What are the most common IRA investment options?

by Tracy W Mitchell

 

 

Many people think of an IRA (Individual Retirement Arrangement) as an investment. The fact is, an IRA is not an investment. An IRA is a “type” of money, tax qualified money that must be invested. Although there are numerous IRA investing options available, we will focus our discussion on the three most common categories. Keep in mind that all options have positives and negatives. What you need to do is review the options to determine which choice or combination of choices are in your best interest.
Let’s start with the bank option. This is probably the least complicated of all. The bank will offer you an IRA/CD (Certificate of Deposit) or an IRA/MMA (Money Market Account). The bank offers safety through FDIC coverage up to $250,000 per account. If you have more than $250,000 you will need to open multiple accounts at separate banks. The big downside here is inflation risk. In other words, very low rate of return.
Another option you have is stocks, bonds or mutual funds. With this category, you will be shouldering all of the risks. There are no guarantees and you could lose part or all of your money. If you use a broker or investment adviser  you will be paying sales commissions to the broker and an advisory fee to the investment adviser. While this option does have the greatest growth potential, you need to make sure you understand the risks you will be taking and the total amount of fees you will be paying.
When most people think of insurance, they think of auto or homeowners’ insurance. You wouldn’t think twice about insuring your home or auto against loss. Did you know that you can also insure you IRA against loss? Insured IRA programs have been available since the inception of the IRA. The IRA can be insured with a guaranteed insurance contract. There are no management fees and no downside risk. In fact, you have more levels of protection than a bank account. The rates of return vary depending upon the issuing company and the type of policy being used.

Attitudes towards Aging often affect Health

presented by Tracy W Mitchell

 

 

Among the myriad of wonderful ideas available to caregivers for coping with the care of a loved one, some strategies that can influence the attitude of care recipients are often neglected.  On strategy, simply put, is cultivating a more positive attitude towards aging. This can have a profound effect on the health of a care recipient.

 

Many elderly buy into the notion that they themselves are no longer useful and are a burden to others. As a result, the aging make little attempt to keep themselves healthy and active. After all, they are getting closer to the end of their lives and have no desire to try new things or to challenge themselves or to eat or exercise properly.

 

There is a great deal of research that demonstrates aging individuals can learn, retain memory and be actively involved in business and their community. A lack of physical exercise, social involvement and mental stimulation in older Americans often leads to deterioration of minds and their bodies. The older person’s negative attitude towards aging becomes self-fulfilling.

 

Many studies show older people who are physically active have less joint pain, lower blood pressure, less depression, fewer heart attacks and a lower incidence of cancer. Proper nutrition also has the same affect on the aging process; it delays the progression of debilitating illness or disability. Recent research even suggest that weight loss and exercise can reverse the severity of diabetes.

 

Lack of social stimulation can also lead to poor mental health. Having an interest in something not only stimulates an older person’s mind but also creates a better mental attitude which results often in better health. There is empirical evidence that using one’s brain may prevent dementia in older age.

 

Here are some suggestions that might help caregivers improve the health of someone suffering from chronic medical afflictions, depression or debilitating physical challenges:

 

• If it is feasible, provide hobbies.
• If it is feasible, promote exercise adjusted to the care recipient’s ability.
• When appropriate, talk about the natural process of aging. Encourage a sense of gratitude and fulfillment. Reflect on the aging’s accomplishments and history.
• Allow the care recipient to care for pets and plants even if he or she suffers from dementia. Nursing homes have demonstrated that Alzheimer’s patients respond well to this therapy.
• Provide music or allow the care recipient to sing or play an instrument. Nursing homes have also shown this helps immensely with dementia patients.
• Encourage the care recipient to be responsible for his or her own health
• Allow for interaction with grandchildren or small children.
• Provide the care recipient with challenging games or puzzles (sudoku, crosswords, trivia, card games, memory games etc.)
• Encourage the care recipient to read and write letters
• Provide planned activities for the care recipient.
• Provide opportunities for volunteer work at home. (Many volunteer organizations can allow disabled folks at home to be involved through their computer and the Internet.)
• Provide special meals and formal table settings.

