshalls, or Ross stores and witness the excitement on people’s faces knowing they bought a shirt for $15 that was $100 down the street at Bloomingdale’s. You can get an interest rate bargain on returns on your money as well, if only you knew where to find these bargains.
The “retail banks” don’t have these discounts; nor do the local banks; not even banks such as Bank of America, JP Morgan, or Wells Fargo. The local branches of these major banks are retail locations similar to other overpriced retailers throughout the country. But instead of buying and selling clothes, they buy and sell money. They profit on everything they buy and sell. You need to find the bargains not offered by these banks.
A major profit source for the bank is taking deposits. By paying the retail investor, you and me, as little as possible, 0-2% on our checking account or Certificate of Deposit (CD), and lending our money to other people and businesses for 5-10% or more, they make profits on the spread of what they borrow and what they lend. This is retail banking.
Read Mary’s story:
Mary Opening Her Monthly
Interest Check
For example, Mary retired with $100,000 in a CD at Bank of America. Five years ago, she earned a monthly interest check of $300 to help pay her bills. Six months ago the bank gave her a mere $80 per month on her CD. Working hard for 35+ years, she now found it impossible to make ends meet every month.
After hearing about the structured settlements described here, she took her money and bought a secondary guaranteed annuity. Now she earns monthly interest in the amount of $446. That extra $366 really helps with her monthly bills and she uses the extra to splurge on her grandchildren from time to time. Mary felt confident putting her money in the annuity because Prudential and the State of Massachusetts (if something went wrong with Prudential) guaranteed it. Secondary market guaranteed annuities are available to everyone that knows about them. Banks don’t want you to know about these because promoting them would reduce the profits that they earn on low paying CDs. Knowing about them can put extra money in your wallet. If you are savvy like Mary and want to learn more, follow the link below to find real live inventory available right now.
Buying a CD at 2% from Bank of America is like buying a sweater at Bloomingdale’s for top dollar when everyone knows they can go down the street to TJ Maxx and buy the same thing for less or get interest paying 4-7%; equivalent to a 50% discount at the retail store. In the world of interest-bearing instruments, the lower the price for the future payments results in a higher overall rate of return.
Say, for example, Bill gave an investor $50,000 and received $1000 per year, creating a return of 2% a year. Now, Bill needs money immediately to pay for a new car, fix the roof of their house, pay medical bills, or college for their child. What can he do? Bill could sell it to somebody else in a secondary market. Bill, in order to pay these expenses quickly, sells it to Ted for $25,000. Ted gets the same $1000 per year, but only paid $25,000. Ted, now getting a 4% return, just doubled Bill’s original rate of return and tripling his bank’s lousy rate of return.
You want to be Ted, the savvy investor in the secondary market.
Now you see the difference between buying a CD from a bank in the “primary” market versus buying the same cash flow in the “secondary” market. You get the monthly income for half as much, thus doubling your overall rate of return. What is the downside to this? Well, your large chunk of money, in this case, $25,000 is tied up in monthly payments. Not a big deal if you are saving for the future, but if you get yourself in a pickle like Bill did, you have options. Because you negotiated such a good price, you could resell it for more or less what you paid. You may not see this occurring in the real world, but these transactions happen everyday and they are guaranteed by the most secure insurance companies in the world. Those payments are typically insured again by the state of origin, creating a very safe investment.
If the secondary market for structured settlements offers a much better return than your bank and the investment is backed by major insurance companies and possibly the state where it originated, is there a catch? With the amount of money you are thinking of investing, we are sure that you are going to research this issue and read some favorable articles and some articles with warnings against this kind of investment. As for the warnings, we are so sure that these are great investments for savvy investors we’ll tell you what they are going to “warn” you about: liquidity.
There, we said it. You can go to any website on the subject and, among the praise for these excellent investments, will be the only issue mentioned: liquidity. If you want, you can still do your research, but here is what they are going to tell you. When you invest in a structured settlement, you are basically buying the investment. You receive your excellent investment return, but paid out on a predetermined schedule. Your investment is not liquid and for that reason may not be a good fit for short term investments. You can see the timeline of payouts before purchasing these investments, so we aren’t sure why these articles are warning about this (maybe they are affiliated with banks that would prefer paying 80% less or other inferior investments). We’re sure that a short term liquid investment is not why you are reading about structured settlements anyway. You want a great return on your money. The money is sitting in the bank and it isn’t working for you. You want a great return on your money with low risk – safe money. The excellent investment rate and little to no risk makes this a great product for the money that is sitting in a low interest rate account doing nothing for you.
