'Safe' Investments - How Risky Are They? Commentary on July 14, 2009 CBS MarketWatch.com program

As published at CaliforniaAnnuityFAQ.

In a recent CBS MarketWatch program entitled - 'Safe' Investments - How Risky Are They? - editor-at large Jill Schlesinger promulgated at least four ideas about fixed indexed annuities that are either misinformed or entirely disengenuous. Let's consider at least four points that were made in this program and learn whether they are FACT or FICTION.

#1 - According to Ms. Schlesinger, "if it (the market) goes down, well, you won't get hurt as badly (with a fixed indexed annuity)."

This is a FICTION. In reality, if the market goes down, you won't get hurt at all with a fixed indexed annuity.

Fixed annuities pay a stated amount of interest, much like a bank CD, and are entirely unaffected by the market. Fixed indexed annuities do participate in market gains through indexed returns, still the worst case scenario is that one earns nothing at all - zero. So when markets dip or freefall as they have in 2008 and 2009, not one penny of investment principal is lost in a fixed indexed annuity. In fact, this is perhaps the most important features of fixed indexed annuities - SAFETY OF PRINCIPAL.

#2 - Ms. Schlesinger also said that annuities have "a big cost, huge cost - two to three times more expensive than mutual funds."

This, too, is a FICTION. In reality, fixed indexed annuities are much cheaper than their mutual fund counterparts.

This statement truly comes out of left field, or maybe even further. To begin with there, there are no sales fees incurred by an investor when purchasing a fixed or indexed annuity. Sales commissions are paid separately by the insurer and 100% of the premium deposited into an annuity goes to work on Day 1 the policy is in force. There are no up-front or back-end loads, no 12-b-1 marketing fees, account fees, investment management or wrap fees as are typical of securities products. Given the churning, reallocation, capital gains and myriads of fees associated with securities products, their managers, and their advisors, fixed indexed annuities provide a much less expensive alternative to mutual funds.

#3 - Ms Schlesingler stated that with an annuity "your money has to stay in this investment until your 59 1/2" and "if you need your money before then, there is a massive penalty".

There is some truth to this statement, but when considering an annuity as a stand-alone solution, this statement is also a FICTION.

Look, if an annuity is held within a qualified account like an IRA or a 401k then, yes, one may not access either the account principal or growth until age 59 1/2 without substantial penalties and income tax - but this is true for any qualified money whether it's held in cash, stocks, bonds or any other investment.

On the other hand, if an annuity is not held within a qualified account, there is complete access to all of the principal and growth at the end of the contract term. And this is true whether you are 30, 40, or 50 years old. Of course, since the earnings within an annuity are tax deferred, taxes on the gains must be paid when they are withdrawn. Still you will have access to your money regardless of your age.

#4 - Lastly, Ms. Schlesinger states correctly that "most people are investing for the long term," but then adds, "but you want access to it (your money) if you need it. This (an annuity) will not give you any access to your money."

This last statement is also a complete FICTION. Annuities do provide for access to a portion of the invested principal.

To be sure, annuities are not liquid like a savings or money market account. Never the less, almost all annuities provide for an annual free surrender - an amount the policy holder may withdraw without penalty. This surrender often equals 10% or more of the initial premium invested or more.

Furthermore, many insurers now offer a Return of Premium feature. In exchange for a slightly lower rate of return, this provides the policy holder with access to all of the investment prinicipal at any time and without any penalty.

Let's be clear - fixed indexed annuities are not a silver bullet solution for all investment needs, never the less they should be considered a part of a comprehensive retirement strategy. And remember, annuities offer several key features that qualify them as truly "safe money" investments:

• Guarantee of principal
• Tax deferral
• Guaranteed income that one may never outlive

A New Government Stimulus Package That Can Help You Live Off Your House

Learn How the New American Recovery & Reinvestment Act of 2009 Signed Into Law by the President on February 17, 2009 Can Help You Supplement Your Retirement Income

It’s not uncommon for a personal residence to be a family’s most valuable asset.The problem in leveraging this valuable asset is the home’s relative lack of liquidity, but now there is relief for “house poor” homeowners.

Congress has recently approved new guidelines enhancing the lending limits under the FHA program called the Home Equity Conversion Mortgage (HECM). These enhanced limits allow seniors to gain a greater income benefit than ever before.

To learn more about reverse mortgages and how they can free up home equity for income and other expenses, we interviewed Bruce Barnes, President of EquiPoint Financial Network, a San Diego reverse mortgage leader.

Kevin: Bruce, thanks for stopping by to talk to us about this important new legislation and how it’s really going to help folks more than ever before. How have these new guidelines changed the reverse mortgage program?

Barnes: Over the past few years, most senior homeowners have been introduced to this program but many are still uncertain about how they really work. The basics are still the same: you need to be 62 or older to qualify and there are no income, credit or health requirements. Additionally, no payments are required as long as the homeowners live in their residence.

