Beware of These Four Retirement Pitfalls

With average life expectancies increasing, it is critical to have a thorough retirement plan that provides for adequate income to last a lifetime. To make sure your income lasts as long as you need it to, here are a few retirement pitfalls to avoid:

  1. Not Saving Early Enough. The earlier you start saving, the more likely you are to have enough money to last you a lifetime. Even if you can only contribute a small percentage of your income each year, it’s better than nothing.  These calculators can help you see how much you should be saving given your age and your retirement goal.
  1. Underestimating How Long You Will Live. It’s important to take into consideration that people are living longer, so the more you save, the better. Forty-eight percent of pre-retirees reported that their longest living family members reached age 91 or older, so remember to save accordingly to ensure having money that lasts as long as you do. As you approach retirement, it may be time to look at products that offered guaranteed lifetime income like Fixed Indexed Annuities.
  1. Lack of Balance in Your Portfolio. It’s important to have a balanced and varied retirement portfolio in order to reduce risk. One common pitfall is relying too heavily on one savings vehicle – it will be difficult to obtain consistent growth if your portfolio lacks diversity. For example, one product that can nicely supplement a 401(k) is a Fixed Indexed Annuity (FIA), which protects your principal from the uncertainty of market volatility.
  1. Not Taking Into Account Healthcare Costs. No matter how hard you try to predict your expenses during retirement, the rising cost of healthcare has the potential to add financial stress to your golden years. According to data from the Employee Benefit Research Institute, a 65-year-old married couple with average prescription drug expenses is projected to need $241,000 in retirement savings to have a 90 percent chance of covering their healthcare expenses during retirement. That being said, it’s important to assume high healthcare costs during retirement and plan accordingly.

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5 Things You Need to Know About FIAs

5 things you need to know about FIAs








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Millennials say they want to save for retirement, but a third aren’t doing it

Nearly one in three millennials have no money saved for retirement, and a quarter of millennials – people between the ages of 18 and 34 – report owing more money than they have currently saved, according to a survey released by the Indexed Annuity Leadership Council (IALC).

“This year, millennials finally surpassed all other generations and now make up the largest share of our workforce, which makes it so concerning that such a large portion of these young people are astoundingly unprepared for retirement,” says IALC executive director Jim Poolman.

Still, out of all generations, millennials are also the most open to retirement savings options that protect against stock market fluctuations and offer the opportunity for growth. According to the survey, 52 percent of millennials showed interest in products like fixed indexed annuities that provide guaranteed lifetime income while ensuring the principal investment is never lost.


“It’s no surprise that millennials, who entered the workforce after the tumultuous 2008 economic recession, are showing the most interest in products that can provide certainty against the unpredictability of the stock market,” Poolman says. “This certainty becomes even more important as our retirement landscape continues shifting to a more pay-for-yourself era.”

So, how can millennials with nothing saved for retirement get started?  Poolman has some basic tips:

  1. Remember, every penny counts

When you’re young, you have time on your side, so put as much money aside as you can. This might mean skipping a night or two on the town or packing your lunch more often. While this doesn’t seem like much, making one or two small changes can add up to considerable savings.

  1. Take free money

Consider contributing to your company’s 401(k) plan or any employer-sponsored available plan. Think of any plan your employer is willing to match as “free money.”

  1. Balance your portfolio

As a young professional, you have the luxury to put some of your money into high-risk investments since your retirement is seemingly far away. However, for the safety of your future, it’s important to also consider adding more conservative savings products like health savings accounts or fixed indexed annuities that can provide much-needed balance to your retirement portfolio.

  1. Start now

Don’t wait. It’s crucial to start saving for retirement as early as you can. The earlier you start saving, the more likely you are to meet your retirement goals. Even if you can only contribute 1 percent of your salary, anything is better than nothing, and it can add up quickly.


Check out these calculators to see how much you should be saving (taking into account your age and your retirement goal) and whether your current retirement savings will be sufficient.