The very lack of liquidity they warn you about allows you to get the great investment rate being offered. If you put money in a savings account or a CD, you can take the money out (with a penalty for the CD) any time you wish. With a structured settlement, you get checks on a time schedule, but can’t just “take your money out.” The bank savings account and CDs have a horribly low rate typically below 1.75%. Your structured settlement has a rate that could be as high as 7.0% and is typically in the 5.0% range. You know ahead of time how much money you are getting and when and there is an insurance company making sure you get it. No surprises here.
But it is not as if you cannot sell your structured settlement in the same way you bought it. Because you purchased it at such a low price (high interest rate) the likelihood is that you could sell it back to the very same people that sold it to you for roughly the same price as you bought it.
Read Mary’s story:
Mary Opening Her Monthly
Interest Check
For example, Mary retired with $100,000 in a CD at Bank of America. Five years ago, she earned a monthly interest check of $300 to help pay her bills. Six months ago the bank gave her a mere $80 per month on her CD. Working hard for 35+ years, she now found it impossible to make ends meet every month.
After hearing about the structured settlements described here, she took her money and bought a secondary guaranteed annuity. Now she earns monthly interest in the amount of $446. That extra $366 really helps with her monthly bills and she uses the extra to splurge on her grandchildren from time to time. Mary felt confident putting her money in the annuity because Prudential and the State of Massachusetts (if something went wrong with Prudential) guaranteed it. Secondary market guaranteed annuities are available to everyone that knows about them. Banks don’t want you to know about these because promoting them would reduce the profits that they earn on low paying CDs. Knowing about them can put extra money in your wallet. If you are savvy like Mary and want to learn more, follow the link below to find real live inventory available right now.
Simply put, making an investment in a structured settlement a part of your portfolio allows you to safely earn a 4-10x higher yield then you can get from your bank with little to no risk. Take the time to do your research, or you invest your money now and start earning an excellent return now.
If the secondary market for structured settlements offers a much better return than your bank and the investment is backed by major insurance companies and possibly the state where it originated, is there a catch? With the amount of money you are thinking of investing, we are sure that you are going to research this issue and read some favorable articles and some articles with warnings against this kind of investment. As for the warnings, we are so sure that these are great investments for savvy investors we’ll tell you what they are going to “warn” you about: liquidity.
There, we said it. You can go to any website on the subject and, among the praise for these excellent investments, will be the only issue mentioned: liquidity. If you want, you can still do your research, but here is what they are going to tell you. When you invest in a structured settlement, you are basically buying the investment. You receive your excellent investment return, but paid out on a predetermined schedule. Your investment is not liquid and for that reason may not be a good fit for short term investments. You can see the timeline of payouts before purchasing these investments, so we aren’t sure why these articles are warning about this (maybe they are affiliated with banks that would prefer paying 80% less or other inferior investments). We’re sure that a short term liquid investment is not why you are reading about structured settlements anyway. You want a great return on your money. The money is sitting in the bank and it isn’t working for you. You want a great return on your money with low risk – safe money. The excellent investment rate and little to no risk makes this a great product for the money that is sitting in a low interest rate account doing nothing for you.
The very lack of liquidity they warn you about allows you to get the great investment rate being offered. If you put money in a savings account or a CD, you can take the money out (with a penalty for the CD) any time you wish. With a structured settlement, you get checks on a time schedule, but can’t just “take your money out.” The bank savings account and CDs have a horribly low rate typically below 1.75%. Your structured settlement has a rate that could be as high as 7.0% and is typically in the 5.0% range. You know ahead of time how much money you are getting and when and there is an insurance company making sure you get it. No surprises here.
But it is not as if you cannot sell your structured settlement in the same way you bought it. Because you purchased it at such a low price (high interest rate) the likelihood is that you could sell it back to the very same people that sold it to you for roughly the same price as you bought it.
Simply put, making an investment in a structured settlement a part of your portfolio allows you to safely earn a 4-10x higher yield then you can get from your bank with little to no risk. Take the time to do your research, or you invest your money now and start earning an excellent return now.
Guaranteed Annuity Payments: Rates so High, Risk so Low (Part 3)
Learn how and why you can buy wholesale annuity payments in the secondary market guaranteed by a Triple-AAA rated provider and receive a 4% to 7% return.
