Baby Boomers – Your Retirement Help Is Here

The Baby Boomer Generation should be entering the best years of their lives.  Indeed, the Baby Boomers should be preparing to enter the “Golden Age” of Retirement.  Years of sacrifice have been spent working, building, saving, and preparing for this so called Golden Age.  In what seems like a blink of the eye, all of the preparation Baby Boomers have done over their lives has been lost.

The fact is, Baby Boomers are in bad shape financially right now.  Does this mean that every Baby Boomer is facing a life on the street?  No!  However, Baby Boomers face many tough decisions over the next 10-15 years.  Let’s look at what has happened to our economy over the past 18 months.

  • Housing Market Collapse ($3 Trillion In Home Equity Lost)
  • Stock Market Collapse ($11 Trillion In Stock Market Wealth Lost)
  • Job Market Collapse (3.8 Million Workers over 45 Unemployed)

I will refer to the above 3 collapses as the “Unholy Financial Trinity” (UFT).  Let’s examine how each of these has forced the Baby Boomer Generation into their current predicament.

Housing Market Collapse

The Baby Boomer Generation grew up in a period where the importance of homeownership were stressed as the essential building block of the American Dream.  As the Boomers marched their way through the financial minefield of the ’70’s, an even greater importance was placed on Real Estate.  Financial Guru’s exhalted the values of using Real Estate as a foundation for a person or family’s financial plan.  Like good stewards, the Boomers purchased homes, vacation homes, & rental homes.  Not only did they purchase these pieces of real estate, they plowed countless dollars into expanding and remodeling these homes.  All of this was done as a means of value creation.

The theory was great, the actual reality was not!  In theory, a person buys a piece of real estate, pays the mortgage, gets the tax breaks, and when the time came (i.e. retirement) the boomer could turn around a sell the property, at a substantial profit.  This new found windfall was to act as the foundation for the Boomer’s Retirement.  What has actually occurred goes something like this: property purchased, mortgage payments are made, property owner wants to add on an addition (hopefully creating extra value), property owner refinances mortgage and pulls equity out of property for renovations, 2007 Housing Market Collapses dropping Home Prices by 20{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe}+, property owner can not sell property (even at depressed prices).

We will call this “Strike One”!

Stock Market Collapse

During the working career of the Baby Boomer, the Federal Government has enacted several laws to “aid” the American Worker with respect to saving for retirement.  I think we can safely agree that the days of companies providing “Pensions” to their employees has come and gone.  While there may be some Boomers out there that are fortunate enough to still be receiving Pension Checks from their employers, the vast majority of Boomers have been placed in control of their own retirement savings.

Through the introduction and implementation of plans like the Individual Retirement Account, 401K Plans, Roth IRA’s, etc., Boomers have been advised, again, by the Financial Guru’s to put as much money each month as you can into one of these retirement vehicles.  Next, these same Guru’s told stories of purchasing stock in companies, or mutual funds, and holding on to these investments until retirement (basic Buy & Hold Strategy).  Boomers were told and advised ad-nauseum about how the stock market and mutual fund investments were the best performing asset class over a 30 year period.  Again, like the good stewards they are, the Boomers headed the advice placed Trillions of dollars into the stock market.

Once again, the Theory of this type of investment WAS good in principle…30 years ago!  Today’s financial markets are fast paced entities.  Long Term Investments, by today’s standards might mean an investment period of 6 months!  When the Stock Market Crashed, those same Financial Guru’s who “looked out for their clients” were no where to be found.  There are literally hundreds of stories in my small town of people’s retirement accounts losing 50{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe} or more of their value.  If you have an individual who has $500,000 in their retirement account and suddenly they have $250,000, do you not think that a major lifestyle change is sure to follow?  That life change would have to be either delaying retirement or going back to work!

Job Market Collapse

It seems that the Unholy Financial Trinity was, again, one step ahead of you!  In a period where Trillions have been lost in the housing and stock markets, there is still time to regain some of those losses by working!  With the job market collapse, many Boomers do not even have option.  Boomers are being layed off or replaced from jobs they have held for 30+ years.  Now, that the Boomer has lost his/her job they are finding the going increasingly tough to find a new job since there are nearly five (5) people applying for each and every job that is available.