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Increased Life Expectancy Leads to a Decrease in Payout Rates

By Tom Hegna, CLU, ChFC, CASL

A lot of people ask me, “Hey Tom, why should I buy an annuity in today’s low interest rate environment?” With current rates being “low,” they may seem befuddled when asked to consider purchasing an annuity. I explain that today’s rates are not low. In fact, I believe these to be the “new” rates—and today’s rates may be the highest rates we could see for a very long time!

In addition, an annuity purchase today is not a play on interest rates.  It is a mortality credit, or as I now call them, “longevity credits,” play. Just like the current rates, these longevity credits could be the highest longevity credits you may see for the rest of your life as well. Let me explain…

Last October, the Society of Actuaries (SOA) Retirement Plans Experience Committee (RPEC) released updated mortality tables that show a consistent trend of increasing life expectancy According to Dale Hall from the SOA, “the purpose of the new report is to provide reliable data that actuaries can use to assist plan sponsors and policy makers in assessing the financial implications of living longer.

Life Expectancy and Mortality Tables (2000 vs. 2014):

  • Life Expectancy of a 65-Year-Old Male:
  • 2000 Mortality Tables: 84.6 Years Old
  • 2014 Mortality Tables: 86.6 Years Old
  • 2.4% increase in life expectancy
  • Life Expectancy of a 65-Year-Old Female:
  • 2000 Mortality Tables: 86.4 Years Old
  • 2014 Mortality Tables: 88.8 Years Old
  • 2.8% increase in life expectancy

With increased improvements to medical technology, I predict that we will see significant additional growth in life expectancy and expect it to rise even greater than the current trends indicate.

These updated tables will require insurance companies to adjust their payout rates in order to properly reflect longer life spans.  Advisors could be in for quite of a shock when they see these adjustments. I’m talking about payout rates going from 14% to 10%, from 9% to 7%, and from 7% to 5%.  These will not be small adjustments!

That’s where income annuities come in. They can offer something that no other product can offer: Longevity credits. Cash flow from an income annuity hails from three different sources: Interest, return of principal and mortality credits. Traditional investments can typically manufacture two of these components—interest and return of principal. However, only life insurance companies can manufacture longevity credits.

When payout rates for income annuities are released with the new mortality tables, you will see the payout rates drop because of an adjustment in longevity credits. Combining the fear of outliving your money and the uncertainty of the market, you should consider locking in these guaranteed rates now as these are likely the highest longevity credits you will see for the rest of your life.

For more information about the author, Tom Hegna, check out:   

To view Tom Hegna’s 2015 Economic Summary, click here.  

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Time for Ferris Bueller to Consider an FIA

Though it may seem unbelievable, Ferris Bueller’s Day Off came out in theaters 30 years ago today (June 11), making Matthew Broderick’s character about 48 years old.

Bueller, Bueller, Bueller? Anyone know how to achieve a secure, and comfortable retirement?

Bueller, Bueller, Bueller? Anyone know how to achieve a secure, and comfortable retirement?

Now, of course we don’t know the career and lifestyle that Ferris and his friends went on to experience after that life-changing day in 1986 Chicago. But, we do know that today, Ferris would be in the latter half of his career, potentially with kids of his own soon going away to college and a growing realization that retirement is not as far away as it was on that June day three decades before.

In fact, Ferris might be more concerned about his retirement prospects than he would let on. A recent Ipsos study found that confidence in traditional programs like Social Security is weakening and that 54 percent of Americans have never spoken with a financial adviser. Even more worrisome, the average American just slightly younger than Ferris would only have $42,700 saved for retirement.

Luckily, Ferris and his friends are the right age to consider a fixed index annuity (FIA). An FIA is an insurance product that pays you income in exchange for a premium. It allows you to enjoy potential growth that’s linked to a market index, while protecting your savings from any downside loss. It can even provide guaranteed lifetime income throughout retirement.

