The Indexing Strategy





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Frank New

Frank, a former pastor who has been retired for the last 16 years, discusses how putting funds into safe money options has allowed him and his wife to carry out their retirement dreams.



David Leeper

David, a recently retired engineer, talks about shifting his mindset and his money from risk to safety for his retirement nest egg.



Louise Bridges

Louise, a self-employed healthcare consultant, explains how getting out of the stock market and into indexed annuities has brought her closer to her retirement goals.



What do your favorite celebrity finance experts think about indexed annuities?

In a recent article in the New York Times, Jean Chatzky, the financial editor for NBC’s Today Show, offered some insight into how deferred annuity products like indexed annuities are poised to make a difference in the financial future of a class of retirees facing a number of unique issues such as increased longevity and insecurity in pensions and social security.

“They are addressing the primary fear that baby boomers in particular seem to have about retirement, which is that they are going to run out of money before they run out of time,” she said.

With people living much longer than ever before, it is extremely important to build up a nest egg that can sustain you for two or three decades. It is more important than ever that those approaching retirement employ a savings strategy that is fit to last you through the years by focusing on accumulation and lifetime income, rather than pure growth. It is impossible to predict how long one might live, but adding conservative financial vehicles to your retirement plan, such as a fixed indexed annuity that can guarantee income for life–no matter how long that may be–can eliminate some of the guesswork when it comes to outliving your savings.

Chatzky is not alone in her favorable perception of annuities for those preparing for retirement. Suze Orman has been singing the praises of indexed annuities as a way to shield your retirement nest egg from market volatility for some time. In her 2001 book, “The Road to Wealth,” Suze Orman tells readers that “if you don’t want to take risk but still want to play the stock market, a good index annuity might be right for you.”

As many boomers witnessed their retirement savings take a big hit due to the financial crisis and recession, it is evident that this advice still holds water in today’s economy. Indexed annuities are unique because unlike investments, these insurance products offer a guaranteed minimum return, so you are protected from the negative effects of market volatility. However, because interest returns on an indexed annuity are based on an external index, such as the S&P 500, there is still potential for market-linked growth when markets are doing well.  Those saving for retirement can add some balance to their financial plans—particularly in risky markets—by providing protection when the markets are down and potential for additional interest when the markets are up. Your personal risk tolerance can serve as a guide to determining the perfect balance for your retirement portfolio.

For more information about the basics of indexed annuities, check out our educational video.

Fixed and Index Annuities

2 Biggest Myths And Why You're Being Misled

The Internet has changed our way of business and life. But the one drawback is that anyone can publish false or misleading information and present it as fact.

If you are considering an annuity as part of your retirement planning or wealth-building strategy, you need this information.

The fixed and index annuity industry has been on the receiving end of a well-craft and aggressive "anti-annuity" campaign. Much of the false and misleading annuity information on the Internet comes from stockbrokers and financial planners who gain nothing when someone invests in a fixed or index annuity.

We feel this is wrong and misleading, and the same type of thinking and action that started the entire financial crisis in the first place.

The following "Myths vs Facts" information sets the record straight about fixed and index annuities and their advantages for retirement planning and building wealth.

Fixed and Index annuities are a bad financial tool.

• Equity index annuities were introduced in the mid-1990's and significantly grew as more and more people used them for predictable retirement planning. Today, over $250 billion is invested in indexed annuities.

• Fixed and index annuities are protected assets and can be used to build a predictable and comprehensive financial plan.

• Fixed and index annuities are excellent retirement and estate planning financial tools because they are safe money -- money that cannot be put at risk like retirement accounts. Fixed and index annuities are guaranteed against stock market losses.

• On the other hand, as we've all found out, it's risky to use variable products like variable annuities that are invested in the stock market and are exposed to the ups and the downs of the market. These variable products are designed for younger people who have time to make up for stock market losses.

• Variable products require higher risk tolerance.

Fixed and Index Annuities are expensive and pay large commissions at your expense.

• The "expensive" and "large commission" mantra is aggressively repeated by financial advisors and brokerage firms that sell mutual funds, stocks, and bonds. Here's a quick investment example that highlights why these folks knock index annuities.