Kevin: That’s great, Bruce, so how is this program different today?

Barnes: That’s a good question because there have been numerous changes that have enhanced the program since its inception. Most of all, lending limits have been raised so that seniors may access more of the equity in their home than before. At the same time, the government has created better regulations to protect seniors while focusing on creating a true retirement benefit. In fact, most seniors don’t know that they may use this program to simply refinance their current mortgage with a lower interest rate. And just like a normal loan, they may continue to pay their mortgage down and pay it off.

Kevin: So let me get this straight, a senior may use this program like any other type of loan?

Barnes: Absolutely. However, unlike a traditional loan where a payment is required, a reverse mortgage provides the flexibility to make no payment at all. Homeowners may also pull extra money from their home to pay off debts, increase their income, take a vacation and live better in retirement. Honestly, anyone with a current mortgage or investment portfolio that is down needs to consider this benefit more seriously. It may simply provide greater security and peace of mind.

Kevin: That’s good, but don’t seniors have to give up ownership of their home to the bank?

Barnes: No! This is one of the biggest misconceptions about the reverse mortgage and it is completely untrue. With a reverse mortgage, seniors never give up ownership of their home. If they decide to sell their home, the equity remaining after the loan’s payoff remains theirs or will go to their children or beneficiary if they have passed.

Kevin: It looks like the reverse mortgage really provides senior homeowners with a lot of choices and that’s always good. One more thing before you go. We all like David Letterman’s Top 10 lists, so what are the “top” reasons why folks are getting reverse mortgages today?

Barnes: That’s an easy one, but I’ll keep it simple and provide just the Top 4.

Most people get a reverse mortgage to:

1) eliminate an existing mortgage payment.

2) increase monthly income because investments are down.

3) fund medical and long-term care solutions.

4) create a better lifestyle.

Kevin: Excellent. Who knew your home could do so much for you while it’s just sitting there? Thanks for your time, Bruce. We hope you’ll join us again soon.

Barnes: You’re welcome. I enjoyed answering your questions.

How To Safely Weather Today's Unprecedented Market Volatility Without Losing Your Shirt To A Bear

“For Stocks, Worst Single Day Drop in Two Decades”

This headline from the New York Times on September 29, 2008 well illustrates the parade of bad reports that have dominated the news over the past year.

Stocks. Bonds. Mutual funds. Even real estate. All of these investments have suffered from the negative effects of the current economic debacle. Unlike any recession before, there has been no true safe shelter. As a result, there is now a “flight to safety” as investors and retirees return to a more balanced and conservative investment approach.

Imagine that! Investing for the long-term while protecting your hard-earned money and retirement savings. Sounds like a good idea, but where do you actually go to put your “safe money”?

Unfortunately, with the current low interest environment, CDs, money market funds, bonds and other fixed investments hardly pay enough to keep up with inflation. And the diminutive net earnings they do make will probably be consumed by income taxes. Consequently for many today, a safe return often means no return at all!

On the other hand, many others with more appetite for risk and looking for growth have their monies sitting on the sidelines just waiting for a market rebound.

The bottom line is that we all want to have our cake and eat it too, right? We want both SAFETY and GROWTH, but can we really have it all? The surprising answer is YES, WE CAN HAVE IT ALL.

Upside Market Potential & Principal Protection with an Equity Indexed Annuity

Today’s new breed of annuities have risen to the challenge and provide a long needed solution for savvy but cautious investors. Although indexed annuities are not market investments, their returns are tied to market indexes. If the market performs well, your annuity performs well. And if the market tanks (again), your principal is 100% protected from losing even one penny of your hard-earned retirement savings. That’s a WIN-WIN for you, the investor!

So don’t time the market and risk your valuable retirement nest-egg. Instead, take advantage of the market with a principal protected indexed annuity.

PUBLISHED IN THE APRIL 2009 FIDELITYASSURANCE NEWSLETTER

Ready Or Not, Here Comes Retirement!

It comes as no surprise that in survey after survey, workers today worry over their retirement readiness. With today’s shaky economy, depressed home values, and a stock market that seems to be in a perpetual free fall, it’s no wonder that only 18% of workers feel very confident they will have enough money for a comfortable retirement.*

It wasn’t that long ago that we were all basking in the glow of high home appreciation property values, maximized retirement savings, favorable returns on investments, good jobs and a sparkling economy. Then as all good bubbles must, this bubble burst in a fiery blaze. Over a year later, we haven’t been able to put the flames out yet.

While politicians, financiers, and our “friends” on Wall Street try to sort out the resulting problems, the rest of us are left looking for answers after witnessing a decade of generated wealth disappear before our very eyes. For those who are nearing retirement or who are already in retirement, the stakes are that much higher. Without another ten or twenty years to rebuild a crumbled nest egg, how does one manage to support oneself and their family for twenty to thirty years (or longer) in retirement?