For the winner of a lawsuit or lottery, a structured settlement is easy to get into, but difficult to get out of it – like a lobster trap. Because the payments are set up by the insurance companies to be for a pre–determined period of time without any system to get an advance on future payments, there is no meaningful liquidity unless they wait. Claimants cannot go to a bank and get a loan based on these payments. The reason why a bank won’t lend against these payments is because they cannot foreclose on annuity payments the way they can, for instance, a home mortgage. Also, the Courts don’t want people to get out of the payment stream unless there is a compelling reason.
To sell one of these annuities, one has to obtain a court order. All of this takes time, knowledge of the legal system, and involves significant legal fees for the original owner, but not the investor in the secondary market. Because of this system, all sales are carefully monitored and underwritten so that at the end of the day there are no liens or encumbrances against the annuity policy so that annuity payments would not be able to be intercepted. This is where the secondary market, you and I as investors, come in.
The process for transferring payments from a claimant to you or me is very similar to buying a house. After a complete investigation of the contract, the insurance company sends out an assignment letter to the assignee (the investor) stating that he/she is the new owner of the future payments (structured settlement payment rights).
In order to make the future sale or transfer (for estate and/or gifting purposes) of the payments easy and without any delays, these transactions are set up to be serviced and processed through a third party – a large, well–capitalized title company. That way, there is no delay or publicity when a contract is sold or transferred at some time in the future.
The question comes up, “who are good prospects for this kind of conservative investment?” The answer is, almost any individual or entity that wants a rate of return in the range of 4% to 7% with minimal risk – more than twice what you can get today from comparable investments with the same amount of risk. The fact that these investments have a great deal of liquidity to them in the secondary market makes a strong case for putting a portion of one’s portfolio into this asset group.
Although these annuities are totally tax–free to the Courtroom Settlement winner who originally got them, they are taxable to almost all other investors (except charitable institutions). Because they are tax–free to the settlement winner, the insurance companies are not required to send 1099’s to the investors who buy these from claimants.
For qualified retirement plans, there is no tax while the investment is in the plan. When any money is withdrawn from a retirement plan (excluding Roth Conversions), the proceeds are taxable as income. For purchasers of these annuities, it is generally believed that the payments should be treated like an annuity payment under Section 72 of the IRC – a portion of the payments would be principal (using the exclusion allowance) and the rest would be considered interest. Investors should get advice on this from their individual tax professionals. (The IRS does not have any published rulings as to the taxability of these annuities).
Remember, these are low risk investments guaranteed by insurance companies. You can safely take a lump sum of money sitting in a bank or money market; invest it in a secondary market annuity; and watch the money roll in at a much higher rate than you were getting before. Large return, low risk!
In this day and age, when conservative investors are unhappy with the low rate of return on Certificates of Deposits (CDs), Government Bonds and Annuities, investors are asking, “Where can we put our money that is extremely safe, while at the same time yield a high rate of return?” These investors want to at least double or triple what they could get at Bank of America with the same low level of risk.
One low risk answer is to buy guaranteed annuity payments in the secondary market. A prudent investor can buy these annuities at a discount that lottery and Courtroom Settlement winners sell for “cash now.” You’ve heard the ads on TV and radio by companies such as JG Wentworth and Peachtree Funding. Why do they want to buy these annuities? Because they can buy these annuities at a discount from people who have lottery payments and structured settlement payments in exchange for a lump sum payment. If they can do it, why can’t you?
But if you Google “guaranteed annuity payments,” all you will find are companies looking to buy merchandise for 50-75% off retail prices. In other words, they are looking for people that won the lottery and are getting 5,000 per month for 10 years. They are looking to buy these payments for a huge discount. These companies (Factoring Companies or FCs) then sell them in huge packages to European Banks and large pension funds for 35-50% discounts. These securities are guaranteed by major insurance companies and States (for lottery payments). The guaranteed rate of return is 4% to 7% (effective interest rate) – more that TWICE what one could get at the bank using the same kind of risk parameters, so it makes sense that professional investors would be interested in these cash flow streams…and so should you.
Sounds too good to be true, how does this work and what is the catch?
The biggest catch to the originators of these payment plans are taking a big discount by selling them to you and me in the secondary market in order to get all of the money up front. The biggest catch to you, the investor, is that you are trading a lump sum of money for a monthly payment, like you do when purchasing a CD. Keep in mind though, that you can resell it for a lump sum anytime you want. That notwithstanding, it is a win/win situation for everyone because nobody is forcing anyone to sell their payment plans. In the United States, the most litigious country in the world (94% of all lawsuits in the world are instituted here), about $6 Billion per year is generated in legal settlements for personal injury or wrongful death claims that are settled so that the claimants (plaintiffs, annuitants) get their settlements in periodic payments over time.