 

Adult Day Centers, Home Healthcare Professionals, Independent Living Communities, and Care Facilities also offer all the above activities on a daily basis.  Feel free to reach out to members of the National Care Planning Council to learn more about support services for people receiving long term care.

What is a Lifetime Income benefit Rider?

by Tracy W Mitchell

 

A Lifetime Income Benefit Rider is a generic term for an additional benefit that can be elected at the time a Fixed Indexed Annuity is issued. The term for this additional benefit varies from company to company. Some of the most common are: Withdrawal Benefit Rider (WBR), IncomePay Rider, GLWB Income Rider and more. It is also known as a personal pension because the owner is establishing a self funded lifetime income stream. For our discussion we will use LIBR.
The LIBR is used to provide a monthly income for the life of the annuitant. This can also be set up jointly for non-qualified accounts. The LIBR works like this: The client places a lump sum or series of payments into a Fixed Indexed Annuity. The deferral period in most cases is a minimum of one year before income is elected. The LIBR will have a guaranteed “roll-up percentage” that is applied to the LIBR value. This “roll-up percentage” IS NOT A RATE OF RETURN! The rate of return is applied to the accumulation value of the Fixed Indexed Annuity which can vary from year to year depending upon allocation performance. The guaranteed lifetime income amount is based upon the following: The amount of the deposits, roll-up percentage, deferral period and age of the annuitant. At the time of election which could be years down the road, the issuing company will calculate a lifetime income based upon all of the previous mentioned factors. THIS IS NOT ANNUITIZATION! The income can be stopped, re-started or cancelled all together. All of the issuing companies have their own nuances that make their LIBR more or less attractive to the client depending upon that client’s particular goals, objectives and priorities.
Most LIBR programs have a cost that varies from company to company. This is very significant in deciding whether to utilize a LIBR since Fixed Indexed Annuities have no other set management fees. This cost will be paid out of the principle of the account in most cases.

How Does Guardianship Help an Aging Senior?

presented by Tracy W Mitchell

 

A guardian is an agency or person legally appointed to manage the affairs of an individual who lacks the capacity to make responsible decisions concerning his or her personal matters. The primary requirement for determining the need for a guardian focuses on the individual’s inability to make and communicate reasonable decisions. Eccentric behavior, disabilities and diagnosis alone generally do not warrant the appointment of a guardian. State laws vary regarding the specific details governing the definition of incapacitated persons as well as the scope of responsibilities a guardian might be given.

 

The American Bar Association (ABA) Commission on Law and Aging describes guardianship as:

 

“Guardianship or Conservatorship is the legal tool of last resort for decision-making and management of your affairs. Generally a guardianship involves the court appointment of someone to act as guardian to manage the property and/or personal affairs of an incapacitated person (commonly referred to as the ward). Conservatorship typically involves management of just one’s assets without control over the person.”

 

Limited Guardianship

 

A form of limited guardianship is commonly used in most states. Under it, a court limits the guardian’s authority and tailors it to the specific incapacities and needs of the ward. Limited guardianship offers a more finely tuned and less restrictive approach to guardianship.

 

If someone is appointed to act as a guardian, but the incapacitated ward already has an agent under a durable power of attorney or advance directive, the court will normally determine whether the agent’s authority shall continue.

 

When Might an Aging Senior Need a Guardian?

 

The following statement made by the ABA describes when someone would likely need a guardian.

 

When do individuals normally need a guardian?

 

• When they can no longer manage their affairs because of serious incapacity, and
• No other voluntary arrangements for decision making and management have been set up ahead of time, or if they have been set up, they are not working well, and
• Serious harm will come to the individual if no legally authorized decision maker is appointed.
• Guardianship is a major intrusion into one’s life and should be used only where there is a serious inability to make or understand the consequences of decisions. “

 

A decision to seek guardianship should never be based on stereotypical notions of old age or handicaps. A person has the right to make foolish or risky decisions. These decisions by themselves do not mean that the person lacks capacity. A competent person chooses to run risks. An incompetent person runs risks not by choice, but by happenstance.