So Where’s The Help?

You might be asking yourself, “Where is the help you told us about in the title?”  Be patient!  The importance of defining the problem and the underlying factors can be understated.  Many of you, I assume, feel no responsibility for the current state of your financial situation.  That lack of responsibility will lead you, or your family, down this same path again.  Please understand, there are forces at work in this current crisis that are out of your control.  However, as a person, as a generation, as a country, we must learn that at the end of the day we are responsible for our own situations.

In order to move forward and regain some of the financial security that we have lost, the first step must be to take responsibility for our part in the problem.  The second step is to chart the best course to move forward.  The final step is to act!  The best plans most often fail due to lack of action!

There is no way that to provide counsel on resolving the problems you may face with each of the Unholy Financial Trinity.  I will offer you an option for the “Financial Assets” component of the Unholy Financial Trinity.  This option is not exciting.  This option is not a new concept.  This option is not any means to recapture all that your financial investments have lost.  The option that I give you is the Fixed Indexed Annuity!

Fixed Indexed Annuities

There have been numerous reports which talk about all that is wrong with the Fixed Indexed Annuity.  However, if you look closely at those very reports, you will see that the fault portrayed in these reports deals more with those few bad apples who misrepresent what Fixed Indexed Annuity does.  Understanding that the problem(s) lie with person selling the product and not the product itself will allow you to look at the benefits that the product offers and not the “expertise” of the Financial Guru’s (remember the problems these guys have already caused you?).

An annuity in its most simple form is a contract between you and an insurance company.  The contract is the yen, to Life Insurance’s Yang.  Where Life Insurance was designed to protect you from living to little, the annuity was designed to protect you from living too long.  There are basically three types of annuities: fixed, variable, and Fixed Indexed.  While we will not spend much time on each of these individually, lets hit the high spots.

  • Fixed Annuities – These annuities are much like your Certificate Of Deposit.  You “deposit” a sum of money with the insurance carrier.  In return the insurance company will pay you a Fixed Rate of Return each year of the contract and guarantee you a fixed amount of annual income from the contract for as long as you are alive. (Please note this is very general and more education is required to understand the contracts fully).
  • Variable Annuities – These annuities offer the same “back-end” in that the insurance guarantees you an annual income from the contract for as long as you live.  The difference is in the rate of return the contract pays to your policy each year.  Variable annuities invest the proceeds of your deposit in stocks, bonds, and/or mutual funds.  When the investments within the contract perform good (i.e. the stock market is good) the variable annuity should outperform the fixed annuity.  The greatest fault with this type of contract are that since the investments within the contract are directly linked to the performance of individual stocks, bonds, and/or mutual funds, your contract can lose money.
  • Fixed-Indexed Annuities – These annuities are a hybrid annuity that combines the safety of the Fixed Annuity, with some of the performance features of a variable annuity.  The reason I say some of the performance features, is that the Fixed Indexed Annuity is GUARANTEED to not lose money (safety of principle) while allowing you (the contract owner) to participate in some of the gains of a given Index (S&P 500).  When the market is good, you win, when the market is bad, you don’t lose!

Now that we have a general understanding of annuities we can dive deeper into how a Fixed Indexed Annuity can help your retirement!  Fixed Indexed Annuities have come a long way in a short time.  The actual contracts have only been around for around 10 years.  The Fixed Indexed Annuity today offers features to the contract owner that can benefit the Baby Boomer who has seen his/her IRA or 401K lose much of its value over the last 18 months.

Before we go much further, I think an analogy needs to be made.  I am sure that many of you are familiar with the popular game show Deal Or No Deal.  In the game, the player chooses unmarked cases hoping that they do not choose the $1,000,000 case.  After each round of picking cases, the “banker”, offers the player a Deal.  He will purchase the player’s case for a certain amount.  The more cases the player picks that are low numbers, the better the deals get.  However, once the player picks some of the big numbers, the deal gets worse.  This is where most of the players mess up.  Assume after Round 2, the banker offers the player $150,000 for his/her case.  The player declines because the $500K, $750K, and $1 Million cases are still in play.  The next round comes and the player knocks our the $750K case.  The next offer goes down to $80,000.  Most players now think of the offer in terms of the last offer of $150K.  The player needs to remember, the $150K reality is GONE.  The new reality is $80K.

