Theoretically, over time the market has returned close to 9.5% from 1900 through 2009, including dividends and the last 20 years it has returned 9.4%. But how many individuals have actually achieved these results? If diversified similar to the S&P 500, Dow/DJIA or NASDAQ these returns are possible but not always. In the last 10 years these same indexes have shown less than 1.5% returns.
The truth is, indexes report have very little to do with the individual investor and return on his investments. Depending on who you read over the last 20 years investors have earned an average rate of return on stocks, bonds or mutual funds of less than 2% before tax. This may be a creditable report but it is about averages, some made more and some less. The point is will the money be there when its required?
The Obama administration and even Congress are now acknowledging the power of annuities. Americans are not known for their savings ability even with the varied qualified and non-qualified plans available. With the retirement crisis we now face, the economic situation, loss and inconsistent results in the equities market government, big and small business and knowledgeable retirees are turning to Annuities.
With the hits retirement funds took during the resent recession ($3.6 trillion between 2007 and the middle of 2009. Private pension plans lost $700 billion; public employee pensions lost $800 billion, Deferred Compensation plans lost $900 billion and IRAs lost $1 trillion.) Congress is starting to realize that something must be done. This past June hopefully a start was made with House Bill H.R. 2748: Retirement Security Needs Lifetime Pay act of 2009 was introduced June 9, 2009 and Senate Bill S. 1297: Retirement Security for Life Act 2009 introduced June 18, 2009 “Amends the Internal Revenue Code to allow an exclusion from gross income for 50 percent of the amount otherwise includible in gross income as guaranteed payments from certain annuity or life insurance contracts”. Both bills go on to proscribe taxation on up to $20,000 per taxable year on money from certain annuity or life insurance contracts starting 2011. Will this happen, it could!
Of course this attention is not without its detractors and the financial world has brought their knives out claiming foul. The Investment Company Institute’s recent survey depicting a majority of Americans do not want to be required to convert qualified money to annuities at retirement is just an opening shot. If these actions are pursued there will be a fight. But only on financial product weathered the resent storm and continues to do what it was designed to do and it is not stocks, bonds, CD or mutual funds.
Annuities have been providing security to individuals for centuries and have proved their value time and time again by providing income in times of economic trouble as well as in robust periods. We have seen them keep there value through depressions, recessions and stock market crashes. Until the late 90’s Annuities were considered some what stodgy but they still did what they were suppose to do. Protect invested assets; provide a guaranteed return with moderate growth in a tax efficient manner.
Annuities were not and are not designed to compete with equities, although they have done a fair job through out our history by providing a fair return on investment and protected payout when needed. Significant swings, slumps and crashes of the market have put at risk even wiped out the little money Americans have saved in their qualified plans, 401ks and IRAs. These problems are particularly onerous if they occur at or even after retirement. On the other hand annuities have always out preformed CD’s because of their tax free growth and longer growth periods.
The financial press and brokerage industry has always sought to misrepresent, cast dispersion or malign annuities. Why is the brokerage industry biased? Perhaps for two reasons;
The financial press and brokerage industry has always sought to misrepresent, cast dispersion or malign annuities. Why is the brokerage industry biased? Perhaps for two reasons;
- Because they offer investments that compete and in the process capture clients into a system that pays better and more often.
- Because they lack the knowledge to understand how annuities work and how annuities can work with equities to provide security with growth to their clients.
Unfortunately, in their minds an “annuity purchased” is a “brokerage commission lost”
Our friends across the water in the United Kingdom have long recognized the value of annuities. The U.K. pension plan law requires retirees to annuitize at least 75% of their accrued benefits from pension plans, by age 75.
Since the 90’s Annuities have grown to provide more than just income security by “annuitizing” the annuity. Newer product may participate in the market without fear of loss, provide Guaranteed Income Riders that provide income for life but if the annuitant dies to soon the remainder is passed on. And annuities may include other riders such as benefits for Long Term Care. The point is, retirees must look at the benefit and impact an annuity or annuities can make in their retirement plans.
Before being concerned about adding to retirement assets, the retiree must insure retirement foundation is secure and basic income is guaranteed. There is only one product that can provide this guarantee, Annuities.
Hubert W. McMinn Jr.
To better understand how to develop a profitable base with your nest egg contact Hubert McMinn by email at hmcminn@plannedassets.com or visit www.plannedassets.com.