September 10, 2015 – Despite ongoing efforts by many in the financial planning community-at-large to downplay the importance of annuities in helping people address their retirement financing challenges, unbiased research keeps surfacing, leading astute retirees and retirees-to-be to the exact opposite conclusion:

Retirement annuities can be very, very good for you!

Today, I’m pleased to share the following article from the August, 2015 issue of EBRI Notes, a publication of the Employee Benefit Research Institute (EBRI):

“How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?”

The article discusses modeling techniques used to assess the retirement readiness and ultimately security for Baby Boomers and Gen Xers.  In light of the ongoing perception that “interest rates are too low” for annuities, we found this particular finding noteworthy:

“. . . even at today’s historically low interest rates, the transfer of longevity risk provides a significant increase in retirement readiness . . .”

EBRI is a nonprofit, nonpartisan organization which exists to provide “credible, reliable, and objective research, data and analysis” and counts among its members a cross section of some of the most recognizable names in the American financial, investment, employment, education, legal, accounting, insurance and labor organization landscape.

One of the worst things that can happen to a person after a lifetime of working and saving for retirement is to find themselves in a position where they run out of money.

It’s an individual problem, to be sure.

But it’s also a problem for society as a whole hence the interest in the subject by EBRI.

Annuities, especially longevity annuities, help offset the risk of running out of money at an advanced age in one of the most cost-efficient manners possible. The mortality risk transfer that occurs when people buy annuities en masse simply cannot be replicated as effectively by individuals following traditional investing strategies.

Traditional investing and annuity ownership need not be mutually exclusive by the way. For most people, an ideal retirement plan would likely include elements of both with the only variable being a matter of percentage allocation to each discipline.

Image courtesy of stockimages at FreeDigitalPhotos.net

September 3, 2015 – Of the nine categories of fixed annuities tracked by LIMRA Secure Retirement Institute, only one has shown a positive trend over 2014: Structured Settlements.

An estimated 46.2 billion dollars’ worth of fixed annuity contracts were issued through the half-way point of 2015 and the data reveal that structured settlements are up 8% adding $200,000,000 over the previous year’s activity.

LIMRA Secure Retirement Institute estimates place structured settlement activity at $2.8 billion through June of 2015.

While our firm can’t take full responsibility for this improvement (we’re up about 41% YTD over 2014), I’m proud to say the decisions our clients are making have contributed to this positive trend.

Tax-advantaged, guaranteed structured settlement payments exist to help those challenged by the aftereffects of a personal injury settlement.

Many of them can no longer return to their regular careers.

Often they’re dealing with the severe emotional and financial devastation that accompanies the death of a family member.

Others face the uncertainty of ongoing medical and support needs.

Some seek tax efficiency impossible to achieve elsewhere.

In our view, it only makes sense those who require stability choose safety and security over uncertainty and volatility.

While structured settlement annuity activity represents only about 6.1 percent of the total fixed annuity market, it’s perhaps the most essential percentage since these annuities are funded not with disposable income dollars but rather dollars intended restore individuals to their pre-accident condition.

Structured settlements have been helping people for going on half a century and we’re proud to provide such a valuable life stabilizing service to those who need it most.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

June 18, 2015 – So you’ve saved a bunch of money during your working life and are finally getting serious about making some decisions about how to make sure this gob of money lasts for as long as you do.

Maybe you’re lucky and worked for an employer that still offered a pension.

Social Security or its public employee equivalent or both will cover some of your future needs.

But in addition, you have this lifetime accumulated mass (larger for some, smaller for others) of dollars you need to stretch out over your golden years.

What do you do with your money?

Who can you believe?

If you put any stock into recent research by someone qualified to speak intelligently on the topic, you might want to read the latest coming out of the Mercatus Center at George Mason University.

Government Policy on Distribution Methods in Individual Accounts for Retirees: Life Income Annuities and Withdrawal Rules is an excellent Working Paper, authored by visiting scholar Mark J. Warshawsky, PhD.

The paper gives additional support to the long-standing (but frequently maligned by the financial planning community) notion that many people can benefit by choosing life annuities to meet some portion of their overall retirement income needs.

“The life annuity is indeed an effective instrument for distributing retirement assets to produce lifetime income; it functions generally somewhat better than the withdrawal rules in widespread use.”

The paper itself is chock full of supportable reasons why it might make sense for you to give annuities serious consideration for some of your retirement funds.