For all parties, this works out to be a wonderful arrangement, and in fact, there are about $100 Billion worth of these contracts in force in the U.S. today. Because some of these settlement winner’s find that their circumstances change and they cannot wait 5-10 years for their monthly check, they sell their future monthly checks at a big discount. About $2 Billion of these settlements are sold each year with the same benefits and assurances that the original owner enjoyed.
There has been some confusion among both advisors and their clients as to how these arrangements are transacted and regulated, and why the rate of return is so high when the risk is so low.
What are Certificates of Deposit (aka CD)? What is a domestic CD and what are the various options of International CDs? A look at the insurance on Offshore CDs and the Eurodollar CD?
Commonly referred to as a CD, a Certificate of Deposit can be used as a short or long term investment. Domestic banks offer FDIC (Federal Deposit Insurance Corporation) insured Certificates of Deposit with higher rates of return than other investment options. The bank retains money for a specified period of time with the promise to repay the principal and interest to the depositor at the conclusion of the investment term.
Depending on the amount of money you invest, and the particular terms of the bank you choose to invest with, you may choose to invest your money for a period as short as one month to six years. There is usually a penalty for withdrawing money from a CD prior to the maturity date. Banks will also require a minimum deposit to open a Certificate of Deposit.
Offshore Certificates of Deposit
International Certificates of Deposit vary slightly from domestic CDs. International Certificates of Deposit can also be referred to as Offshore Certificates of Deposit or Eurodollar Certificates of Deposit. When obtaining a Certificate of Deposit from an offshore bank, the investor signs an agreement with the bank in which the bank agrees to pay a fixed interest rate in exchange to use the money during the specified time period.
Similar to domestic banks, offshore banks will differ on the minimum amount required to use as a deposit for a CD. Often the amount required for an Offshore Certificate of Deposit will be much higher than what is traditionally required from domestic banks.
There are several advantages to having a Certificate of Deposit from an offshore bank. The advantages include:
Higher interest rates. Unlike domestic banks, offshore banks are not government regulated and are free to compete against each other for better rates. Depending on the country you choose to bank in, interest rates can be as high as ten percent.
Another advantage to having an Offshore Certificate of Deposit is the income tax benefits. If you choose to open a Certificate of Deposit in a recognized tax haven such as Panama, you will not be taxed on interest earned because that particular government does not impose interest on income taxes.
A third major advantage to an Offshore Certificate of Deposit is the anonymity and confidentiality offered to protect your assets. Depending on the jurisdiction you choose to obtain your Certificate of Deposit, the bank may be forced to adhere to strict secrecy laws which protect your money from creditors and divorce. Also, since offshore banks are outside the jurisdiction of domestic courts those wishing to sequester your funds for whatever reason will be unable to do so.
Insurance on Offshore Bank Account CD
Unlike domestic banks, an offshore bank cannot offer Certificates of Deposit which are FDIC insured. Rather, these banks have their own methods of insuring investment money which guarantee that at any given time the bank has enough money in its reserves to cover all deposits made.
For example, in Panama all banks are required to report each month to the BNP (Banco Nacional do Panama) to ensure they have enough reserves to cover deposits made. Compliance officers are assigned to the banks to make sure depositor’s funds are not misappropriated. Additionally, offshore banks will often maintain large insurance policies to cover depositor’s funds for amounts over what is normally covered by the BNP.
Eurodollar Certificates of Deposit
Eurodollar Certificates of Deposit are issued in London according to the rates listed on the London Interbank Offered Rate (LIBOR). This interest rate is calculated on a daily basis by the British Banker’s Association. Several countries that rely on LIBOR for calculating the rates for Certificates of Deposit are England, the United States, Switzerland, and Canada. Eurodollar Certificates of Deposit, while being issued outside the United States, are still denominated in American currency.
When choosing to open an International Certificate of Deposit, it is important to consult with a financial advisor. Your advisor will be aware of minimum deposits required to open the account, any penalties for withdrawing money early, the stability of the bank you choose to invest with, and the denomination your money will be kept in. Your advisor will also help you choose the appropriate length of time to keep your money tied up in a CD to offer you the best return of investment.
