Annuity FYI Blog

In “Applications Now Available for Military Spouses to Become Accredited Financial Counselors,” a FINRA news release, a program highlighting the FINRA Investor Education Foundation Military Spouse Fellowship Program is explained.  The FINRA Foundation’s goal is two-fold.  They aim to give military spouses highly marketable job skills to help earn money for their family along with helping educate the military community as a whole.  A lot of the military families out there struggle with high debt and a lack of retirement planning, so the hope is that this free training and certification process works to change that.

Since the program started five years ago, 188 people have graduated as Accredited Financial Counselors.  Military spouses help in volunteer and paid positions with everything from finding the best fixed annuity rates to developing plans for retirement.  Participants are required to finish the course and work for at least two years in the financial counseling field.  This Spouse Fellowship Program is available for current and surviving spouses of both active duty and retired service members.  They can be Army, Navy, Marine Corps, Air Force, Coast Guard, National Guard, and even spouses of U.S. Public Health Service Commissioned Corps or National Oceanic and Atmospheric Administration officials.

It looks like the House of Representatives is ready to cast their vote on President Obama’s health care reform.  According to “Health Care Reform Vote Expected Sunday” by Bill Kenealy of Insurance Networking News, the vote should happen Sunday afternoon.  Some of the $940 billion needed by the federal government to finance America’s Affordable Health Choices Act of 2009 will come from annuity income taxes.  The American Council of Life Insurers voiced their objection to this 2.9% tax on annuity income to Secretary of the Treasury Tim Geithner in February.

They voiced concern over negatively impacting the best annuities that are so important as a retirement vehicle.  Since there are 78 million Americans working without any type of employer-sponsored retirement plan, annuities are a way for them to guarantee a secure retirement.  There will be other things taxed as well, including the health benefits of some employer sponsored health care plans.  The Congressional Budget Office gave a positive report on the health care reform stating that although the cost is high, the Act would actually decrease the deficit by $138 billion over time through increased revenue and cost cutting in other areas.  Sunday’s vote could change the course of history in America.

“Build a better 401(k)” by Eileen Ambrose of The Baltimore Sun talks about some ideas for making Americans’ retirement last throughout their lifetime.  At the same time as more Americans are living to the age of 100 and beyond, we are in a time where fewer people are saving for a retirement that could be much longer than our years working.  With more people approaching retirement putting Social Security safety into question and the lifetime income of traditional pensions a thing of the past, the 401k annuity has been getting a lot of attention from people like President Obama.  Because annuities provide a lifetime stream of income in exchange for a lump sum payment to insurance companies, the idea of combining them with 401k’s housing your retirement money makes sense.

While annuities have a lot of options to research, using some of a 401k to purchase one for guaranteed lifetime income is right for many people.  Retirees are handed their 401k in a lump sum at retirement to live off for the rest of their lives.  They can use some of the money to purchase immediate annuities at retirement, but aren’t always educated about the product.  President Obama’s council has two ideas for matching 401k’s and annuities.  At age 45, 401k plans can start putting retiree’s money into an annuity or they can purchase an annuity at retirement with half of their 401k savings.  The stability of the insurance company from which annuities are purchased is crucial, so there is a call for a federal insurance fund similar to the FDIC to back up these annuities in case the insurance company goes out of business.  The government is still doing research to determine what their recommendations will be.

The United States Securities and Exchange Commission has an informational page dedicated to equity linked CDs.  They are certificates of deposit that tie your rate of return to a stock index’s performance.  With FDIC insurance, equity linked CDs have an extra safeguard that other investment products do not.  The terms vary with different banks, but these CDs usually have a term of around five years.  When you compare equity linked CDs with other products, banks like to highlight the principal protection that they offer.  If there is a downturn in the market, the original principal will not be affected.

There are things to consider when looking into an equity linked CD.  They do not have liquidity before the term expires so they should not be used if you might need your money sooner than the five years or so.  Market risk and call risk are associated with equity linked CDs.  FDIC insurance covers the amount permitted by law, but always read all of the terms associated with the FDIC.  Many returns are calculated by averaging the index’s closing price over a period of time instead of upon the maturity of your CD.  Look into the equity linked CD criteria to find out the participation rate and whether or not there are caps associated with your product.  Since equity linked CDs can have different tax benefits than regular CDs, make sure you know those before purchasing.

In the Wall Street Journal, Brett Arends explains “How to Salvage Your Retirement.”  While there are people that have little to nothing saved and won’t be able to retire when they’d like, many people have employer sponsored pensions or home equity that will help them in retirement.  It’s not always enough though and a lot of Americans don’t have either of those options available.  According to a recent study, forty percent of workers are not saving for retirement.  Arends’ top tips follow.

• Work as long as you possibly can.  This gives you more time to save, allows the savings you already have or are now saving to grow, and lowers the number of years that you will need to use those savings to live.  Delaying Social Security payments is also wise because you will receive more each year.
• Lower your costs of living in retirement.  One of the best ways to do this is to live where the cost of living is low in the United States.  Moving somewhere in the central U.S. tends to have the lowest housing and living expenses.  Even moving a little farther outside of a big city makes a difference.
• Make a plan for yourself that isn’t concerned with leaving money to your heirs.  Immediate annuities and reverse mortgages help you to get more out of the same retirement money.  There are sacrifices to be made for both, so make sure the options are right for you.
• It can’t be said enough: spend less and save more.  While it seems like a simple idea, many people just are not following the concept.  Starting now, wherever you are in the retirement spectrum, will always make a difference and help your future money grow.

Use tax breaks for people over fifty to your benefit and save for 401k annuities and IRAs.  You are able to put more money into these accounts than those younger than fifty.  Take advantage of what the government has to offer.  Work longer, lower living costs, think about your own future, and save.