Private pension with index annuities
March 24, 2011 by Jeffrey H. Massey
With Certified Financial Planner Jeffrey H. Massey
Updated: Thursday, 24 Mar 2011, 5:24 AM EDT
Published : Wednesday, 23 Mar 2011, 12:06 PM EDT
(FOX Providence) – We have seen more volatility in the stock market lately. If you’re concerned about the safety of your investments, especially your retirement money, there’s some great information out there.
Jeffrey H. Massey, a Certified Financial Planner™ Professional , joined The Rhode Show, to offer some insight on a safe money alternative to help you create your own private pension utilizing Index Annuities, with a twist.
The Rhode Show: You have discussed Index Annuities on a prior program so just give our viewers a quick review and then we’ll talk about the private pension aspect.
Jeff: Firstly, an Index Annuity is a form of fixed annuity and only legal cash reserve insurance companies can offer them. The insurance company must have a dollar in liquid investments for every dollar of liability.
Secondly, with an Index Annuity your money is not directly invested in the stock market so your money is protected against any type of direct stock market risk or decline.
So, you share in the upswings of the stock market, most companies track the S&P 500, however you NEVER experience a loss if the stock market goes down!
My clients kept every penny they had from prior years when the stock market tanked in 2008. They were very happy!
These are the base products which you can use to create your private pension.
The Rhode Show: What is the “Private Pension” you mentioned?
Jeff: By utilizing what is called an Income Rider, for a small annual fee, you can build a guaranteed income account value that is contractual so you know exactly what the value will be at every anniversary going forward. This is all guaranteed in the policy contract.
As an example, let’s say you put $50,000 into one of these Index Annuities. If the Income Rider compounds at say 7%, you will basically have twice as much money in the Income Account in ten years regardless of the performance in the cash account within the Index Annuity.
As an example, let’s say that the cash account has grown to $70,000 over that same period. Well, in this example, the Income Account has grown to $100,000. So, you can start to draw your Private Pension from the Income Account Value of $100,000 instead of the $70,000 in the cash account.
Needless to say, this Income Account value will generate more income than the lower cash value account would.
The Rhode Show: Can you tell us what the average income amount would be that you can receive from that $100,000 amount?
Jeff: That would depend on your age and the actual product. There are 22 different Income Account Riders currently in the market. So, my job is to analysis which product would best fit for each client. In this simple example, using $100,000 for the income account value, the income generated could be $5,000 at age 60, $5,500 at age 65 or as high as $6,000 if you were 70 when you start your private pension.
That income amount is then guaranteed for life, even if the cash account balance declined to zero. The starting age and the number of years of deferral are important as is the age at which you begin taking your withdrawals. These riders work exceptionally well for IRA money and 401k rollovers.
Fixed Index Annuities:
Guarantees. Your contract has a minimum guaranteed contract value.
Growth. You can receive interest credits that are linked in part to the performance of an external market index or a fixed interest rate.
Tax Deferral. Annuities provide the advantage of tax-deferred interest accumulation for non-IRA accounts. You don’t pay taxes on the growth until you take withdrawals.
Protection. There is no direct downside market risk to your money.
Income. At a future date, you have the option of a lump sum payment or a regular stream of income—either for a certain period of time or for the rest of your life.
Security. Annuities have a death benefit that ensures your beneficiaries receive any remaining contract value.
Income Riders. You will know the exact income account value at each subsequent anniversary. This is guaranteed by contract. The amount taken out each year will be based on your actual age, according to the rules of the specific Income Account Rider.
For more information or a complimentary consultation, contact:
Jeff Massey, Certified Financial Planner™, at 401-333-8000
Massey & Associates, Inc,
650 George Washington Highway, Lincoln RI 02865
Also offering meeting locations in Middletown and in East Greenwich.
Investment Advisory services offered through
Global Financial Private Capital, LLC,
an SEC Registered Investment Advisor.