 

Advantages of Guardianship

 

• Family members know the ward has a devoted guardian assisting their loved one,
• The loved one is free from exploitation,
• Clear legal authority is given to the guardian to interact with third parties,
• A process is in place for major decision making including long term care and residence,
• Consent for medical treatments and healthcare is in place,
• Bills, taxes, assets, and the estate are managed responsibly.

 

How is Guardianship Set Up?

 

Anyone interested in the aging senior’s well-being can request guardianship. Since guardianship involves a significant loss of freedom and dignity, laws require guardianship be imposed only when other alternatives have been proven to be ineffective.

 

Guardianship requires an attorney (preferably an elder law attorney who understands guardianship and conservatorship), formal legal paperwork, and a court hearing. Evidence must demonstrate the individual is incapacitated according to the law and that guardianship is appropriate. Furthermore, the evidence must demonstrate the individual who will act as guardian is qualified and the authority granted to him or her is necessary for the safety of the aging senior.

 

All outside family members will likely be notified and given the opportunity to support or contest to the proposed guardian and guardianship. Furthermore, due process requires the incapacitated person be given a chance to contest or consent to the guardianship if her or she can and wishes to.

Plan for Long Term Care Before You Need It

presented by Tracy W Mitchell

 

 

Long Term Care refers to a wide-range of medical, personal and social services for individuals who are unable to provide for their own needs for an extended period of time. This need for care from others may be caused by age, accident, illness, dementia, stroke, depression or frailty.

 

Long Term Care Planning, on the other hand, is the process of preparing for and funding long term care.

 

Personal needs may include assistance with activities of daily living to help move about, dress, bathe, eat, maintain hygiene, toilet, or help with incidental daily living activities like household cleaning, meal preparation, shopping, paying bills, visiting the doctor, and taking medications. In other cases, long-term care may consist of providing supervision to avoid injury or wandering, companionship, or support and respite for a caregiver.

 

How Expensive can Long Term Care be?

 

Long term care costs can be substantial. US median rates for nursing homes are close to $210/day, while assisted living median rates hover around $115/day. The average hourly cost of home care is $20. genworth.com/costofcare

 

Informal Caregiving, provided by family and friends, can carry significant costs as well. These costs are almost entirely shouldered by the child(ren) of the aging parent. For more on this, see “Caring for a Loved One at Home Can Be Challenging.”

 

Long Term Care Can Be the Greatest Crisis Seniors Will Face

 

Unfortunately, there is an abysmal lack of planning for long term care in our country. A survey, conducted by the John Hancock Insurance Company, reveals most seniors acknowledge the need for planning but very few actually make preparations for long term care. The study found over 50 percent of the respondents worry about paying for long term care but almost 70 percent of respondents said they had done little to no planning for their long term care needs.

 

All gaining individuals, regardless of current health, should have a plan in place. Long term care can be the greatest crisis an older person faces. With the need for care, the aged lose their grasp on the three most important lifestyle concerns of the elderly;

 

• Remaining independent
• Having enough money
• Maintaining good health

 

All of this can disappear with the need for long term care. The costs of care can wipe out a lifetime of savings and destroy equity in a home and poor care planning can lead the elderly into serious withdrawal and sadness.

 

Here is a brief outline of ways to create a long term care plan:

 

Prepare General Planning Documents and Instructions for Decision Making

These documents and instructions might include requests pertaining to care preferences, wishes pertaining to end-of-life scenarios, wants concerning preferred medical treatments, a list of health care providers, desires for disposition of property and instructions to a potential care advocate or representative. These documents and instructions can be formalized into legal documents by an elder law attorney.

 

Determining a Care Advocate in Advance

A Care Advocate or Personal Care Representative will represent the interests of a loved one receiving or preparing to receive long term care. This care advocate plays an important role in making caregiving decisions, arranging funding for services, and coordinating care. This person could also be given responsibility by power of attorney or guardianship. A care advocate could be a spouse or child, a caregiver, a friend, a trusted adviser, or even a certified care manager.