By planning ahead and looking into an FIA, Ferris – at only 48 years old – can take steps to secure a retirement that is every bit as exciting and fun as his time playing hooky that epic day on Michigan Ave.

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Planning for Retirement: Recent Graduates

Although graduating from college comes with an array of emotions and excitement, it’s important to take time to think about your career path and the ways you can begin planning for retirement. Unlike your parents and grandparents, millennials will be mostly on their own for retirement savings, given the shift in the retirement landscape toward more of a “pay-for-yourself” era. For recent college grads, the key to safeguarding retirement will be to start thinking and saving early. Saving early can add up quickly, and you certainly can’t start early enough!

According to a recent report, a third of U.S. workers nearing retirement are destined to live in or near poverty when entering retirement. An underlying cause of this is the sharp decline in employer-sponsored retirement plans over the past 15 years. So while you may not know exactly where you’re headed in terms of a career path as a recent graduate, it’s important to keep in mind that you may not be able to fully rely on a retirement plan from your employer.

Below is a list of things recent college graduates should keep in mind regarding retirement:

  • Start planning early. The easiest way to start planning early is to determine the portion of your paycheck you would like to set aside for retirement each month. While retirement, right now, may seem far away, saving a little now adds up to a lot later.
  • Discover small ways to cut back. It’s perfectly okay to go out to lunch, have fun with your friends, travel or enjoy a Starbucks latte. That being said, it is just as important to start thinking ahead as soon as you start working to discover small changes you can make to save. For example –staying home one or two nights a month instead of going out makes an enormous difference in the long run
  • Take advantage of free money. Consider contributing to your company’s 401(k) plan or any employer-sponsored plans available. Think of any match your employer is willing to make as “free money.” Keep in mind that a 401(k) will likely not be enough for retirement and will eventually need to be supplemented by another product. A Fixed Indexed Annuitiy (FIA), which protects your principal while generating guaranteed income is one option
  • Balance your portfolio. As a student or young professional, you have the luxury to put some of your money into high-risk investments – since your retirement is seemingly far away. However, for the safety of your future, it’s important to balance your retirement portfolio with risk-adverse savings products that offer opportunities for market growth with protection from market volatility.
  • Expect to live longer. Less than 1 in 10 pre-retirees expect to live to age 91 or older. However, 48 percent of pre-retirees reported their longest living family members reached age 91 or older. Truth is, Americans are living longer, and it’s important to have a retirement savings that will last the long haul. When saving, plan for a long life and include savings products that will last your entire retirement. The IALC site has a downloadable checklist to help you.

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IALC Glossary: Explaining Annuity Jargon

Every industry has its own language, and it’s no different for retirement planning. Understanding this sometimes confusing language is crucial as you begin making financial decisions that will impact your lifestyle once your working years are over. As you begin looking into annuities, make sure you take some time to understand the most commonly used terms. By doing so, you can ensure that your retirement will be the “golden years” you’ve been dreaming of.

Here are some of the most important retirement words, defined:

Annuity – A contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live. Your money grows tax-deferred as long as you leave it in the annuity.

Annuitant(s) – The person taking out an annuity.

Compounding Interest – Interest paid both on the original amount of money and on the interest it has already earned.

Simple Interest – Interest paid only on the original amount of money and not on the interest it has already earned.

Defined Benefit Plans – A type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending directly on individual investment returns. The plan provides lifetime income through a group or individual annuity contract.

Fixed Annuity – An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.

Fixed Indexed Annuity (FIA)– An fixed annuity on which credited interest is based upon the performance of an index, such as the S&P 500. The principal is protected from losses in the equity market, while gains add to the annuity’s returns. Interest is not based on pre-declared rate of interest, typical of traditional fixed annuities.

Guaranteed Lifetime Withdrawal Benefit (GLWB)/Income Rider – An optional benefit that can be attached to an annuity contract that, will provide a lifetime income stream that can be turned on in the future. Some income riders grow at a contractually guaranteed rate that will compound during the deferral years for future lifetime income.

