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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.

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Choosing an Annuity

Choosing an annuity is made out to be the most difficult decision in the world but it really doesn’t have to be.  There is a logical progression to be made when making a choice.   In this post I will go over the steps that need to be taken to make the right choice.

Before getting into the steps,

I would like to point out a few key points that will help you along the way.  The first is that there is not a “best” annuity for every thing or a company that has the “best” annuity for all situations.   Insurance companies jockey back and forth to offer the best product for a certain situation. They do not try to have the best product for every situation.  Also, they do not  keep their product competitive for long.  Usually an insurance company will offer a very competitive or the most competitive product for only 6 to 18 months and then they will lower rates.

The other important point is not to simply go by a company name.

Insurance companies lean on their reputation heavily to get a prospects business.  They will use the name as a way to offer a less than competative product to the public and it works.  People will blindly buy an insurance companies product simply because of the company offering it.  This is a sure fire way to make sure you are not getting the best in class product.

The first and most important step when picking an annuity is to determine what you want it for.

This sounds simple and silly but it is the most important part of the entire process and the most common mistake people make.  I cant count the number of times I have talked to someone who is about to purchase an annuity because of some incredible feature it has.  The problem is that the feature usually will do little or nothing to help them with what they need the annuity for.  You need to figure out what you are trying to accomplish.  There are a limited number of things people want to accomplish with money and a limited number of areas where an annuity will work.  Here are the most common ones.  It is critical to determine which you fit into.

• Draw a future income stream at some future date
• Immediate income draw
• Grow a lump sum of money to leave to heirs
• You want to grow a lump sum of money to use for a known future expense or purpose

Once you determine what you are trying to accomplish, it becomes much easier to find the best product to accomplish the goal.

For example, if you want future income, the best way currently is to use an annuity with an income rider or if you need immediate income your best bet is to use an annuity for that purpose called a SPIA.  If you want to leave the most money to heirs possible, you would use an annuity with a high death benefit roll up feature and so on…..

By determining your need, you can identify the right type of annuity to use to get the job done.  Once you determine the type of product needed, you then need to find out which company has the best “highest paying or earning” product of that type.  For example, if you need an immediate income, you would use a SPIA.  The highest paying SPIA’s are currently offered by Symetra, Great American, Guggenheim and NY Life.   This will change over time but they are at the top currently because they will pay out the most money immediately.  If you need income 5 years from now, you would use an idexed annuity with an income rider and the highest paying company would be Security Benefit SIA Annuity.  Again, how long will they be able to say they pay the most?  No one knows for sure but right now they pay the most.

I had a person call my office and he was told Met Life would work the best to generate income of $320,000 7 years from now.  (he was 58 years old)

The representative he spoke with said Met was the best.  At the the time, Forethought was paying out the most income of any carrier for a person that age.  I ran the guaranteed income payout for Forethought in 7 years vs. the Met life payout and the forethought income beat the Met Life Income by $5,000 a year for the rest of his life and his spouses life.  There is a 70% chance either he or his wife will live to at least age 90 based on current life expectancy.  At a difference of $5,000 a year, this would add up to a $125,000 mistake had they gone with the lower paying product.  (25 years multiplied by $5,000)

It can be a chore  choosing an Annuity and finding the highest paying company for a specific product type.

To accomplish this, make sure you work with an independent agency that holds all contracts.  I spend a great deal of time maintaining active appointments with every company offering any type of competitive product for this exact reason.  This way I am able to ensure I am showing people the best option for their specific situation.    Feel free to call or email me if you have questions or need advice.

Security Benefit is offering a special product that offers unlimited gains without risk to principal.  All fixed indexed annuities offer the ability to grow assets without risk to principal but they all have limits on upside potential.  Some cap the growth potential on an annual basis while others only pass a percentage of the growth to the client.  The Security Benefit Total Value Plan changes all of this.

The total Value offers income riders and death benefit riders and even throws in an 8% bonus. A number of products offer the same benefits however.  What makes the Total Value unique is that the accumulation account uses the TVI index and provides 100% of the gain on a 5 year point to point strategy.  In other words, you put money in on day 1 you get 100% of any gain in the index 100% vested at the end of year 5.

The TVI index is constructed of 24 highly liquid futures contracts across physical commodities , global currencies, Energy, Grains, Precious Metals, Industry Metals, Softs (Cocoa, Coffee, Cotton, Sugar) and live stock.  Principal on this contract is 100% guaranteed which allows the contract holder to be more aggressive with the TVI account without worrying about losing a nest egg.  For more info on the TVI  click here

Historic results show the worst 10 year average annual return has been 5.08% per year (This does not include the 8% bonus) while the best 10 year average return has been 8.99% (This does not include the 8% bonus)

The product has been available for about 4 weeks and has taken on an unprecedented amount of assets already.  The downside is that Security Benefit has a limit of assets it wants to take on and will close this product to new money once the hit the threshold.

TVI explained doc

TVI performance

If you want more information, please email Edward Crowe at [email protected] or call 203-796-5403

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:  [email protected]

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.

It is always advisable to have reserve or emergency money to guard against financial crisis.   Those who are fortunate enough to have reserve money set aside usually keep it in a savings account or money market.   The idea is to keep the money in an easily accessible account and to limit any fluctuation in value.  In other words, it is not a good idea to have risk in an account that you may need to draw money out of for an emergency.

Money markets and savings accounts keep money liquid and safe from fluctuation but they do not provide much of a return either.   The average savings account yields less than half a percent of interest per year.  The cost of sacrificed return can add up over time.   For example, consider a 54 year old that keeps 50,000 in a savings account of some type of money market for 10 years.  Assuming they are getting a .25% return at the end of 10 years they will have $51,264.00 in their account.   The money certainly was accessible the entire time but the client only made $1,264.00 over the 10 year period.

As an alternative,  a return of premium fixed indexed annuity with an income rider could be considered.  The plan has 100% return of premium at any time. This provides quick (3 day turnaround) access to the initial investment at any time without any risk.  If $50,000 is put into the account, it can always be surrendered for a minimum of $50,000.  Accounts of this type will gain anywhere from 0% to 5% interest a year for an average of 2.5% to 3% which can offer greater growth potential than a savings account or money market. 

 The bigger benefit is the  account will also grow as a guaranteed income stream over time.  One of the more competitive companies currently offers a guaranteed growth of 10% simple interest per year.   If the same 54 year old put $50,000 into this account and did not ever need to access it, they would have a benefit base of $100,000 that they could draw 5.4% out of per year guaranteed.  This would generate $540 a month on a guaranteed basis for life.  They would not be forced to use this option but could do so if the need for extra income arose in the future.

Many return of premium annuities also offer a death benefit option  with the account.   If the account holder was to pass away at any time during the 10 year period, the account would pay out the income rider value as a death benefit. To stay with our example, if the 54 year old died in year 6, the account would pay out $80,000 as a death benefit to the current beneficiary.

A return of premium annuity offers a number of advantages over the traditional safe money strategies. The account holder can still maintain  liquidity while having the  additional earning potential and the ability to use the money for income purposes down the road.