 

Planning for End-Of-Life

End-of-life planning can include preplanning a funeral and burial, preplanning final arrangements, expressing wishes for a place to die, and giving information and instructions for advanced planning documents. We recommend using a Funeral Pre-Planning Advisor to assist in these matters.

 

Preparing Legal Documents and End-Of-Life Arrangements

These items might include estate planning documents, advanced directives, wills, trusts, and various powers of attorney. We recommend using an elder-law attorney or an estate planner to assist in these matters.

 

Providing Financial Information for Future Care Costs

This planning would provide the family with a list of assets, income, a savings plan, and insurance plans. Particular funding strategies for long-term care services and asset preservation can also be discussed and planned for. This might include Medicaid or Veterans Benefits.

 

Make Your Wishes Known

This final step is important. No plan has meaning unless those who will be involved in making the decisions are aware of it. We encourage you to provide copies of the long term care plan to all that may be involved, even if the involvement may seem inconsequential. These directions will allow the family, caregiver and possibly the care advocate to make informed decisions based on the wishes and instructions made in the plan. This will save these individuals a great deal of time, heartache, stress and money as they implement the care plan.

How Does Guardianship Help an Aging Senior?

presented by Tracy W Mitchell

 

A guardian is an agency or person legally appointed to manage the affairs of an individual who lacks the capacity to make responsible decisions concerning his or her personal matters. The primary requirement for determining the need for a guardian focuses on the individual’s inability to make and communicate reasonable decisions. Eccentric behavior, disabilities and diagnosis alone generally do not warrant the appointment of a guardian. State laws vary regarding the specific details governing the definition of incapacitated persons as well as the scope of responsibilities a guardian might be given.

 

The American Bar Association (ABA) Commission on Law and Aging describes guardianship as:

 

“Guardianship or Conservatorship is the legal tool of last resort for decision-making and management of your affairs. Generally a guardianship involves the court appointment of someone to act as guardian to manage the property and/or personal affairs of an incapacitated person (commonly referred to as the ward). Conservatorship typically involves management of just one’s assets without control over the person.”

 

Limited Guardianship

 

A form of limited guardianship is commonly used in most states. Under it, a court limits the guardian’s authority and tailors it to the specific incapacities and needs of the ward. Limited guardianship offers a more finely tuned and less restrictive approach to guardianship.

 

If someone is appointed to act as a guardian, but the incapacitated ward already has an agent under a durable power of attorney or advance directive, the court will normally determine whether the agent’s authority shall continue.

 

When Might an Aging Senior Need a Guardian?

 

The following statement made by the ABA describes when someone would likely need a guardian.

 

When do individuals normally need a guardian?

 

• When they can no longer manage their affairs because of serious incapacity, and
• No other voluntary arrangements for decision making and management have been set up ahead of time, or if they have been set up, they are not working well, and
• Serious harm will come to the individual if no legally authorized decision maker is appointed.
• Guardianship is a major intrusion into one’s life and should be used only where there is a serious inability to make or understand the consequences of decisions. “

 

A decision to seek guardianship should never be based on stereotypical notions of old age or handicaps. A person has the right to make foolish or risky decisions. These decisions by themselves do not mean that the person lacks capacity. A competent person chooses to run risks. An incompetent person runs risks not by choice, but by happenstance.

 

Advantages of Guardianship

 

• Family members know the ward has a devoted guardian assisting their loved one,
• The loved one is free from exploitation,
• Clear legal authority is given to the guardian to interact with third parties,
• A process is in place for major decision making including long term care and residence,
• Consent for medical treatments and healthcare is in place,
• Bills, taxes, assets, and the estate are managed responsibly.

 

How is Guardianship Set Up?

 

Anyone interested in the aging senior’s well-being can request guardianship. Since guardianship involves a significant loss of freedom and dignity, laws require guardianship be imposed only when other alternatives have been proven to be ineffective.

 

Guardianship requires an attorney (preferably an elder law attorney who understands guardianship and conservatorship), formal legal paperwork, and a court hearing. Evidence must demonstrate the individual is incapacitated according to the law and that guardianship is appropriate. Furthermore, the evidence must demonstrate the individual who will act as guardian is qualified and the authority granted to him or her is necessary for the safety of the aging senior.

