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Market Linked  CDs – Secure 12.4% Average Yield

Market linked CDs offer the protection of a traditional CD as well as the security of being FDIC insured.  These Market Linked  CDs – Secure 12.4% Average Yield  give clients a more attractive rate of return versus bank issued CDs. This is a great option if you want a higher rate of return on your investment. Crowe and Associates would like to help you make the most of your money.  The better investments you make the happier you will feel when you think about your retirement.  In fact, you will be able to do more of the things you always wanted to do!

In general:

Market linked CDs have an unlimited interest earning potential as variable interest can be unlimited (depending on the product).  They offer a return of 100% of  your deposit when they mature.  In fact, these CDs are FDIC insured up to at least $250,000 per bank.  MLCDs pay the greater of either fixed or variable rate interest.  They offer fixed interest rate products that pay minimum 1% annually.

Market lined CD issuers include JPMorgan, Barclays, Goldman Sachs and Bank of the West.

MARCH  2015 RECOMMENDATION

• Goldman Sachs 7 Year Multi-Asset Index Linked CD
• At maturity this MLCD will pay 200% of the point to point MOBU index gains
• Best Case Scenario = 100% of your deposit back + unlimited upside potential
• $100,000 invested in this CD 7 years ago would be worth $186,800 today (12.40% APY)
• Worst Case Scenario = 100% of your deposit back

If you want to learn more about how to invest in a Market Linked CD, either contact the office at 203-796-5403 or via email at admin@croweandassociates.com.  We are always here to help you with any investment or insurance need you may have.  Please feel free to contact us with any question or concern you have.

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CD rates are currently at an all time low.   The average 5 year CD rate in Connecticut is 1.08%.    (To see local rates, Bankrate.com is a good site to use  CLICK FOR BANK RATE SITE )  Locking money up for 5 years at a rate below 2% is almost a guarantee that you will not keep up with inflation which is averaging over 3% per year.

Clients that like the idea of using CD and feel safe being backed by FDIC insurance, should consider using market linked CD’s.  Market CD’s work much like a normal CD.  They have a set term such as 3, 5 or 7 years and they are FDIC backed.  The difference is in how they credit interest.   The Market link CD will credit anywhere from 1% to 8% depending on market conditions.  In a poor performing market, the CD will never yield less than 1% but in a stronger performing market, the investor can make as much as 8%.

The CD uses a simple formula to determine annual interest.  They use a grouping of 8 stocks.  Any stock that ends the year the same or at any type of increase credits 1% to the account.  If 5 stocks are flat or up to any extent, the investor will get a 5% interest credited.  If all 8 are flat or up, they will get 8%.  Conversely, if all the stocks are down they will only be credited the base 1% for the year.

At the end of the term, the purchaser can take their money without any penalty.  This is a good option for those that are adverse to risk.  Using market linked CD’s will at least give them a chance to out pace inflation vs. a fixed CD at 1.5% which is essentially guaranteeing an annual loss vs. inflation.

Life Income annuities have been around for a long time.  The concept is straight forward.   You hand over a lump sum of money to the insurance company and they show you how much they will pay as income for the rest of your life.  There are a number of payout options such as a “Straight life payout” (They pay the money until you die), “Life pay with return of premium” (They pay for life and will pay any unused portion to a beneficiary if you die too soon) and a number of other options as well.

Life pay annuities are valuable when used in the right situation.  They can provide guaranteed income and are not subject to market fluctuation.  In other words, you can rely on the payout no matter what. Wikipedia has a very good article on life pay annuities that is worth reading (click her for Wikipedia article)  The only real drawback to the life income annuity is that you are giving up control of the lump sum asset.  Other lump sums should be maintained in the event it is needed.

In many cases, clients can obtain a better payout by using an indexed annuity with an income rider.  This approach always works better when someone is willing to wait a few years before starting income.  Using an income rider will allow you to know exactly how much income you can have at a future date such as 2, 5, 10 even 20 years down the road.   We always use the company that has the highest payout at the time and currently Security Benefit is the one paying the most.  They win in almost all payout scenarios.  Click Here for Security Benefit Info   This option also allows the client to maintain access to the lump sum investment which can have advantages over the traditional life annuity.

