Annuity FYI Visitor Blog

According to a press release on Yahoo! Finance, “Bank of the West Introduces Market Linked CDs (MLCDs).”  When you compare equity linked CDs with other investments, the main benefit is that you have the protection of FDIC insurance along with participation in the markets.  Bank of the West’s Market Linked CD is tied to a basket of stocks and offers interest rates that are linked to either fixed income, commodity, equity, or foreign exchange markets.  The company is excited to be able to offer its customers the potential for appreciation that the stock market affords.

As long as investors keep their equity linked CDs until the maturity date, FDIC Insurance covers the entire principal invested so you are protected from a volatile market.  Maturity dates range depending on the individual investment contract and minimum investments begin at $1,000.  Equity linked CDs are the easiest way to protect your investment while still having the potential for stock market returns.  Individual investors, corporations, and institutional investors will all have the opportunity to purchase this product from Bank of the West.  Compare the benefits with other equity linked CDs like the Wise Indexed CD before making any purchases.

Tax efficiency is becoming more important than ever and a new low-cost variable annuity product just may be the way to get your clients the best tax savings, according to Investment Advisor’s Joyce Hanson.  In her article “Jefferson National White Paper Says Variable Annuities Offer ‘Tax-Efficient Frontier’,” Hanson summarizes Jefferson National Life Insurance Company’s recent white paper by David Lau.  Taxes are rising and markets are still less than stable.  The white paper, entitled “The Tax-Efficient Frontier,” says that this new variable annuity category is a good way to help clients lessen the risk they take on.

While some asset classes get great benefits from the concept of tax deferral, other actually do not.  The after tax returns that clients see with this new variable annuity can be 100 basis points above what they would have been with a different variable annuity.  It combines the principal of asset location with the asset allocation, allowing higher returns without added risk.  Tax rates have been low in recent years so advisors have not been too concerned with taxes.  But as they rise, more people will become well aware of the impact taxes have on both their tax-deferred and taxable investments.

These new low-cost no-load variable annuities give clients the ability to invest more money tax-deferred.  They are an improvement from variable annuities of the past with high surrender fees that caused more investors to compare equity linked CDs and other investment products.  To optimize Lau’s tax-efficient frontier, investors with a lot of money need more tax-deferral than they can contribute to 401k’s and IRAs.  This new variable annuity product allows investors to put more tax-deferred money away that can be accessed in retirement with a continuous stream of income or a lump sum payment.

Ignoring annuities is one of the top retirement mistakes, according to Mark Miller’s article “Top 10 Retirement Planning Mistakes” in Second Act.  Compare annuities with other retirement vehicles and you’ll find that they are a great way to pay for your basic living expenses while protecting against the risk of outliving your money.  The biggest risk mentioned in the article is a failure to plan.  It is important to calculate what you’ll need for retirement and make a plan on how to get there.  More than half of Americans live longer than they think they will.  When you underestimate your longevity, you are just setting yourself up for a financial hardship.

Another common mistake is retiring before it is financially right to do so.  Working a few more years keeps income coming in and gets more money into a work retirement account if you have one.  Older workers need to keep on top of technology and stay in the game to maintain jobs longer and get new jobs if need be.  Not saving enough is a huge mistake.  Workers are only contributing about half of what experts say they should to their retirement plans.  And those without typical retirement plans are simply not saving enough.  It’s important for individuals to lower their risk as they get older.  Taking on too much risk close to retirement can set you up for disaster if something happens in the stock market like the recent crisis.

Taking money out of your retirement plan early is a big mistake.  If you switch jobs, transfer to another plan rather than taking the money out.  Avoid early withdrawals for hardships or other expenses that come up.  Plan for an increase in health care costs.  They are inevitable as we age and many people use their life savings paying for health care and long term care costs.  The final mistake made most often is ignoring the advice of a professional.  Whether they tell you to compare equity linked cds or give you advice on a retirement plan, using a fee-based adviser could save you hardship down the road.

According to “Alternatives for the Undecided,” by Serge Troyanovsky of Financial Planning, equity linked CDs can be looked at as a sort of happy medium.  Many investors just cannot decide between risky investments with potentially high returns and safe investments that lose out in bullish markets.  A middle ground between the two is an equity linked certificate of deposit.  These products are issued by banks and return all of your initial investment once they mature.  FDIC insurance up to $100,000 draws in even more investors.  The banks issuing the most equity linked CDs are Wachovia Bank, Morgan Stanley, Merrill Lynch Bank, Wells Fargo, Bank of America, HSBC Bank USA, LaSalle, and JP Morgan.  Wells Fargo’s WISE Indexed CD has great qualities to offer investors.

You receive your interest as a return that is paid once your equity linked CD matures.  Different products compute the return differently, but they are traditionally linked to the well-known domestic equity indexes like the S & P 500.  When you compare equity linked CDs, most offer a minimum return between 1% and 3% that you’ll receive even if the markets perform poorly.  These products are meant to be held until maturity, so if you are looking for an investment that is liquid before maturity they probably wouldn’t be right for you.  As banks continue to sell an increasing number of equity linked CDs and investors seek this safe alternative out, a greater number of options will become available through innovation.

Wells Fargo’s SGI Wise US Index equity linked CD is a great investment opportunity.  In comparison to a fixed-index annuity product, this wise indexed CD has more of what we recommend.  One of the biggest differences between these investment products is FDIC insurance.  Equity linked CDs are covered by FDIC insurance while fixed-index annuities are not.  While both products guarantee your principal, the minimum guarantee varies with fixed-index annuities.  The participation rate for Wells Fargo’s equity linked CD ranges from 90-110% which is a very good rate.  Rates range with different fixed-index annuity products.  There are no caps, spreads, averaging or moving parts with the wise indexed CD, but fixed-indexed annuities have all of those.

Investors have limited liquidity with equity linked CDs inside of their set time frame, while fixed-index annuities have a 10% free withdrawal.  You will not lose potential gains on withdrawals with the wise indexed CD, but you can with the fixed-index annuity.  Both products have some type of tax deferrals, but the wise indexed CD is the only one without a 10% penalty for withdrawals before age 59 1/2.  Compare equity linked CDs and you’ll see that with no contribution limits and a simple and transparent product, you have yourself a good investment.  Fixed-index annuities are not always transparent and have a $1 million limit on contributions.  Wells Fargo’s SGI Wise US Index equity linked CD is definitely a product worth speaking with an expert about.