It is a terrifying thing for young investors to think about having their funds tied up in the stock market. Since this is an unpredictable investment, investors are concerned about the security of invested assets. There is never a way to determine whether the S&P 500 will produce positive returns. While this is a cause for concern for many people, some will say that investing for the long haul will reduce the chances of losses in the stock market.
One important question to consider regarding the roller coaster rides of the stock market is whether the account balance will remain the same if the market rises or declines for 15 years and a zero percent return. For example, a client invested $250,000 in the S&P 500 index and there was a 15% return for the first year. During the second year, the S&P 500 declined by 15% and repeated the upswing in the third year. This pattern occurred for 14 years in a row. Would the investment at the end of 14 years remain at $250,000?
Most investors would think, “Yes.” However, the investment would not be the same. The chart below shows the fluctuations for a 14 year period with an average zero percent return. It is clear to see that at the end of the 10 year period, there has been a decrease in the amount of the investment and the net of the stocks is $213,185.
Fixed Indexed Annuities is one method that can be used to hedge the risk in the market. These annuities will have decent returns as long as the market is performing well. Fixed Indexed Annuities are a wise investment, but people should not place all of their money into these annuities. However, as the investor ages, it becomes more important that they should allocate more money in a retirement tool that will not decrease and will continue to generate wealth.
The following chart displays the results of a $250,000 investment in a Fixed Indexed Annuity versus the S&P500. We will assume that the cap in the return is 8% each year.
S&P 500 Index
Ending Year
Initial Investment
Annual Return (%)
Return ($)
Acct. Balance
1
$250,000
15%
$37,500
$287,500
2
$287,500
-15%
($43,125)
$244,375
3
$244,375
15%
$36,656
$281,031
4
$281,031
-15%
($42,155)
$238,877
5
$238,877
15%
$35,831
$274,708
6
$274,708
-15%
($41,206)
$233,502
7
$233,502
15%
$35,025
$268,527
8
$268,527
-15%
($40,279)
$228,248
9
$228,248
15%
$34,237
$262,485
10
$262,485
-15%
($39,373)
$223,112
11
$223,112
15%
$33,467
$256,579
12
$256,579
-15%
($38,487)
$218,092
13
$218,092
15%
$32,714
$250,806
14
$250,806
-15%
($37,621)
$213,185
Avg. Return
0.00%
Fixed Indexed Annuity
Ending Year
Initial Investment
Annual Return (%)
Return ($)
Acct. Balance
1
$250,000
8.00%
$20,000
$270,000
2
$270,000
0.00%
$0
$270,000
3
$270,000
8.00%
$21,600
$291,600
4
$291,600
0.00%
$0
$291,600
5
$291,600
8.00%
$23,328
$314,928
6
$314,928
0.00%
$0
$314,928
7
$314,928
8.00%
$25,194
$340,122
8
$340,122
0.00%
$0
$340,122
9
$340,122
8.00%
$27,210
$367,332
10
$367,332
0.00%
$0
$367,332
11
$367,332
8.00%
$29,387
$396,719
12
$396,719
0.00%
$0
$396,719
13
$396,719
8.00%
$31,737
$428,456
14
$428,456
0.00%
$0
$428,456
Avg. Return
4.00%
Most people will question the difference in the ending balance. Why is the Fixed Indexed Annuity at $428,456 instead of $213,185? This is because during the bear market years, the Fixed Indexed Annuity had a zero percent return. This eliminated the -15%. The bull market years produced an 8% return.
While these examples could happen, people need to ask whether they are doing all they can to protect their assets in a fluctuating and unreliable stock market. Very few financial advisors ever want to tell their client that they earned zero percent returns when the stock market was bearish. It is much better news if the client earns 8% when the stock market is bullish. But it’s even better that, at the very least, they did not lose money when the market was at a bearish -15%.
What happens with a Fixed Indexed Annuity if the stock market is bearish at -25%?
To examine things a bit further, let’s assume that the market roller coaster ride was 25% instead of 15%. In this case, the account balance would end up being $159,125 after 14 years and the Fixed Indexed Annuity balance would remain the same, at $428,456.
You should understand all of the investment options that are available to help you build your assets for retirement. In addition, they should be informed of ways to protect their assets while increasing wealth. Financial advisors and stock brokers should inform clients of options and advise the best way to protect assets in the volatile stock market.
For more information on how Estate Street Partners can help you grow your retirment fund with Fixed Indexed Annuities please call us toll-free at (888) 938-5872. If you are calling within the Boston region please call (508) 429-0011.
