When people consider purchasing an annuity, they often question the safety of insurance companies and what happens if they fail. Though it is an extremely rare occurrence, it’s a legitimate concern. You want to know that your money is protected and will always be there.
The problem is that people don’t analyze annuities from every angle, thus resulting in a false representation of annuities and the institutions that provide them (insurance companies).
The truth is, as a retiree, insurance companies are almost always a better place to put your money than banks. Banks are more commercially represented, thus leading people to believe they are the safest and most reliable place to put your money. Because of this, banks are many people’s “go-to” option. You can read more about the difference between banks and insurance companies here.
However, many people don’t realize that this is actually a misrepresentation and banks aren’t always the safest place to put your money. This is especially true in retirement.
Imagine living in a world of “what ifs.” What if I married someone different? What if I didn’t have kids? What if I did have kids? What if I was raised in a different country? What if I went to college in a different city? You can ask yourself these questions all day. But, at the end of the day, they are just “what if” questions to which you will never truly have an answer.
There is, however, one “what if” question to which you can control the answer. This is perhaps the of the most important “what if” questions anyone who is retiring will ask themselves…
What if I don’t have the income I need in retirement
to last the rest of my family’s and my life?
This is the #1 concern retirees face: running out of money in retirement, and it’s an understandable fear. When you are used to working and getting that guaranteed paycheck, it may be difficult let go of that, regardless of how much money you’ve saved.
Well, what if you could take all of that money you’ve saved and turn it into a guaranteed paycheck? What if you could live out your retirement years never having to worry about receiving a guaranteed income stream month in and month out?
When it comes time to retire, there are a lot of important decisions to make. These decisions can be hard to make with so many “rules” that seem to change on a consistent basis. Unfortunately, that is the world in which we live. Things are constantly evolving and changing, and the same is true when it comes to retirement. What was once true for your parents may not be true for you.
For example, it is more likely than not that you will not be retiring with a traditional pension. The days of being able to count on income from a pension are long gone, as employers today rarely provide pensions to their employees. While there are ways today to replace the loss of a pension, the fact of the matter is you can’t count on a pension from your employer like your parents could. Therefore, the rules have changed and you have to work around it.
Here are 4 more rules you need to STOP following when planning for retirement today:
I’m not just saying that because I live in Florida and it happens to be one of my favorite states. Florida really can be one of the best states to own an annuity! It is one of the few states where annuities can help provide protection from lawsuits and creditors. Florida has certain laws that help protect your annuities and life insurance assets. Because of this, many people in Florida place their assets inside of annuities and/or life insurance, because of the asset protection they can provide.
To take asset protection in Florida even a step further, not only is there no state income tax, but also if you pay your house off in full it is better protected under Florida law. Once your house is paid off, you can choose to put your non-qualified assets into annuities and/or life insurance, thus making it so that everything is better protected!
You see, Florida provides much more than just sunshine and waves!
Whether you’ve moved to a new house, new city, new state, or even new country, odds are you’ve experienced what comes along with a major move. As you know, one of the most important factors in any move is finding the best neighborhood, right? “Best” can mean anything from the safest to the most affordable to the most convenient or all of the above.
Bottom line is, you want the best. Who doesn’t, especially when it comes to a decision that big? The comparison of different neighborhoods is much like the comparison between banks and insurance companies. Just like you want to find the best place for you to live, you need to find the best place for your money to live as well.
There are many major differences you may want to consider before trusting your life savings to one. Among these major differences, and perhaps the most important, is what happens to the investors/depositors if a bank or insurance company fails.
Webster.com defines the word “variable” as: “able or likely to change or be changed; not always the same; subject to variation or changes; fickle, inconstant.” That sounds like a pretty accurate description of the stock market, doesn’t it? There is a reason the variable annuity has its name, and that’s because it can be just about as unpredictable and dangerous as the stock market. This is especially true for people heading into retirement (or already in retirement).
I think variable annuities can work well for some people. However, retirees often don’t fit into that category for the simple fact that retirees need consistent and reliable income, which variable annuities cannot provide.
To give you a “real life” example of a variable annuity working against someone, I want to share with you a story of a guy I met in 2003. To protect his privacy, I am going to call him “Jon.”
When Jon came to see me, he had a $600k variable annuity that he had purchased on January 1, 2004. At the time, Jon thought he was only paying 2.4% in annual fees for his variable annuity. Jon is actually a very bright man, but he didn’t ask all of the questions he was supposed to ask before purchasing his variable annuity…
How you regulate your cash flow can make the difference between financial success and financial failure. Thanks to software developer Don Blanton, we have the Personal Economic Flow Model to give us a visual picture of how your money flows.
If you are able to visualize your money from perhaps a different perspective than you have ever seen before, it may help you to increase the overall efficiency of how you manage your cash flow.
To begin, you have a lifetime wealth and income potential. Everyone does. It’s the total amount of money that will pass through your hands during your working years. It is a large but finite amount. The primary source of capital is probably the earnings from your occupation.
You may also have other sources – an inheritance, for example. We usually receive our money from our employer on a weekly or monthly basis. For some, the amount fluctuates from pay period to pay period. For others, it is a fixed amount.
Now imagine that money in a large tank that is
being fed by your paychecks week in and week out.
At the bottom of the tank is outflow pipe. Fortunately, for you, there is a regulator valve that you can control. You can choose to divert some of your lifetime capital into savings and investments.
Franklin Templeton Investments conducted a new 2015 survey called the “Retirement Income Strategies and Expectations (RISE) Survey,” and I recently read an interesting article on Yahoofinance.com that discusses the survey’s findings.¹
This survey included 2,002 Americans, and Franklin Templeton Investments says their “annual survey reveals significant insights about the views, expectations and income strategies people have regarding retirement.”² The company also said this survey has taught them “more about individual behaviors and the impact working with an advisor has on helping people prepare for what’s next.”²
I found this survey very interesting, so I wanted to share my opinion on some of its findings.
One of the few remaining legal and legitimate tax shelters left is Cash Value Life Insurance. There is a minimum one can pay for a given amount of insurance coverage for a specific age. Who determines that? The insurance company, naturally.
They will tell you how much you must pay for indemnity on which they bear risk. Insurance companies and their actuaries calculate the least amount of premium they can charge and still make a profit.
But is there a maximum you can put into a cash value life insurance policy?
Yes. The government will tell you the maximum you can put into it. Why? Because of the tax advantages life insurance provides. Essentially, the government has decided the upper limit of tax-advantaged growth they will allow you to have.
That tells me that it must be a good thing, if the government regulates it. If you buy more life insurance than the limit set by the government, it becomes what is called a Modified Endowment Contract (MEC) and is no longer tax advantaged.