If a client is looking for immediate income, the traditional life annuity will often have the highest payout.  Given that insurance companies are constantly competing with each other to have the highest payout, it is prudent to check the market to make sure you are getting the highest payout possible.

Call (203-796-5403) or email Edward@Croweandassociates.com if you have additional questions or would like to obtain  information or quotes.

Guggenheim currently offers a fixed annuity with the best rates available.  The annuity is a fixed annuity with terms ranging from 3 to 10 years.  The product works in the same fashion as a CD. The terms are fixed for the period selected.  At the end of the term, the money can be rolled over or taken out of the account.

Guggenheim is currently offering 2% on a 3 year term, 3% on a 5 year term and 3.7% on a 10 year term.   Rates sheets and product guides are available in the links below.  If you have any questions, please call Ed Crowe at 203-796-5403 or email Ed at Edward@croweandassociates.com

Guggenheim Product Brochure

Guggenheim interest rates

With the 10 year treasury at 1.5%, CD rates are at 30 year low yields.  The current 5 year CD rate in Connecticut is now around 1% which is actually a bit lower than the 3 year CD rates being offered. Bankrate.com is the best place to find all local CD rates available. Click her to go to BANKRATE 

With rates this low, it is wise to look at alternatives and here I will talk about  2 of them which are Fixed annuities and Market linked CD’s.

Market linked CD’s: (Also called brokerage CD’s) are easy to understand.  They are CD’s which provide a return based on the performance of a bucket of stocks.  If the stocks are even or show some gain for the year, you get a stated return such as 6% (Where offers are currently). If the bucket of stocks is down for the year, 0% is credited to the account.  The account can never have a negative return for the year and with current CD rates at 1% yields, the market linked CD is likely to outperform the traditional CD by a substantial margin.

Fixed annuities: Fixed annuities work just like a CD.  The money goes into the account for a stated amount of time such as 5 years.  During that time the account is credited with a fixed interest rate.  At the end of the term, the client is able to walk away with the money without any type of penalty.  The big difference now is how much more a fixed annuity is paying vs. a CD.  There are multiple fixed annuities offering 2% on a 3 year fixed contract and 3% on a 5 year contract.  There are 10 year contracts available at 4% for those looking for a long term rate but 10 years is probably not a good thought given the current rate conditions.

There is more money being moved into fixed annuities  than at any other time in history which is no surprise given the rate advantage.  Still, people put money into CD’s at .5% to 1% with their local banks.  The most logical reason they continue to accept such low rates is due to a lack of understanding about fixed annuities and how they work.

Guggenheim has come out with a new fixed annuity with rates guaranteed for the entire term.  Terms range from 3 to 10 years depending on your preference.   Details of the plan are below including a link for a product brochure.

Guggenheim Life – “Preserve Multi-Year Guaranteed Annuity”
Year Founded: 1985
Total Assets: $5.9 billion
Interest: This annuity pays a fixed and “guaranteed” interest rate that varies, depending on the term you choose and the amount you deposit.
Deposit Amounts $250,000 PLUS

Click For Guggenheim Fixed Annuity Rates
Term: Your choice of 3-10 years (walk away, no annuitization required).
Sales Charge: None
Minimum Deposit: $10,000 non-qualified / $5,000 qualified

Maximum Deposit: $1,000,000

Issue Ages: 0-90
Rate Lock Protection: 45 Days
Penalty Free Withdrawals: 10% of the previous anniversary account value in year two and later. Also waives withdrawal penalties upon death or annuitization. Includes Nursing Home Care and Terminal Illness Riders.

Preserve MYGA Guggenheim

Email Edward Crowe for additional information or applications:  Edward@croweandassociates.com

The ability to sustain a steady income during retirement years has always been a primary concern for people in the United States. Recent studies have shown that 61% of U.S residents age 44 to 75 are more afraid of running out of savings/income than they are of death. In order to avoid exhausting a savings nest egg, guidelines have been developed. The most popular is the 4% income rule.