In that analogy, I hope that I portrayed one thing.  What you used to have, has no bearing on what you have now.  I have spoken to so many people that say the same thing.  I have lost X amount of money already.  I really like the Fixed Indexed Annuity and I see the benefits, but just let me hold out a little longer and try to make some of my money back.  Those people, much like the Deal Or No Deal players are living in the wrong reality.

So, you have lost money in your retirement account, or any other market related account.  How can a Fixed Indexed Annuity help me?

Let’s do an exercise!  First clear your mind!  Now, I want you to imagine the PERFECT place to put your Retirement Funds.  First, you would want something that offered you a good rate of return.  Second, you would want something that would never lose money.  Third, you would want something that could provide you with income for your retirement.  Finally, you might want something that could grow outside of Uncle Sam’s reach!

Does that match up fairly well to what you have envisioned?  If you answered yes, then you don’t have to look any further.  If you answered no, your expectations are out of the reach of any financial product currently available, or you have joined La Costra Nostra (The Mob).

For those law abiding citizens that answered yes, the Fixed Indexed Annuity is worth looking into.  As stated earlier, the FIA (Fixed Indexed Annuity) offers the contract owner participation in some of the gains of the chosen Index (S&P 500).  While you do not participate in all of the gains, you do get a portion (for example the S&P 500 increases 10{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe} over a year, you may receive 7{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe}).  Each contract is set up differently, but the concept is the same.  In addition, the FIA guarantees that your principle (amount deposited) will never be less than the amount you initially put in.  Finally, the FIA will guarantee the contract owner a specified amount of income for as long as he/she lives.

Many Insurance Carriers that offer FIA’s have taken these contracts and offered great additional options.  Many FIA’s offer contract owners a Bonus on their initial investment (I have seen as high as 12{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe}).  Yes, you heard me right, the carrier provides you with a Bonus for giving them money!  One FIA contract I have seen offers a rider that Guarantees that upon death, the contract will pay to the owner’s beneficiaries a minimum of your Initial Deposit + 5{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe} compounded annually (less any withdrawls).  For Baby Boomers, the most exciting option some Insurance Carriers offer on their FIA’s is an “Income Rider”.

The Income Rider works independently of the FIA contract value.  In the simplest of terms, by utilizing and Income Rider, the contract owner has a seperate “Income Account” that is guaranteed to grow at a Certain Percentage (The best ones use 7{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe}-8{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe}).  Let’s look at an example:

Mr. X places $100,000 into an FIA.  The FIA’s contract value has grown on average 5{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe} over the last 10 Years (approximately $163,000).  Mr. X decided to purchase the Income Rider on his FIA which guaranteed 8{66506b27ca8f5234034d808fc0aabc14bc16ceb45d71027974b073b60f711cfe} Growth of his Income Account (approximately $215,000).  After year 10 (in our example), Mr. X has retired and needs an income to live off of.  Mr. X could start drawing his contract value down or he could activate his lifetime income (from the Income Account) which guarantees him $10,750 per year for the rest of his life.  Mr. X is 65 when he starts withdrawls, and according to some census information he will live until age 80.  Which account is larger?

In no way do I want to portray that a Fixed Indexed Annuity is a cure-all.  Nor, do I wish to infer that a Fixed Indexed Annuity is right for everyone.  However, if you are looking for a financial vehicle that offers Guarantees, then the Fixed Indexed Annuity may be something to look in to.

About The Author:  Jack Wingate is a Professional Insurance Advisor and Founder of ALLCHOICE Insurance in Greensboro, NC. For more information about Jack Wingate, ALLCHOICE Insurance, or Fixed Indexed Annuities please visit http://www.allchoiceinsurance.com

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