Assuming you’re not a policy wonk inclined to read the 48 page findings cover to cover, this summary by RealDealRetirement.com editor Walter Updegrave which appeared in yesterday’s online edition of CNNMoney gives a good common sense perspective:

“Which Generates More Retirement Income – Annuities or Portfolio Withdrawals?”

For the record, we’re completely on board with the “don’t put all your (nest) eggs in one basket” approach to retirement income planning.

We’re cash flow advocates!

As such, we just think that locking up some portion of your money to make sure it lasts for the rest of your life regardless of how long you live makes too much retirement sense to overlook.

It’s always reassuring when we come across supportable information that reinforces something we’ve been telling clients for years.

Annuities, whether it be through a structured settlement, structured attorney fee, structured sale or simple retirement fund rollover, just seem to simplify the whole idea of taking care of your future needs for so many people.

Happy Annuitizing!

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

April 15, 2015 – Yesterday was a great day for annuities!

According to a report in InvestmentNews, Ken Fisher is leaving the building.

You may have never heard of Ken Fisher but you’d be hard pressed to miss him if you’ve ever spent any time on Google trying to figure out what to do with your retirement money.

He’s the guy who goes around saying (and presumably paying decent money for ad space to have him quoted saying) “I Hate Annuities” and beseeching others to do the same.

When you’ve dedicated your professional life to helping people using various types of annuities to improve their lives as I have and understand firsthand how valuable they can be, it’s hard not to be offended but such an antagonistic statement.

“Hate” is a very strong word. Most of our parents and teachers frowned upon our usage of it when we were children.

Negative advertising and fearmongering must work, though, and I’m sure those ads directed more than a few people to Fisher’s $60 billion money management firm.

For that reason alone, he shouldn’t hate annuities. He should love them!

Don’t get me wrong. I don’t begrudge him the success of his advisory firm one bit.

And even though it’s not the focus of our practice, you’ll never catch me unilaterally advocating against actively managed funds or passively invested mutual funds. They obviously have a place in the financial planning discussion.

But so do annuities and Fisher knows this. Or should.

I take issue, however, with anyone who uses incendiary half-truths and red herrings to cast aspersions on an entire industry that serves such a public good. Especially when I’m suspicious of that person’s motives.

Hopefully, the investing public is smart enough see this tactic as the self-serving sleight of hand that it is.

When a guy like Ken Fisher says he hates annuities, people would be well advised to be doubtful.

If fictitious oil baron J.R. Ewing said he hated solar energy, wouldn’t you feel you intuitively understood why?

Eventually, possibilities become clearer for those who look under the surface to explore what else might be driving the negative sentiment.

A quick trip to the calculator reveals that if Fisher could capture even a fraction of the $2.36 trillion in annual annuity purchases made over the past decade as reported by LIMRA Secure Retirement Institute, it would be a hefty boost to his personal net worth.

According to the authors of the scholarly Rational Decumulation, annuities are one of the most cost effective and least risky asset classes for generating retirement income for life. They have been around since the Roman Empire and they’re not going away anytime soon.

If the InvestmentNews report is accurate, the same cannot be said for Ken Fisher.

And those of us annoyed by his audacious ads won’t mourn his departure.

Image courtesy of bplanet at FreeDigitalPhoto.net

March 16, 2015 – Demonstrating that good news often travels in threes, I’m pleased to unfurl the attached triad of recent links which point to “smooth sailing” for the life insurance industry in 2015:

A.M. Best: U.S. Life/Annuity Health Rating Outlook Remains Stable

Fitch: Stable Outlook for Life Insurers in 2015

Moody’s outlook for US life insurance industry remains stable for 2015

When people enter into life insurance or annuity contracts, they are buying promises that future financial risks they face will be properly addressed.

As these three independent rating agencies look ahead, they offer assurance to policyholders that their promise is well placed.

Even when local, national or global events conspire to test that promise, as was the case during The Great Recession, the industry as a whole fared exceptionally well.

A United States Government Accountability Office (GAO) report on the “Insurance Markets – Impacts of and Regulatory Response to the 2007-2009 Financial Crisis” reveals:

“(t)he effects of the financial crisis on insurers were generally limited . . . .”

Life insurers, with the exception of the variable market (which our firm doesn’t offer), fared especially well.

The structured settlement and retirement annuity companies we are proud to represent have long histories of honoring their promises and making their payments on time.

