How To Squeeze The Risk Out Of Retirement Investment

May 25, 2011 - PRLog -- The Perfect Retirement Investment
A perfect retirement investment would look something like this -
* No losses. Safety guaranteed.
* Payouts can only go up. Never down. No matter what happens.

This retirement investment exists: variable annuities. Competition has made them better. Take a second look now.

There's one type of variable annuity that has what’s needed. Don't confuse it with the many other annuities out there. Here's how it works -
* A state-regulated "Guaranty Fund" insures the money.
* $100K to $500K, depending on state.
* An insurance company guarantees payouts.
* It must have the cash to pay its obligations, by law.
* Monthly payouts for life, or until the owner withdraws his money.
* Monthly payouts never go down.
* No losses.
* The owner’s heirs get the balance, if he dies before getting back what he put in.
* Cash in the investment without penalty - typically after 8 years.

Insurance companies create annuities. Buy them from insurance companies, banks, brokers, insurance agents, and financial planners.
* Investment is made in a lump sum, or a series of payments over time.
* The annuity has a cash value which rises or falls with what it's invested in, but
* Buy an annuity to get monthly payouts.
* Monthly payout goes up if the annuity's average cash value goes up over time.
* Some annuities offer a selection of "sub-accounts" like mutual funds. Move money among them.
* Monthly payout can only go up with variable annuities. Never down.
* Payouts can last the rest of the owner’s life.

Safety from market volatility.
Get monthly payouts right away, or defer payouts until sometime in the future.
* The longer payouts are deferred, the bigger they can get.
* Some companies grow the eventual payout as if the annuity's cash value had grown at least 5% for each year the owner defers payouts,
* For example, buy an annuity for $100K, and if a bear market drags the annuity's cash value down to $80K the first year -
* The eventual payout would still rise as if the annuity's cash value had gone up 5% to $105K.
* This would happen every year, so long as the owner deferred payouts.
* If the annuity's value rises to $110K the first year, the eventual payouts would reflect the 10% gain.
* If a 50-year old bought an annuity and deferred payouts until he was 60,
* His payouts would grow as if the annuity's value had grown at least 50% (10 years X 5%), no matter what.

Things to Watch Out For
Sales Fees - Brokers and agents charge fees of 1% to 12% of the retirement investment. That's huge. They're paid by the insurance company, which is paid by the annuity buyers.
* Buy direct from "no load" insurance companies or from a financial planner to avoid sales fees.

Surrender Fees - Many annuities charge "surrender" fees if the owner withdraws more than a small part of his money before 8 years, on average. These fees can also be very high.
* "No load" companies usually don't charge surrender fees.
* Big fees can crush returns, so shop carefully.

Taxes - Annuities are taxed like IRAs.
* Payouts and withdrawals are regular income.
* Assets grow untaxed until they're withdrawn.
* Withdrawals before age 59 get a 10% tax penalty.
* Don't buy an annuity in an IRA.
* The IRA is already tax deferred, so there is no tax break for paying annuity fees.

Insurance Companies - The insurance company selling the annuity must be solid.
* A.M. Best rates insurance companies.
* Find the A.M. Best books in the reference department of the library.
* Go with an A+ rating or better.
Inflation- Even with a variable annuity, payouts rise slowly with the average value of the annuity.
* Inflation can erode that income,
* So put only part of total retirement investment in an annuity.

Annuities are long-term investments.
They're not made for fast trades.
* For guaranteed monthly payouts for life, variable annuities are a perfect retirement investment.
* Pay fees 1%+ above mutual funds to get this security.
* For tax-deferred capital gains, IRAs and 401Ks have lower fees.

Decide on monthly needs after retirement.
* Consider Social Security, pensions, and any other retirement investment.
* A variable annuity should be able to cover basic expenses.
Don't try for more with an annuity. Remember inflation risk.

We’ve covered just variable annuities. There are many other kinds. Shop with care. Use advisers who work with several insurance companies.

Find out more about retirement income at http://safemoneyproducts.com/retirement-investment. Subscribe now at http://safemoneyproducts.com/subscribe to get 4 Free Reports and bi-monthly Action Alerts.

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Safe Money Products, written by Dr. Bob Rubin, is a financial newsletter. Bob’s investment philosophy is to buy assets with both strong growth potential and limited risk. Bob researches both commonplace and little known investment opportunities. Visit http://safemoneyproducts.com for more information.