• You invest $100,000 in an index annuity where your advisor gets a one-time 7% commission. You invest another $100,000 with a broker in equities who charges a modest annual fee of 1.50%. The hypothetical rate of return in both accounts is 7.20%. Below is a 10-year, year-by-year account of how you and the advisors fair.

• Which one of these advisors is paid the most over the 10 years? As you can see, the index annuity expert does not get a bigger commission than the advisor who sells mutual funds, stocks, and bonds. And, the index annuity expert's commission comes from the insurance company, while the broker's commission is taken directly from your account. So why do these financial planners and brokerage firms continue to misrepresent index annuities?

• The main reason financial planners and brokerage firms discredit fixed and index annuities is profit. There is less profit for them if you utilize these financial tools. For instance, a broker will discourage a client from converting a taxable IRA into a tax-free Roth IRA.

• Why? Because the brokerage firm collects a fee on the amount of money it manages. If they're making 1.5% on managing $10 million, that's $150,000 a year. If clients convert to a Roth IRA, one-third of that money goes to the government for the upfront tax liability. That means the brokerage firm will lose fees on $3 million in just the first year. The client-friendly Roth IRA is not broker friendly, so there is no incentive to use it. It creates a spigot of money leaving the firm. Better to manage the money that goes to the government in a deferred state, than to take advantage of the tax-free, pay-upfront-while taxes are low benefit.

None of our clients lost money in the financial crisis America is still experiencing.




What They Are Saying:

A Collection of Expert Perspectives on the Value of Annuities


On annuities and the fear of running out of money in retirement:

"Death may be frightening, but to a majority of older Americans, the possibility of outliving their savings is even worse. In a new poll of people ages 44 to 75, more than three in five (61 percent) said they fear depleting their assets more than they fear dying. “One of the things in the study that was surprising to us was the level of fear” among respondents, says Katie Libbe, vice president of consumer marketing for Allianz Life Insurance Co. of North America, which conducted the poll of 3,257 people. “It was greater than we anticipated.”, July 1, 2010


"The findings of the original Retirement Vulnerability Report revealed that a majority of middle- class Americans are likely to outlive their financial resources in retirement. A significant, guaranteed, lifetime income outside of Social Security, as provided by such retirement vehicles as a lifetime annuity, was a way to help secure one’s retirement future. The updated study reveals that the financial market downturn which began in the middle of 2008 makes this conclusion even truer today.

--Ernst and Young, Retirement Vulnerability Analysis, June, 2009


"The need for lifetime income is huge and growing as life expectancies continue to increase and traditional sources of guaranteed income disappear. For a 65-year-old couple, there's a 25% chance that one spouse will live until age 97, yet fewer people are retiring with pensions, and Social Security covers only a small portion of most people's expenses. Many retirees who had planned to fill the income gap with their savings are wondering where to turn after suffering through two severe market downturns over the past decade. An annuity may be the answer, but not all annuities are alike, and some may not be appropriate for you.

--Kiplinger’s Personal Finance Magazine, Lock In Your Retirement Income, May, 2010


"There are now more than 53,000 Americans who are 100 years old or older. As a point of reference, in 1950 there were just 2300 people who had reached that same age ... this represents an increase of 2200%! Due to medical advances, we are a society that is living longer and longer. This represents both an opportunity and a challenge. The opportunity is that we now have far more time than previous generations to dream bigger and accomplish the things we dream about. Whether it is travel, time spent with family or efforts to leave the world a better place, the increased longevity we now enjoy is a blessing. The challenge is obvious, and that is to make sure that our money lives as long as we do. Having a written plan for retirement income has never been more important, and annuities that can guarantee a significant portion of that income should be an important component of that plan for many people.