 

All outside family members will likely be notified and given the opportunity to support or contest to the proposed guardian and guardianship. Furthermore, due process requires the incapacitated person be given a chance to contest or consent to the guardianship if her or she can and wishes to.

Plan for Long Term Care Before You Need It

presented by Tracy W Mitchell

 

Long Term Care refers to a wide-range of medical, personal and social services for individuals who are unable to provide for their own needs for an extended period of time. This need for care from others may be caused by age, accident, illness, dementia, stroke, depression or frailty.

 

Long Term Care Planning, on the other hand, is the process of preparing for and funding long term care.

 

Personal needs may include assistance with activities of daily living to help move about, dress, bathe, eat, maintain hygiene, toilet, or help with incidental daily living activities like household cleaning, meal preparation, shopping, paying bills, visiting the doctor, and taking medications. In other cases, long-term care may consist of providing supervision to avoid injury or wandering, companionship, or support and respite for a caregiver.

 

How Expensive can Long Term Care be?

 

Long term care costs can be substantial. US median rates for nursing homes are close to $210/day, while assisted living median rates hover around $115/day. The average hourly cost of home care is $20. genworth.com/costofcare

 

Informal Caregiving, provided by family and friends, can carry significant costs as well. These costs are almost entirely shouldered by the child(ren) of the aging parent. For more on this, see “Caring for a Loved One at Home Can Be Challenging.”

 

Long Term Care Can Be the Greatest Crisis Seniors Will Face

 

Unfortunately, there is an abysmal lack of planning for long term care in our country. A survey, conducted by the John Hancock Insurance Company, reveals most seniors acknowledge the need for planning but very few actually make preparations for long term care. The study found over 50 percent of the respondents worry about paying for long term care but almost 70 percent of respondents said they had done little to no planning for their long term care needs.

 

All gaining individuals, regardless of current health, should have a plan in place. Long term care can be the greatest crisis an older person faces. With the need for care, the aged lose their grasp on the three most important lifestyle concerns of the elderly;

 

• Remaining independent
• Having enough money
• Maintaining good health

 

All of this can disappear with the need for long term care. The costs of care can wipe out a lifetime of savings and destroy equity in a home and poor care planning can lead the elderly into serious withdrawal and sadness.

 

Here is a brief outline of ways to create a long term care plan:

 

Prepare General Planning Documents and Instructions for Decision Making

These documents and instructions might include requests pertaining to care preferences, wishes pertaining to end-of-life scenarios, wants concerning preferred medical treatments, a list of health care providers, desires for disposition of property and instructions to a potential care advocate or representative. These documents and instructions can be formalized into legal documents by an elder law attorney.

 

Determining a Care Advocate in Advance

A Care Advocate or Personal Care Representative will represent the interests of a loved one receiving or preparing to receive long term care. This care advocate plays an important role in making caregiving decisions, arranging funding for services, and coordinating care. This person could also be given responsibility by power of attorney or guardianship. A care advocate could be a spouse or child, a caregiver, a friend, a trusted adviser, or even a certified care manager.

 

Planning for End-Of-Life

End-of-life planning can include preplanning a funeral and burial, preplanning final arrangements, expressing wishes for a place to die, and giving information and instructions for advanced planning documents. We recommend using a Funeral Pre-Planning Advisor to assist in these matters.

 

Preparing Legal Documents and End-Of-Life Arrangements

These items might include estate planning documents, advanced directives, wills, trusts, and various powers of attorney. We recommend using an elder-law attorney or an estate planner to assist in these matters.

 

Providing Financial Information for Future Care Costs

This planning would provide the family with a list of assets, income, a savings plan, and insurance plans. Particular funding strategies for long-term care services and asset preservation can also be discussed and planned for. This might include Medicaid or Veterans Benefits.

