Future Financial Images

Everyday on the World Wide Web there are articles telling potential annuity buyers why fixed index annuities are not right for them, but that they should look at purchasing stocks, bonds, or mutual funds instead because of their potential returns.  A fixed index annuity is an insurance contract, not an investment. Annuities are financial vehicles that offer tax deferral, a variety of income options, and a death benefit. Stocks, bonds, and mutual funds are investments. Indexed annuities should be judged on the merits of the unique features they offer:

• Locked-in interest: A fixed index annuity's indexed interest is locked in each year by a feature called annual reset and can never be lost due to a market downturn. In other words, any indexed interest the owner earns is protected and is not just a number on a statement.
• Timing: Whether or not a person knows exactly when they’ll retire, no one can predict how the markets will be performing at that time. For example, the S&P 500 index was negative four times over the past 10 years. What if you decided to retire during one of those negative years? As stated above, with a fixed index annuity, the accumulation value will never decrease due to market volatility. This means when a annuity owners choose to start taking income from the contract, there is a 0% chance the they will have lost any earned interest due to changes in the market.
• Lifetime income: Annuities can do one thing no other retirement planning vehicle can do: provide guaranteed lifetime income. Regardless of what strategy or formula is being used, an annuity is the only retirement vehicle that will guarantee annuity owners will never outlive their retirement savings.

Like any other financial product, there are terms and conditions usually associated with annuity contracts. An owner will generally have to keep the premium deferred for a specified period of time before receiving income payments to avoid the assessments of penalties, such as surrender charges.  Depending on the annuity selected these could be as short as 4 years.

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Many people have assets tied up in "lazy money" traps – stagnant deposits and investments that provide low returns and are tax inefficient.  For a safe money common sense solution visit -  www.fixedindexannuity.com   More Articles >>

The Social Security Administration just released a report that the system this year will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.  

Stephen C. Goss, chief actuary of the Social Security Administration, said retirees would keep receiving their checks as usual. The problem is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax. 

Is this the Tipping Point That Results in Benefit Cuts?

Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances. 

“When the level of the trust fund gets to zero, you have to cut benefits,” Alan Greenspan, former chairman of the Federal Reserve Board.

Social Security’s annual report last year projected revenue would more than cover payouts until at least 2016 because economists expected a quicker, stronger recovery from the crisis. Officials foresaw an average unemployment rate of 8.2 percent in 2009 and 8.8 percent this year, though unemployment is hovering at nearly 10 percent.  

Although Social Security is often said to have a “trust fund,” the term really serves as an accounting device, to track the pay-as-you-go program’s revenue and outlays over time. Its so-called balance is, in fact, a history of its vast cash flows: the sum of all of its revenue in the past, minus all of its outlays. The balance is currently about $2.5 trillion because after the early 1980s the program had surplus revenue, year after year. 

Now that accumulated revenue will slowly start to shrink, as outlays start to exceed revenue. By law, Social Security cannot pay out more than its balance in any given year.  

A $29 Billion Shortfall This Year 

Mr. Goss, the actuary, emphasized that even the $29 billion shortfall projected for this year was small, relative to the roughly $700 billion that would flow in and out of the system. The system, he added, has a balance of about $2.5 trillion that will take decades to deplete. Mr. Goss said that large cushion could start to grow again if the economy recovers briskly.  

Indeed, the Congressional Budget Office’s projection shows the ravages of the recession easing in the next few years, with small surpluses reappearing briefly in 2014 and 2015.

 After that, demographic forces are expected to overtake the fund, as more and more baby boomers leave the work force, stop paying into the program and start collecting their benefits. At that point, outlays will exceed revenue every year, no matter how well the economy performs.

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