--Shawn Moran at


On the safety of annuities:

“When you deposit a dollar in a bank account, the bank, by law, must keep a certain amount on reserve. That amount depends on the type of account but ranges from zero to 10 cents on the dollar. When you purchase a fixed-rate annuity, the insurance company, by law, must set aside over a dollar in reserves. The insurer can only use these excess reserves to settle the withdrawals and redemptions of annuity owners. The money cannot be used to settle insurance claims, pay overhead, settle bad debts, or take care of any other nonrelated annuity item ... During the Great Depression, it was not the U.S. Government that bailed out the banking industry – it was U.S. insurance companies. If there were ever a financial collapse in the United States, the insurance industry would be the second to the last entity to fold (second only to the government). This ‘second billing’ is because the government has taxing power and, of course, the ability to print money.”

--Best-selling author Gordon Williamson, All About Annuities


"The Institution of life insurance has gradually and spontaneously taken place over the past two hundred years. It is based on a series of technical, actuarial, financial and juridical principles of business behavior which have enabled it to perform its mission perfectly and survive economic crises and recessions which other institutions, especially banking, have been unable to overcome ... Thus life insurance companies tend to underestimate their assets, overestimate their liabilities, and reach a level of static and dynamic solvency which makes them immune to the deepest stages of the recessions that recur with economic cycles. In fact, when the value of financial assets and capital goods plunges in the most serious stages of recession in every cycle, life insurance companies are not usually affected given the reduced book value they record for their investments. With respect to the amount of their liabilities, insurers calculate their mathematical reserves at interest rates much lower than those actually charged in the market."

--Economist Jesus Hoerta de Soto in Money, Bank Credit and Economic Cycles


"On interest earning potential in a fixed index annuity:The S&P 500 index as of August of 2009 finally reached 1,000. It has taken 12 years for the S&P 500 index to break even due to the volatility and risk with the two economic bubbles experienced from technology stocks and the real estate crisis. While the S&P 500 index has produced near zero total return over 12 years, the Fixed Index Annuity using the S&P 500 index on average produced returns of 5.79% using a 5-year annualized rolling return from 1997-2007. Even if you add taxable dividends to the index, the Fixed Index Annuity has performed better, at least based on the data we have reviewed."

--Wharton Financial Institutions Center white paper, Real World Index Annuity Returns, October, 2009


"The average reporting index annuity credited 4.06% annualized for the five year period from 9/30/06 to 9/30/11, which compares favorably with the 2.3% you would have earned in 1-year CDs, but is slightly less than the 4.2% 5 year CD rate you might have chosen. Whether the stock market was better depended on whether you chose stocks or bonds. An index fund with reinvested dividends lost 1.3% a year over the last 5 years and the average stock fund also lost money. However, putting all of your money into taxable bonds returned 4.8% annualized; a 50/50 mix of stock and bond funds gave you a 3.6% overall return.", November, 2011


"On the value of annuities for retirement income:George Bernard Shaw once quipped, “If you laid all the economists end to end, they still wouldn’t reach a conclusion.” Well, that time-honored adage has changed, at least in one area, because economists have come to agreement from Germany to New Zealand, and from Israel to Canada, that annuitization of a substantial portion of retirement wealth is the best way to go. The list of economists who have discovered this includes some of the most prominent in the world, among whom are Nobel Prize winners. Studies supporting this conclusion have been conducted at such heralded universities and business schools as MIT, The Wharton School, Berkeley, Chicago, Yale, Harvard, London Business School, Illinois, Hebrew University, and Carnegie Mellon, just to name a few. The value of annuities in retirement seems to be a rare area of consensus among economists."

--David Babbel, Wharton Business School, Investing Your Lump Sum At Retirement, July 2007


"When David Babbel, 62, retires in three years, the University of Pennsylvania Wharton School professor plans to put about half of his retirement savings into an immediate annuity. ‘I’m going to annuitize enough so that, together with Social Security, I will have enough income to maintain the lifestyle I want,’ he says. Professor Babbel says he will divide the rest of his savings into five equal amounts and purchase fixed deferred annuities. These are akin to bank CDs, with three added benefits: Earnings grow tax-deferred, interest rates are often higher, and the money can typically be converted, tax-free, to an immediate annuity."