The 4% rule was developed in the early 1990’s by a certified financial planner named William Bengen. He set 4% as the amount of money a retiree can take out of their investments every year with a high probability that it will last for at least 30years. Since that time, financial advisors have been using it as the benchmark with clients.

A recent study from The Journal of Financial Planning has suggested that 4% is no longer a safe number. The study determined that 1.8 % is more appropriate to ensure income does not run out during retirement. The revised rate was based on many market factors. One marker was the historically high price to earnings ratio in the market which may lead to low future investor returns. The risk of poor market timing was also a factor. Taking income at the start of a bear market can have a drastic negative effect on account values and the ability to take future income.

Using a 1.8% model instead of a 4% model may be safe but it has obvious drawbacks. Consider that a person with a $500,000 investment account can only safely pull $9,000 a year from it versus the 4% model which allowed them to take $20,000 a year. If the 1.8% rule is going to be followed, there is an obvious need to increase the investment nest egg prior to retirement which may not be feasible for many people.

An alternative to this approach would be to use a guaranteed insurance contract (GIC) to create the needed income. The advantage of guaranteed contract is the ability to draw a much higher percentage of income on a guaranteed basis. The most competitive GIC’s will currently pay 5.5% to 6.0% income for life on a single life and 5% on a joint life basis. Most contracts do not require forfeiture of the lump sum invested. Some GIC contracts also offer a guaranteed roll up rate during the accumulation period. It is not uncommon for companies to offer a 7% or 8% compound accrual rate for up to 30 years. The guaranteed roll up allows for more precise planning of future asset needs.

While using a GIC can offer many advantages, caution most also be taken. There are hundreds of companies currently offering various bells and whistles on GIC contracts in order to gain market share. Some offer benefits or rates that look appealing but really have little benefit to the consumer. Others will promote incredibly high roll up on accumulation but will then lower the guaranteed income payout. The most important features should be compared prior to choosing a contract in order to obtain the best guarantees available.

It is important for most retirees to create additional income streams in addition to social security in retirement. Many will rely on minimum distributions from qualified accounts (IRA’s, 401K rollovers, SEP plans, etc) and non qualified retirement plans to create additional income.

Retired couples will often only have one person receiving additional income. This strategy works well as long as the primary person drawing income is alive but an unplanned death can leave the surviving spouse short on income.

If the deceased spouse had substantial amounts of life insurance or other investments, the surviving spouse can use the proceeds to create their own income stream. Unfortunately, the odds are that the deceased spouse would not have an adequate amount of life insurance to allow for a new income stream to be created.
Using a joint income option is a great way to protect both members of the couple in the event the other passes away.

There are now a number of companies that provide very strong payout options. Most will offer guaranteed income numbers that will increase in the deferral phase prior to turning income on. The payment will not expire until the death of both members.

A number of companies offer joint payouts and the highest paying company changes often. The current leader in this type of contract is Security Benefit. They currently offer the highest single and joint payout in the field.

We will use a 61 year old male and his 61 year old wife as an example. Assume they have saved up $200,000 to supplement retirement. If they defer the money for 5 years, Security Benefit will pay them a Joint lifetime income of $16.186.00 a year guaranteed. This represents over an 8% joint payout percentage. If the defer for 7 years, the income would go up to $20,000 a year putting the payout at 10%.All payouts are projected on a guaranteed basis making it easy to plan for future income needs.

There is no doubt that a new company will counter with a higher payout at some point but for now, Security Benefit is the clear leader.

The average 5 year CD rate is 1.16% nationally and 1.34% in Connecticut. An A rate insurance carrier is currently offering a 6 year fixed rate at 3.15% for deposits under $100,000 and 3.25% for $100,000 and above. The plan comes with a 100% return of premium feature at any time, even if surrendered during the first year.

The company has stated that they will be offering this rate until March 15, 2012. The rate is subject to change after that date. 3.15% is certainly a strong rate compared to current CD offerings but it is bolstered even further by the return of premium feature.