So if you want to increase your chances that your money will be there in the future when you need it, know that if you choose a highly rated life insurance annuity, you’ll be choosing something that has weathered many storms and is still solidly afloat.

(Image courtesy of Stuart Miles of FreeDigitalPhotos.net)

March 2, 2015 -With Superbowl XLIX recently concluded, if you played for the New England Patriots, CONGRATULATIONS! 

Earning a Superbowl ring puts you in very elite company.

With the 87th Academy Awards now behind us, if you were among the select few to take home an Oscar, CONGRATULATIONS! 

You own a rare piece of hardware.

If you’ve made the decision to use a portion of your retirement savings to purchase annuities, CONGRATULATIONS! 

A host of prominent economists, including several Nobel Prize winners, agree you have made a smart retirement choice.

You are definitely ahead of the curve! (Pun intended)

Smart Folks Here

While it’s a safe bet that fewer people read American Economic Review than watch the Superbowl or the Oscars, those who did read one particular article from about a decade ago derive something far more important than the fleeting entertainment value the first two diversions bring.

They gain valuable knowledge which can lead them to a more secure future.

Using formulae and language only a calculus student could love, “Annuities and Individual Welfare” demonstrates that economists, who rarely agree on anything, all seem to agree that annuities make the most sense for most people.

Period!

And lest you think this is a bunch of life company propaganda, consider the collective brain power coming together to agree “annuitization of a substantial portion of retirement wealth is the way to go.”

Those holding this belief are economists from some of the world’s most prestigious centers of higher learning, including:

The Wharton School, Berkeley, Chicago,

Yale, Harvard, London Business School, Illinois,

Hebrew University, Carnegie Mellon, MIT

Reluctance to Jump In

Most of us intuitively understand the retirement wealth accumulation process: Save money. Invest it. Hope it grows.

But when it comes time for Decumulation, people just can’t seem to make the shift from a lifetime habit of acquiring to one of “dequiring.”

Those who can make this transition will benefit greatly.

In their article “Investing your Lump Sum at Retirement,” Wharton Financial Institutions Center Fellows Babbel and Merril reinforce the finding that:

” . . . full annuitization was optimal for people who had no desire to leave a bequest to their heirs or charitable organizations.

It also concluded that for those with bequest motives, substantial annuitization of retirement wealth was still the most prudent way to act.” (Emphasis ours)

Ironically, those with the greatest wealth are the ones who stand to benefit the most from annuitization.

Not because they have the most wealth to begin with but rather because their percentage of assets dedicated to guaranteed lifetime income cash flows (i.e. Social Security) is much smaller.

When the Chairman of the Federal Reserve discloses, as Ben Bernanke did in 2010, that the bulk of his retirement portfolio consists mostly of two annuities, it’s definitely noteworthy.

If the person overseeing the entire central banking system of the United States chooses such a no-frills retirement allocation, maybe it can serve as a clue to the rest of us that annuities are a pretty smart, safe bet.

So why not join the chorus?

“Say YES to annuities!”

Image courtesy of digitlart at FreeDigitalPhotos.net

February 16, 2015 – If you’re off work today here in the United States, it may surprise you to know that it’s not because Presidents Day is a federal holiday since no such holiday exists.

5 USC § 6103(a) does, however, make Washington’s Birthday, celebrated the third Monday of each year, a federal holiday.

As presidents go, George Washington usually ranks among the top five all time in terms of overall net worth. Not all presidents were so lucky with their fortunes.

In fact, about 20% of our nation’s chief executives experienced insolvency at one time or another in their lifetimes.

Who knew the position was fraught with such a high chance of financial insecurity?

One famous founding father whose age was likely the only thing preventing him from becoming president was Benjamin Franklin. Ranking No. 181 on the all-time richest people ever list, Franklin did pretty well for himself and his heirs moneywise.

Franklin was 83 at the time of Washington’s inauguration, 26 years older than our first president.

In addition to passing a significant amount of property and valuable personal possessions to his heirs, Franklin’s last will and testament laid out some pretty detailed annuity requirements.

The one for his sister, Jane Mecom, was a rather straightforward “fifty (later increased to sixty) pounds sterling . . . to be paid to her annually” annuity in addition to the house he bequeathed her.

The annuities left to the cities of Boston and Philadelphia for schooling, hospitals and apprenticeships were a little more creative and specific. And they were set up to run for 200 years. Now THAT’s forward thinking!

Unlike Washington, who married into his fortune, Franklin’s wealth was a result of his own initiative.