--Wall Street Journal, Is It Time To Buy An Annuity?, May 16, 2011


"With retirement outlooks growing increasingly uncertain, the safety of guaranteed income streams looks more attractive each day. Annuities can provide such guarantees, so let's take a look at them and consider whether they make sense for you. Simply stated, an annuity is a financial product sold by insurance companies that allows you to put aside money and "buy" a stream of lifetime income. You can start the payments right away or defer them. If you set aside money now but defer the income to a later date, any earnings on your premiums accrue tax free. Future payments are taxed as ordinary income. Unlike IRAs, there is no income limitation on how much you can place in an annuity. The marketing phrase that insurers like to use about annuities is that they produce an income stream you can't outlive. And that can be true. Also, by being in a pool of other annuity customers, insurers can offer returns to annuity holders that may be higher than they could get on their own."

--Money Magazine, How To Use Annuities for Retirement Income, August 2, 2011


"Which brings us to the central difference about generating income from your savings by yourself vs. buying an annuity: unless you're willing to take more investment risk, you as an individual can't match the guaranteed income an immediate annuity can provide. This is probably one of the few statements that you can get most economists to agree on, as two Wharton finance professors pointed out in this policy brief on investing for retirement."

--CNN, When Is An Annuity Worth It?, May 4, 2010.


What the government is saying about annuities and retirement planning:

"Annuities can help to mitigate some of the risk faced by retirees. In particular, annuities protect retirees against the risk of outliving assets. This risk is substantial. In 2007, the average 65 year-old male could expect to live an additional 17.2 years, but many will live much longer; nearly a fifth of 65 year-old men could expect to live to at least age 90. As already noted, at older ages, a significant share of individuals have essentially exhausted their other assets and are almost entirely dependent upon their Social Security benefits.

For those individuals with the good fortune to live long lives, annuities augment the longevity insurance provided by Social Security benefits.Access to annuities is a particularly salient issue for women. Even though women’s participation rate in retirement plans is equal to that of men, women tend to have significantly lower overall retirement income and retirement assets than men, due in part to lower wages and lower rates of full-time employment among women during their working lives. If anything, these facts understate the need for improved retirement security among elderly women, since women have longer life expectancies, and more uncertainty about lifespans, than men. The average American female turning age 65 in 2007 could expect to live 19.9 additional years—2.7 more years than the average American male. In addition, women are much more likely to reach advanced ages. Among 65 year- old women in 2007, 30.7 percent will live to at least age 90, much higher than the share of 65 year- old men who are expected to reach age 90. Moreover, average lifespans have been increasing. Between 1970 and 2007, the average life expectancy for a 65-yearold female increased from 82.1 years to 84.9 years, while the average life expectancy for a 65-year-old male rose from 78.1 years to 82.2 years. And elderly women are more likely to live in poverty than elderly men. In 2008, 17 percent of unmarried women age 60 and over were poor, and an additional 20 percent were nearly poor, with incomes between 100 and 150 percent of the official poverty level. The disparity for women becomes particularly pronounced at older ages: at age 75 and above, 12 percent of (married and unmarried) women lived below the poverty level in 2010, compared with only seven percent of men. All of these factors create additional urgency for women to ensure a secure stream of income throughout retirement."

--White House Council of Economic Advisors, Supporting Retirement for American Families, February 2012


What the academic community is saying about annuities and retirement income:

“Ensuring retirement security for an aging population is one of the most compelling challenges facing the nation. The main focus these days is ensuring that retirees have a large enough nest egg. However, to achieve real security in retirement, households need to get as much as possible out of their nest eggs during the drawdown period. Annuities guarantee that households do not outlive their money. Finally, annuities provide more monthly income than other approaches, such as the 4 percent Rule or living off the interest of assets.”

--Boston College, National Risk Index Study October 2010


"The study assumed a 65 year old married couple, with a 4% withdrawal rate for retirement income. The study looked at 1001 different product allocations, and used 200 Monte Carlo simulations for each allocation, seeking to determine what allocation would have the highest statistical likelihood for success. The study concluded that the allocation with the highest likelihood for success was one consisting of 50% stock and 50% in fixed annuities."

--The American College, “An Efficient Frontier for Retirement Income” September 24, 2012

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