 

Make Your Wishes Known

This final step is important. No plan has meaning unless those who will be involved in making the decisions are aware of it. We encourage you to provide copies of the long term care plan to all that may be involved, even if the involvement may seem inconsequential. These directions will allow the family, caregiver and possibly the care advocate to make informed decisions based on the wishes and instructions made in the plan. This will save these individuals a great deal of time, heartache, stress and money as they implement the care plan.

What Is Safe Money?

by Tracy Wayne Mitchell

 

When you hear the term “Safe Money” what do you think of? Most would probably think of a bank account because of FDIC. The fact of the matter is bank accounts are safe. As long as they are titled correctly and the balance does not exceed the current maximum of $250,000, you are covered in the event the bank becomes insolvent. But there is a major risk that many don’t think about when it comes to holding funds intended for retirement income in bank accounts such as CDs. That’s known as inflation risk. Do you think a loaf of bread or a gallon of milk will cost more five years from now? According to the online source Bankrate.com dated February 5th 2014, the highest rate available nationwide on a six month CD was .70%. A one year CD was 1.05%. And a five year CD only 2.00%! Some say Bonds are the way to go for safety. Unless you are talking about U.S. Treasuries, (which expose you to inflation risk as well) you are still shouldering the risk in the event of default. We know that brokerage accounts are not safe. So where can you get contractual guarantees that ensure you will not lose the money you invest, and lock in whatever gains you may have each year? It’s something that has been around since well before the Great Depression era and has been proven year in and year out. It has weathered all of the financial downturns in our country’s history. It’s called insurance, specifically insurance investment products. But what insurance investment product can you use that keeps your money and growth safe while at the same time allowing you to participate in the growth of stock index? A Fixed Indexed Annuity.

Seniors and Retirees, Consider Using a Reverse Mortgage

presented by Tracy Wayne Mitchell

 

For many seniors and retirees, the hard-earned equity in their home is their single largest asset, yet it is unavailable to use unless they take out a home-equity loan.  Conventional loans, like the home-equity, do not truly free up the equity to create a legitimate supplemental income because the money has to be paid back to the lender, with interest.

 

A reverse mortgage is a better way to tap into home equity without creating monthly payments and without requiring the loan to be paid back while the borrower lives in the home.  Instead of making payments, the cash flow is reversed and the senior receives payments from the lender.

 

Why do seniors use Reverse Mortgages?

 

Over the last several years the number of reverse mortgages nationwide has increased dramatically. Many seniors and retirees are finding they can use a reverse mortgage to pay off an existing conventional mortgage or other debt, repair and update their home, or to simply free up cash to pay for long term care, medical expenses, and/or general living. Often, a reverse mortgage allows the aging to remain in their home much longer.

 

The most common type of reverse mortgage is a Home Equity Conversion Mortgage (HECM). It is insured by the Federal Housing Administration (FHA). So far, in 2017, over 36,000 HECM loans were made nationwide. Around 48,000 HECMs were made in 2016.

 

What is a Reverse Mortgage?

 

A reverse mortgage is a loan against the equity in the home which provides supplemental income advances and requires no mandatory monthly re-payments during the life of the loan.  The proceeds from a reverse mortgage are generally tax-free and available as a line of credit, lump sum, or fixed monthly payments. The lender will recover the loan amount, plus interest once the owner(s) choose to sell their home or pass away. The remaining equity balance is passed onto heirs.

 

Those who utilize a reverse mortgage must continue to pay their homeowner’s insurance and property taxes during the loan period. It is also mandatory to keep up with home’s needed repairs and maintenance. The owners will retain title until they decide to sell as long as these requirements are met.

 

Social Security and Medicare benefits are not impacted by reverse mortgage proceeds.

 

Who qualifies?

 

To qualify for a reverse mortgage, one of the home owners must be at least 62 years of age, have significant equity in the home, and live in, as a primary residence, a multi-family home, a condominium, or a Planned Unit Development (PUD).  Permanent mobile or manufactured homes are sometimes eligible. There are no income or credit score requirements to qualify for the loan because there are no monthly repayments to be made.