The answer is a simple one; true retirement readiness does not fluctuate with the economy. True retirement readiness hinges on three things that you can control:

1. your spending,
2. your retirement savings, and
3. how you’ve invested your hard-earned nest egg.

Today’s economy itself seems to be a self-correction for out-of-control credit driven spending, but in order to make up for recent losses in one’s retirement portfolio, simple math illustrates that one must save, save, and then save even more than before for retirement.

The good news for those aged 50 years and older is that Uncle Sam is making this a little easier with annual retirement plan catch-up provisions. For 2009, those with a 401(k) or 403(b) may contribute an additional $5,500 to their qualified retirement plan. Even those with an IRA may contribute an additional $1,000 resulting in a total cap of $6,000 for those over age 50.

Now, how to you invest your nest egg? Conventional wisdom recommends that those nearing retirement or in retirement make greater allocations of their savings to more conservative or “safe” investments. These are investments that are less volatile and can serve as a hedge against untimely market losses (like those we’ve seen over the past year!) Today’s market ups and downs is seeing a return to quality fixed investments that guarantee your principal so that your retirement monies are still there when you need them - in retirement!

Of course, building a retirement nest egg is only the first step in preparing for your retirement. In fact, actually reaching retirement age begs the answers to a whole new set of questions. How prepared you are in answering these important and far reaching questions is called Retirement Readiness. Retirement Readiness addresses the many questions that you will be faced with once you retire and the paychecks stop coming.

For instance...

• Do you know how to make your retirement savings last a lifetime?
• Do you know how to hedge yourself against the ill effects of inflation?
• Do you know how Social Security and Medicare play into your future?
• Do you know how to protect yourself from the catastrophic consequences of a long-term care incident?
• Do you know how to create a legacy for your family, your children and your grandchildren?

And don’t forget about our friend Uncle Sam - he has something to say about all of this too!

*EBRI 2008 Retirement Confidence Survey

PUBLISHED IN THE 2009 AMALGAMATED TRANSWORKERS UNION ANNUAL DIRECTORY

How to Survive the Financial Crisis... with Your 401k and Your Sanity Intact

What a mess. Who ever thought we would see the financial world brought to its knees like we have the past two weeks? Just think, household names like Bear Stearns, Merrill Lynch, Wachovia and WAMU are now a thing of the past while insurance giants like AIG have gotten by with the skin of their teeth thanks to billions from Uncle Sam. Fannie Mae and Freddy Mac are now officially directed by the government, the same government that is now poised to inject billions into the frozen banking system. And while terms like sub-prime mortgages and credit default swaps have become a part of our every day jargon, we the tax payers are billed to keep the whole ship afloat. Is it any wonder that the stock market has been on a roller coaster ride like we haven't seen since the Great Depression?

As if $4 gallon gas, rising oil prices, plummeting home values and rising unemployment weren't enough. What's next? A new president?

Has Your 401(k) Become a 201(k)?

While politicians and financiers try to sort the "crisis" out, your 401k or IRA has probably taken a huge hit right along with the Dow Jones and NASDAQ averages - both off their highs by almost 40%. Wow, that really hurts and there's no way to sugar coat a blow to the head like that. So if you feel like you've been taken for a ride, it's because you have. If you're money is predominantly in stocks, then you've likely taken at least a 20% hit or more even if your advisor's done an excellent job of protecting you from the downside. And you've probably lost a lot more than that.

But before you go out and sell off your investments and bury the cash underneath the bedroom mattress, know this one simple fact: markets have always fallen and markets have always risen. And this too shall pass.

Although there are no shortage of prognosticators forecasting when this roller coaster ride will come to an end, the truth is that no one really knows. So don't believe the hype. The previous market downturns in the long gone era of the 30s, in 1974, in 1987, the technology bubble bust in 2000 and the days and months following 9/11 were all unique animals made of their own day and time. Today's crisis is entirely different and magnified by the far reaching effects of globalization while public panic is fed by today's overwhelming 24x7 media coverage as never seen before. Nevertheless, history does teach us this, that markets do recover lost ground and then head higher. Eventually. So what do you do in the meantime?

1) Save in the good times. Save in the bad times. But always save. Don't stop now! Continue to save and invest in your retirement plan on a regular basis. Doing this helps guard against short-term market volatility and risk by spreading one's investment over time. This is known as dollar-cost averaging.

2) Don't put all your eggs in one basket. You've heard it before and you're going to hear it again. You need to properly diversify your retirement savings among different funds and fund types. Determining how to do this is not difficult and is based on your investment time horizon and individual risk tolerance. For those that would rather go on auto-pilot, there are new funds called Life Cycle Funds that automatically shift your mix of investments to a more conservative mix as you approach a particular year called the "target date" (typically your near-retirement date). As a result, these are often called Target Date Funds as well. Regardless of how you do it, be sure to diversify and allocate your investments accordingly.