And you can bet a man who preached that “a penny saved is a penny earned” understood the value of the time value of money. No doubt this belief influenced his annuity decisions.

Perhaps helps explain why most people would rather have a Benjamin than a George.

Image courtesy of Gualberto107 at FreeDigitalPhotos.net

February 15, 2015

Are you among the 76 million people born between 1946 and 1964?

Worked most of your adult life?

Have some money sitting in a 401(k) or similar retirement account?

Want to make sure it lasts the rest of your life?

If you answered yes to any of these questions and are retired or within a decade or so of retiring, there’s a good chance you could benefit greatly by converting some of your nest egg into some type of annuity.

But there’s an even better chance you will never do so.

Even though annuities have been shown to be “the most cost-effective and least risky asset class for generating guaranteed retirement income for life,” people still resist buying them.

Why does this annuity puzzle persist despite an excellent track record and strong evidence that people who choose annuities are happier and might even live longer?

They’re safe. They’re secure. They’re practical.

And They WORK!

To gain insight into this paradox, Forbes has a brief slide show that does a pretty good job identifying the “8 Reasons Retirees Don’t Buy Annuities.”

No reason for you to be one of “those” people. When you’re ready to put the “I” in your retirement, give us a call to let us help you decide whether or not a retirement annuity makes sense for you.

BONUS INFO:  By the way, contrary to rhetoric espoused by many in the financial planning community, annuities and traditional investing can co-exist very nicely.

In fact, when you address your non-discretionary retirement cash flow needs with annuities, you take a lot of pressure off your portfolio (and yourself) to constantly perform at an unsustainably high level.

Owning annuities allows you to better absorb the market ups and downs, reducing the chance you’ll make panicky moves which could leave you in a weakened long term financial position.

Image courtesy of hyena reality at FreeDigitalPhotos.net

February 13, 2015 – In less than the time it takes you to read this blog, you can give yourself a quick financial health check-up to learn where you stand financially.

While I can’t attest to the accuracy of the Financial Health Calculator I stumbled across on CNNMoney’s website today, I found it personally very helpful and wanted to pass it along in hopes it might help you.

After entering your age and income, the calculator walks you through a series of seven categories of spending, savings, investments and insurance to arrive at a grade with recommendations on how to improve your score.

It’s quick. It’s easy. It’s fun.

No simple calculator should ever substitute for actual financial advice but as a starting point for further dialog, this one feels worthwhile.

So click the link and start typing.  Here’s hoping you earn a passing grade.

Image courtesy of foto76 at FreeDigitalPhotos.net

CAUTION: Blog post contains musical references which some readers may find bubble gummingly offensive

February 2, 2015 – If the stock market were a song and January were Britney Spears, right about now it would be singing a paraphrased version of the former teeny bopping icon’s hit, “Oops! . . . I Did It Again.”

What “it” did – decline more than 3% for the month – isn’t particularly remarkable in and of itself.  Over the past sixty-five years, January has been a down month for the market about 40% of the time.

But the reason it’s Britney Spears song-reference worthy is because of what this drop could signal for the rest of the year.

Key Stat: Since 1929, market indexes for the year followed January’s lead 72% of the time.

Any discussion about markets must begin and end with the reality that nobody can accurately predict what the market is going to do or when.

But regardless of whether or not you’re in the chance taking business, this might be a good time to pause and ask yourself whether the promise of higher gains really outweighs the historical probability of loss.

Are the bears back in town?

With the stock market bulls having had such a phenomenal run these past few years, doesn’t the very ebb and flow nature of the market increase the probability that a bear run – maybe even a recession – is nigh?

Young people usually have time to recover from these market swings. But those heading into the bell lap of life cannot afford to loose money.

So if you’re in the latter category, let a Retirement Income Certified Professional® help you make an informed decision about your future. Our firm is committed to offering retirement cash flow solutions that are safe and secure and will help you get the most out of your hard-earned retirement dollars.

By the way, even though “da Bears” weren’t playing in yesterday’s Super Bowl, another bearish statistic that’s making the rounds today has to do with New England’s win.  It goes like this:

When an original NFL team wins the Super Bowl, the market will go up.

If an expansion team wins, the market will go down.

Funky Stat:  This “Super Bowl Theory” has been accurate 80% of the time.

Sooner or later, the bear will arrive if he’s not already lurking about. Locking in some gains and securing your future now might help you prevent the next “Oops!” which is sure to come knocking some day.