 

The amount of reverse mortgage benefit for which an individual may qualify, will depend on

 

• the age of the youngest person on the title,
• the market value of the home and the equity in the home,
• current interest rates, and
• in some cases, where you live.

 

As a general rule, the older one is and the greater the equity, the larger the reverse mortgage benefit will be (up to certain limits, in some cases).  The reverse mortgage must pay off any outstanding liens before additional funds can be withdrawn. Since there are costs associated with setting up a reverse mortgage it is not recommended for owners who do not intend to live in their home for a reasonable amount of years to realize the benefits.

 

What are the closing costs?

 

The costs associated with getting a reverse mortgage are similar to those with a conventional mortgage, such as the origination fee, appraisal and inspection fees, mortgage insurance and other servicing costs.  With a reverse mortgage, all of these costs can be financed as part of the mortgage.

 

Under the HECM program, the maximum origination fee allowed is 2% of the initial $200,000 of the home’s value and 1% of the remaining value, with a cap of $6,000.

 

Generally, reverse mortgage closing costs will be somewhere between $5,000 and $10,000.

 

Final thoughts

 

This financial product is something to seriously consider.

 

Hopefully, this article has given you a better understanding of how much a reverse mortgage might cost and how it can benefit you. Using a reverse mortgage is a big decision, we recommend getting quotes and information from multiple licensed lenders if you think using a reverse mortgage might be a good move.

 

A wonderful set of free information can be obtained from the Department of Housing and Urban Development’s site.

What is a Fixed Indexed Annuity?

by Tracy Wayne Mitchell

 

A Fixed Indexed Annuity is a type of annuity that provides a guaranteed fixed rate of return but goes one step further by giving the owner additional options to link a part or all of their funds to a stock index. The most common indices are the S&P 500, Dow Jones Industrial Average and NASDAQ.

Linking to an index gives the owner more growth potential. This type of annuity is guaranteed by the insurer and thereby has no downside market risk! The contract is also backed by the LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION ACT which provides additional protection for the consumer in the unlikely event that a member insurer becomes financially unable to meet its obligations.

This type of annuity has certain caps and limitations on the growth that the owner will receive but there is never any risk of loss due to market declines. The gains are locked in each year so the value either stays the same or increases depending upon how the funds are allocated and the performance of the index options that have been chosen.

 

So if you are looking for an investment that will give you participation in a stock index while also providing a fixed account for guaranteed growth that at the same time will keep your money safe, a Fixed Indexed Annuity may be an option.

 

What is a Lifetime Income Benefit Rider?

A Lifetime Income Benefit Rider is a generic term for an additional benefit that can be elected at the time a Fixed Indexed Annuity is issued. The term for this additional benefit varies from company to company. Some of the most common are: Withdrawal Benefit Rider (WBR), IncomePay Rider, GLWB Income Rider and more. It is also known as a personal pension because the owner is establishing a self funded lifetime income stream. For our discussion we will use LIBR.

The LIBR is used to provide a monthly income for the life of the annuitant. This can also be set up jointly for non-qualified accounts. The LIBR works like this: The client places a lump sum or series of payments into a Fixed Indexed Annuity. The deferral period in most cases is a minimum of one year before income is elected. The LIBR will have a guaranteed “roll-up percentage” that is applied to the LIBR value. This  “roll-up percentage” IS NOT A RATE OF RETURN! The rate of return is applied to the accumulation value of the Fixed Indexed Annuity which can vary from year to year depending upon allocation performance. The guaranteed lifetime income amount is based upon the following: The amount of the deposits, roll-up percentage, deferral period and age of the annuitant. At the time of election which could be years down the road, the issuing company will calculate a lifetime income based upon all of the previous mentioned factors. THIS IS NOT ANNUITIZATION! The income can be stopped, re-started or cancelled all together. All of the issuing companies have their own nuances that make their LIBR more or less attractive to the client depending upon that client’s particular goals, objectives and priorities.

Most LIBR programs have a cost that varies from company to company. This is very significant in deciding whether to utilize a LIBR since most Fixed Indexed Annuities have no other set management fees. This cost will be paid out of the principle of the account in most cases.