These suggestions are straight from the first page of Investing 101, but they are still the most important principals for investing and saving for retirement. For those who have realized losses in recent weeks, remember that saving for retirement is a long-term process. So turn off the TV and get back to the work of doing your thing and letting Father Time do his. And if you're not sure if you're doing it right, consult with an experienced advisor.

The Million Dollar Question

So when will the financial crisis clear up? Some of the best and brightest feel that we may be in for a long couple of years, but only time will tell. As one panelist at a recent conference said, "Eventually, people will get bored with being afraid." And business will go on as usual.

Until then, just keep your cool. Remember that planning for your retirement is like a cross country flight in a jumbo jet. As winds and weather push the plane off course, the pilots (aided by sophisticated guidance technology) make regular adjustments to the plane's speed, course and altitude to make sure your flight keeps on track, stays as comfortable as possible, and gets you safely to your final destination. So if economic turbulence seems to have thrown your retirement plans off course, make the necessary adjustments and you too will meet your financial goals and arrive comfortably at your destination in retirement.

Keep Your Hands Out of the Retirement Plan Cookie Jar

The need for self-control and the propensity to give in are something we all must grapple with on a daily basis. But the now well known adage to "Just Say No" applies to much more than just resisting the urge to smoke, drink too much, or indulge in other unhealthy lifestyles. For many, this includes the urge to dip into their retirement savings when things get tight.

According to a recent report in the Wall Street Journal, more Americans are now dipping into their retirement funds than ever before. And recent economic conditions make it easy to justify doing so. Part of the problem is that liquidating or borrowing even a few thousand dollars in one's 401(k) doesn't seem too harmful, particularly when families are scrambling to pay bills in the face of unemployment or unexpected medical bills. But it is harmful and even reducing one's retirement account by "just" a few thousdan dollars can have a huge impact on one's future retirement income.

Can a few thousand dollars really make that big of a difference? The answer is Yes. And the answer is even more Yes when considering that future resources for retirement income are drying up.

With pensions going the way of the dodo bird, most Americans will have to rely on their personal and retirement savings more than ever. This on top of the fact that studies show 4 out of 5 Americans aren't saving enough for retirement to begin with. Then add in rising medical care, increased longevity and the "i" word (inflation), and you're talking about adding real insult to your retirement injury!

The good news is that you can Just Say No to borrowing or spending down your retirement savings. It might require a little fiscal dieting, but the long-term prognosis for your future will be much healthier.

Income Replacement Funds - A Good Idea Finally Come Of Age

Back in the day, one of the most common problems for many who had saved well for retirement was having "too much MONEY at the end of one's life" - and thus an entire industry matured in serving the needs for estate planning, charitable giving and more. Although the need for these services is now greater than ever, an even larger problem now looming on the horizon is having "too much LIFE at the end of one's money!"

Increasing longevity is one of the major reasons that insurance and mutual fund companies are now developing new products and solutions to help provide an aging America much needed income solutions. And one of these new solutions is the income replacement fund.

As the name implies, this solution at its heart is a mutual fund and like any other, it comes in a variety of flavors. Although mutual funds are typically accumulation solutions (and the most popular investment vehicle for IRAs and K plans), income replacement funds are just the opposite - they are "decumulation" solutions. So what makes these funds unique is their feature to pay out over a specified length of time. Many of these funds now offer payout terms ranging from 7 years to 25 years or longer. The termed payout is the feature that gives these funds their name and is a new way to help one strategically spend down a portion of their retirement assets.

ADVANTAGES: The primary advantage of these funds is their simple and systematic approach in spending down or "decumulating" retirement assets. Since these are mutual funds, they are liquid and have no surrender schedule or fees. Furthermore one may turn the income feature on or off as desired unlike money that has been annuitized.

DISADVANTAGES: The disadvantages of the income replacement funds are the same as all other mutual funds. Since these are securities products that participate in the market, their values may fluctuate and there is no guarantee of principal. As a result, the payout is tied to annual investment performance, so there is no guaranteed stream of income. Depending on investment performance and account balance, payout may even be accelerated to payout the account balance by the end of the selected term.

Income replacement funds are another excellent solution now available to those nearing or already in retirement and may be used in a variety of retirement strategies. Many have found these funds to be an excellent compliment to existing annuity investments as a hybrid income solution providing the best features of both worlds including:

• Variable income (IRF) and guaranteed income (immediate annuity)
• Market participation and principal protection (available through variable annuity living benefits)
• Liquidity (IRF & partial liquidity through annuity surrender schedule)
• Insurance protection (annuity)
• Diversification & asset allocation (IRF and variable annuities)
• Laddered strategies for growth as a hedge against inflation