POSITIONING YOUR MONEY FOR RETIREMENT
How you position your money for retirement is a function of your
individual circumstances; however, on average, retirement is a
time to reduce investment risk. This means that your retirement
money probably needs to be repositioned away from risky places
like stocks, bonds, mutual funds and other securities whose value
can decrease with movements in the market. Granted you can reduce
risk by carefully selecting a well-diversified portfolio of blue-chip
investments but there will always remain the volatility of the
market that could cause them to rise and fall in value - sometimes
by large percentages as many of you witnessed in 2000 through
2002. While some of you can afford to shoulder the risk others
of you cannot bear, or simply don't want the stress associated
with investment risk. Look at your retirement nest egg the same
way you viewed your job: if you lose it, there goes your income.
Retirement is the time to lower your investment risk and turn
your attention to safe money options. While you may have limited
your upside potential by opting for safety first and preservation
of principal, you have eliminated the potential rollercoaster
highs and lows of the markets, the sleepless nights, the stress
over market exposure and the potential for a devastating setback
that could ruin your retirement lifestyle.
One safe money havens that will give you the upside potential
growth of the stock market without any risk to your capital is
an Equity Indexed Annuity. An equity indexed annuity earns interest
based on changes in a stock market index (S&P 500 or Dow Jones
Industrial Average). But, there is no risk to your capital because
the insurance company that is issuing the annuity is guaranteeing
your capital and the growth of your capital from loss.
Here's How an Annuity Works
An annuity is a contract between you (contract owner) and a life
insurance company. The annuity's value and guarantees are backed
by the financial strength of the issuing insurance company. As
contract owner, you pay premium to the insurance company. In exchange
for your premium, the insurance company promises to make payments
to you at some point in the future.
Annuities Offer Important Benefits
Potential growth during the annuity's accumulation phase: During
this initial phase, an annuity can be an ideal vehicle to help
you accumulate money for your retirement.
Income for life and other options during the retirement income
phase: When you are ready to start taking income, the annuity
offers you a range of payout options. Some options may offer an
immediate, single payment. Others may include income payments
scheduled over a specific period of time, including your entire
Tax deferral that can help your money grow: The money in your
annuity can grow tax-deferred. This means you don't have to pay
taxes on your annuity's growth until you begin to withdraw money
from the annuity. The power of tax deferral, compounded over the
life of your annuity's accumulation phase, may have a positive
impact on the value your annuity generates for your retirement.
Any distribution may be subject to ordinary income taxes and,
if taken prior to age 59 1/2, to a 10% federal tax penalty.
Death benefit protection for your beneficiaries: Annuities are
life insurance products. So it's only natural that they can give
you peace of mind, knowing your beneficiaries are protected if
you pass away.
Furthermore, you have access to your capital in the event a special
need arises, i.e., if the annuity owner is confined to a nursing
home for more than 60 days, or if the owner is diagnosed by a
licensed physician as having an illness or condition resulting
in a life expectancy of less than one year, or if the owner is
under age 65 and becomes unemployed and remains unemployed for
at least 30 days.
Equity Indexed Annuities are Different
An equity indexed annuity earns interest based on changes in
an external equity based index. This is different from traditional
annuities, which credit interest calculated at a fixed rate set
in the contract. The selected index varies from day to day and
is not predictable. When you buy an equity indexed annuity you
own an insurance contract - you are not buying shares of any stock
To summarize, an equity indexed annuity offers contract owners:
The potential for growth by basing interest earned on the performance
of a stock market equity index. There is a guaranteed minimum
yield. If indexed interest is credited to your annuity's values,
it can never be lost due to market index volatility. Your principal
is never subject to market index risk. A downturn in the market
index will not have a negative impact on your contract values.
You will not lose money. This is guaranteed by the insurance company
issuing the annuity.
For more information on equity indexed annuities and other safe
money places, please contact an Allied Roth retirement
counselor for a free evaluation.