I am a “visual” type thinking person.
So, I was thinking of ways to further describe the FIA, knowing that it’s a different language. I have spoken this language for the better part of 18 years; realizing that sometimes in the communication of a different language, there is a loss of meaning and or interpretation.
That’s why I was thinking of a way in my mind’s eye of how to simplify the FIA features and benefits. First it is a different language and we have been taught in the old school investment language several myths.
1st: It’s only on paper. But when we are transitioning into retirement, paper numbers become reality numbers. It’s a proven fact using the old school of investing, it fails 68% of the time in retirement. Several reasons, but one of them is that now we begin taking money out, instead of putting money in. Then if the retirement account gets hit with “double…to…triple dipping”; retirement is doomed for failure. What is “double dipping”? It is using and losing at the same time. Then, if you add a management fee on top of the double dipping, you now have triple dipping. This results in your hard earned retirement being bound for failure. No wonder so many people dread thinking and planning for retirement. Recent studies prove that modern-day retirees are outliving their retirement money by a full decade, without any extra help from health complications.
2nd: We will Buy Low and sell High. Let me ask, In your own self experience, how many times has this actually happened or how many times have you had to claw your way back out of the Wall Street hole. We would love to think that this always happens but the truth of the matter is, by chasing returns we lose our Direction and Stability.
3rd: It always, (The Market), comes back. Based upon historical performances; I 100% agree with that. But count the number of years that it takes for the market to come back after a substantial correction. I have a new spreadsheet that breaks Market Loss, down into working years. On a $300,000 account with a 30% correction, it steals from the account the equivalent of 13.5 years of hard labor that it took to build the account (almost 1/2 of retirement life expectancy, it takes it to come back). Practically, destroying the account overnight. The FIA prevents these tragedies. In my mind’s eye a couple of nights ago as I, was thinking of you guys and the tragedy that you have been lead down the same old road that you have heard for 40 years. It’s a proven fact that 68% of the time, this road ends up at retirement devastation.
The FIA will prevent this! HOW?
So, let’s look at another scenario. I view the FIA as a four-lane highway taking people and traffic from one place to another. You’ve got two lanes going in one direction and two lanes going the other direction. When a major highway is under it’s first stages of development, the construction company digs down deep enough to lay a bedrock of foundation. The FIA’s Foundation is; “Zero is my Hero”. You can never have a negative return on your retirement portfolio that’s in a FIA.
Now how does this happen? This is a question I get all the time. Hopefully, this little scenario will answer that question. The FIA has two lanes of traffic going to the same place; your secure, stress-free, worry-free, risk-free, guaranteed, retirement. The inside lane is the slow lane, It is the index / principal deposit value.
The FIA inside lane, has protection, a guard rail that keeps you from running off, or losing any principal. Zero is my Hero. If the market index falls outside of this guardrail; (a negative return), your principal is credited zero, not a negative.
The next thing we see on this highway, is a signpost that publishes a speed limit on this highway. Depending your location, that signpost can read 35 to 70 miles an hour. This sign post regulates the maximum/safe speed. For the FIA, this sign post is either the caps or participation for the inside “index” lane. The Agility FIA that I use, has a participation rate, rather than a capped rate; therefore we have an uncapped strategy to grow the value of the inside lane. Now, as you drive down the highway and you look at the speed sign posted, you do not own that sign post. It is still in possession of the Federal or the State government. It tells you what speed to safely and legally proceed down the highway. Likewise, the market index tells the insurance company the rate of return. This rate is based on upside market index growth and the perimeters of the guardrail; and this rate of return is to be applied to the inside lane (Indexed/Accumulated Value) of your annuity.
Due to the FIA being a fixed annuity, it never buys bonds, mutual funds, or stocks with your money. It only uses the market index as a signpost to determine the rate of return which is then credited to your annuity index account with real money, out of the insurance company’s operating account. It then becomes principal with the safety of the guardrail, that if next year the index returns negative, zeros my hero, and you will never run off the road into a negative return; therefore never losing any of your principal.
If my money is not directly invested into the stock market, how is my annuity credited. When the rate of return is determined by the reflection of the signpost, the insurance company now reaches into their operating expense to pay you the credit earned; just like a checking or a savings account at the bank. The bank never buys stocks with your money. And just like the bank, the insurance company never buys mutual funds nor stocks with your money in a Fixed Annuity. Unlike the bank, that uses the Federal Reserve and their personal corporate profits, to determine the rate of return to credit you your interest on your deposit; the insurance company uses the upside movement of Wall Street to determine you’re rate of return, ( your interest), without the Wall Street Risk because you don’t own any Wall Street Risk.
Now the “out-side” lane: The outside lane on a highway usually is used as the “passing lane”. On the FIAs, it can represent the Riders on the annuity. In some FIAs, the inside lane is used to determine the credits to the outside lane, such as in the case of the Agility. Athene Annuity & Life, the insurance company, credits: 175% credit of whatever the inside lane receives in credits, to the outside lane to be used as an income and/or death benefit rider value. Example: On a $500K “inside lane” indexed account; if the indexed credit is 2%, then the principal value will grow $10K. The “outside lane”, Rider Value will credit at $17,500 (175% credit of the index credit) The outside lane ( passing lane) is the lane that is going to provide a guaranteed income for as long as you live or; a death benefit paid to any named beneficiary, if they will take the value out over a 5-year pay-out period: (the guard rail on the outside lane, preventing the claimant from draining the account too fast. They can take the lump sum death benefit which is also the full accumulated value) if they choose to do so. In some annuities, they take a different approach in that they credit a guaranteed growth, such as a 10% simple interest, regardless of what happens with the index credit to the inside lane.
One of the other outstanding “guardrail features” of the Agility is that once we turn on the income rider, even if the inside lane Runs Out of Money; the Income Rider provides you and your spouse a guaranteed lifetime income for as long as you live. Once the rider is activated, this Lifetime Income is guaranteed for BOTH of you, although your funds are an IRA (Individual Retirement Arrangement).
According to the Ernest & Young’s retirement study; Life Annuities are the only investments, besides Social Security and, or a Pension Plan; that can provide a predictable, stress-free, worry-free, retirement income that takes the risk and burden out of managing a retirement nest-egg. Annuities have proven this since the Roman Empire. The FIA with its unique, two-lane features, has proven this since 1995. I have clients that have been with me over 15 years in retirement. We have used their money as a strong source of retirement income, but it still has values of just a few bucks less their original principal deposit. I can prove this through company statements and my own personal plan. Risk, time, and the market, are not our friends at the age of 60. In retirement, one should not be forced to dig out of that stock market hole again. While building a retirement portfolio, you can make a mistake and pretty much recover from it. A financial mistake made in retirement is pretty much devastating.
This can be confirmed by the 68% that ran out of money this year. The FIA will financially allow you to enjoy your retirement; knowing that your money is backed buy a $100,000,000 (billion) dollar company. You only participate in upside market growth, 100% protected from downside risk, and a guaranteed income that you cannot outlive. I look forward to assisting you to “Protect” your retirement nest-egg.
I once heard a financial advisor say, what got you to retirement, will not get you through retirement, you need some guarantees, not market risk.