There are three common problems that retirees will face, that worry them and those who will retire. This is all about having enough retirement savings.
Concern one. Will I have enough money? This is about growing and protecting our money without the risk of losing any of it. As we saw in 1987, 2000, 2008, and most recently March of 2020, where ten years of stock market gains can be wiped out in just a few weeks of stock market turbulence. Thus, if your 401k, IRA, or ROTH had been in play during those times, you may have less money accumulated than if you put it into a passbook account. And, many times, poof it is gone. Ouch!
Concern Two. Will I live too long and outlive my money? Retirees are living longer; thus, spending more time in retirement. So, most retirees are concerned about outliving their savings.
Concern Three. Will my retirement accounts work as they are supposed to? Yet, most people’s IRA’s and 401k’s are in junk accounts with major losses and excess fees. Thus, their retirement savings may not be there when you need them! You can find out how yours are performing for free here: www.brightscope.com
Let us help you alleviate those worries. We can help you with all of those concerns and so much more!
Let us take a quick look at the main retirement vehicles most people have their retirement savings in; IRA’s, including 401k’s and ROTH.
An IRA is an Individual Retirement Account, which is a taxed category. This is basically an account set up at a bank or other financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. Where your money is in a mutual fund or a similar investment. There is volatility and loss potential and well as having a tax burden when you take it out.
A 401K, also an IRS category, as is 403b and 457, is a type of employer pension plan used in replace of a traditional pension plan. Whereas an IRA is an individual retirement account not necessarily set up by an employer. Both plans are usually in volatile markets and provide income in retirement.
There is another option that the wealthy use to safeguard their fortunes and provide a tax shelter too. An Annuity.
An Annuity is a contract with an insurance company where a series of payments are received, grow, and then are paid out or over a period of time. Unlike an IRA or 401k, you also have a guaranteed rate of return, locked-in gains, income for life, and principal protection. Annuities can include a retirement account, bond payments, or the distribution of a lottery over time. Annuities have a length of time and when and how it will be paid out, called the term and rate of return.
An FIA, Fixed Index Annuity, is also a contract with an insurance company. It works differently, as it acts like a personal pension plan, with a set rate. This type of Annuity credits a minimum guaranteed rate of interest over a fixed number of years. Moreover, additional interest may be credited based on the percentage change in the value of a market index. Typically, they have a floor, where it cannot go below and a ceiling that it cannot go above a set rate. Your money is actually insured against loss. And usually no probate!
What is better an IRA or an FIA Annuity?
An IRA or 401k has benefits if there are matching funds from your employer. There also some tax benefits as it is deductible each year. However, you will pay taxes when you take it out. Will taxes go up when you are ready? Probably.
An annuity is a type of contact. So, this is actually a comparison of a tax category versus a contract with an insurance company.
Here is an overview of a better retirement plan:
- Will not lose your money! And guaranteed income stream!
- The rate of return is usually greater than most IRA’s!
- Predictable earnings!
- Your money is secure. You will not lose any of your money!
- A diversification of the portfolio or index fund.
- Tax-deferred growth.
- Possible signing bonuses!
- Optional living benefits for nursing care, unemployment waver.
- Penalty-free withdraws.
- Charitable provisions.
With some FIA’s, you can have Living Benefits too. That is, you can use your funds if you become ill to pay for Chronic, Critical, and Terminal illness!
However, you can have the best of both.
Yes, you can have it all without the bad, while your money is insured against loss! In addition, with an FIA, you can have an Index Strategy such as the S&P 500 with it, so it is tied to the market without enduring market losses. Where you have a ceiling and floor, so do not worry about your future, or lose your money, ever. When the market goes up so does your money. When the market goes down, like in March and April of 2020, your money stays put, no loss. Imagine if you had this in 1987, 2000, 2008, or 2020! You would not have lost any of your retirement income; rather you would have gained!
Here is the best news, you can take an old retirement account, such as from a former employer. One that is saturated with fees and usually in junk funds and put it in an FIA. This is called a Rollover. No more losses!
Rollover an IRA is a fantastic money-saving way to take an old retirement account, sometimes new ones too, or a 401k and “flip the script.” You can take your money that you contributed and “roll it over” from one qualified retirement plan into another qualified plan. With annuities, there are no penalties to roll them over.
Now you are thinking there is a catch, right? Well yes, there is. The fees!
What about the cost of the Annuity called, the COI, the Cost of Insurance? Well, it is like this, would you rather pay 35-40%+ of taxes or pay 0-2% for the cost of an FIA? Would you rather pay, those Investment Fees, Administration Fees, Individual Service Fees, and the 24 fees that are hidden in a 401k or just 0.28-1.28% for an FIA?
Here is a summary.
You can have a balanced portfolio at the same time you do not have to worry about losing money in market downturns. You do not have to worry about outliving your money or not being able to pay for the high cost of health care. You can have personalized growth, crediting strategies, guaranteed income, and your money is insured against loss. And so much more!
But my Financial Advisor told me Annuities are bad?
Did they now? In the sales world, IRA’s and Annuities are competitors and require different licenses and training. Financial Advisors are captive to one company that does not have them, so they want you to get what they have. We are a Brokerage firm, so we do it all, and we are not captive to any one company. We help you with what you want, what is best for you, and your future.
If you have an annuity that is set up right, you do not lose your money. If you have a traditional IRA, where did your money go? Yes, there are bad annuities out there, why you need an experienced and licensed independent financial professional who can search and put together the best plan for you, to help you.
Here is one last point.
Keeping an old retirement account with an old employer is like keeping an open savings account with an ex. Why would you do that to yourself and your future?
We are licensed and experienced financial professionals working with A+ rated companies that are over 175 years old. We set up and service IRA’s 401k’s and Annuities, so it is up to you what you want. We can take a bad IRA and put it into an FIA or another retirement vehicle with tax advantages and guaranteed income with no loss into a personal pension plan for you!
How can we be your solution finder today?
We do not provide tax or legal advice. Each client’s tax and financial situation is unique. Clients should consult their tax and or legal advisor for information concerning their situation.
Dr. Richard Krejcir is a pastor and, a licensed and experienced Financial Consultant with over thirty years of experience. He has worked for major banks, insurance companies, nonprofits, and families too. He is also an author, Special Ed Teacher, and financial blogger and holds a doctorate in Stewardship.