A Compelling Story: Fixed Index Annuities

By |2020-07-21T19:03:48+00:00July 21st, 2020|Annuities, Estate Planning, Insurance, Retirement Planning, Taxes|

How would you like to play poker where the casino told you they would guarantee you that you will make money on every winning hand and, you would break even on every losing hand. You would line up for that table, wouldn’t you? That is precisely what we offer with Fixed Index Annuities.

Tax deferral is a beautiful thing.

Most people cannot visualize the power of tax deferral. If one-dollar doubles 20 times, would you believe you would have over $1 million!!  If you deducted 25% tax at the end of 20 years, you would have $750,000 less.

Let us compare that scenario to paying tax as you go. If you have $1 and it doubles, and you pay 25% tax on the gain, you will have $1.75.  Continue the calculation 20 times. Would you believe you would end up with only $72,000?  Now that is a compelling advantage.

Here is the truth about the so-called average returns in the market. We have seen them post average returns on their fact sheets- one year, three-years, five years, and lifetime. These numbers may be factually correct but are misleading.  There is an enormous difference between average return and the actual return.

If you invested $100,000 and lost 50% in one year and then gained 50% in year two, do you know what they will tell you? Your average return was 0%.  Was it? $100,000 minus 50% equals $50,000, plus 50% is $75,000.  You experienced a 25% drop.

That is why when we talk about fixed index annuities, we say, “Zero is our Hero.”

So, you decide now is the time to get out of the market, safety is the name of the game, from here on, no more sleepless nights. You see an ad, high yield CD offering 1.25% for a three-year commitment.  You think not great, but at least I cannot lose any more money.  Then it dawns on you that 1.25% interest is taxable.  So, your 1.25% is now chopped down to only .94% after Uncle Sam takes his cut.  Can it get any worse?

We can’t forget about inflation. Inflation has been averaging about 3.5% per year, so the purchasing power of $1.00 is reduced by 3.5% every year.  What does this mean for our High Yield CD investment?  1.25% less 25% tax leaves .94% gain on our investment less 3.5% for inflation, your real rate of return is negative 2.5 %.  Who says you can’t lose money with a CD?

Now what, what are you going to do with this information.  This all looks too good to be true. We only participate in Market gain with unlimited upside and no chance of losing principal or losing previous year gains.  We can defer paying taxes on the gains as long as we let it grow year after year.  In most cases, no annual fees unless you choose guaranteed income for life.

There are hundreds of Fixed Index Annuities.  It takes a professional to choose the right one for you.

 

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