Guarantee Period – An option to ensure that a minimum number of year’s payments are made by the annuity, even if you die. The maximum guarantee period is 10 years. If you die during the guarantee period, the annuity will continue to make income payments until the end of the selected guarantee period or you could select that the remaining payments are paid as a lump sum (this option is not permitted where the guarantee period is 10 years).

Immediate Annuity – An annuity purchased with a single premium on which income payments begin within one year of the contract date. With fixed immediate annuities, the payment is based on a specified interest rate. With variable immediate annuities, payments are based on the value of the underlying investments. Payments are made for the life of the annuitant(s), for a specified period, or both (e.g., 10 years certain and life).

Longevity Risk – The risk of outliving one’s assets.

Lump-Sum Distribution – The distribution at retirement of a participant’s entire account balance within one calendar year due to retirement, death or disability.

Lump-Sum Option – A withdrawal option in which the annuity is surrendered and all assets are withdrawn in a single payment.

Principal – An amount of money that is loaned, borrowed or invested, apart from any additional money such as interest.

Purchase Price – The amount that is used to buy the annuity. If the whole of your pot has been paid to the annuity provider and they are paying a pension commencement lump sum (PCLS) to you, the purchase price does not include the PCLS.

Refinancing – Revising a payment schedule, usually to reduce monthly payments. A common way to do this is to reduce the interest rate on a mortgage.

Surrender Charge – A type of sales charge you must pay if you sell or withdraw money from a variable annuity during the “surrender period”—a set period of time that typically lasts six to eight years after you purchase the annuity.

Tax Deferred – An investment which accumulates earnings that are not subject to taxes until the investor takes possession of the earnings, often at a point at which the investor is in a lower tax bracket than before, such as retirement.

Variable Annuity – An insurance company contract into which the buyer makes a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments beginning immediately or at some future date. Purchase payments are directed to a range of investment options, which may be mutual funds, or directly into the separate account of the insurance company that manages the portfolios. The value of the account during accumulation, and the income payments after annuitization vary, depending on the performance of the investment options chosen.

Vesting – Reaching the point, through length of service, at which an employee acquires the right to receive employer-contributed benefits such as pensions.


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The Changing Face of Retirement

Retirement in America is changing.

What was once all but guaranteed by pensions and retirement plans, a comfortable and secure retirement is now increasingly the responsibility of the individual. Retirement today takes all shapes and sizes – from the couple enjoying adventures and grandchildren to the widow struggling to make ends meet.

This week, the Indexed Annuity Leadership Council unveiled a new initiative that examines the widely varying retirement experience across America. The project, the Changing Face of Retirement, weaves together recently released survey data, regional and personal experiences and expertly comprised photos to paint a realistic view of modern-day retirement. One common denominator we found across the regions and through the survey data: regardless of where you live and who you are, your golden years will depend on your willingness to taking financial planning into your own hands.

IALC conducted in-depth polling to better understand American attitudes toward retirement. Families across the country were interviewed to learn more about their personal experience, providing an intimate perspective on how the retirement experience changes from region to region and across the economic scale.

The Changing Face of Retirement discovered several key findings:

  • Only 41 percent of those ages 54 and under plan to retire before 67;
  • Sixty three percent of those 55 years and older said they plan to work past 67 for financial reasons;
  • Fifty four percent of participants have never spoken with a financial adviser and an even larger amount of those between 18 and 34, 65 percent, have not gotten such advice;
    • Further, 66 percent of those with incomes under $55,000 per year and 77 percent of the unemployed have never spoken with an adviser. The people who presumably would need advice the most;
  • Confidence in traditional retirement support is weakening. Only 26 percent of people between 18 and 34 plan to rely on Social Security compared to 48 percent of those 55 and older

Conversations with families and individuals in Sun City, Arizona; Brooklyn, New York; Minneapolis, Minnesota and Naples, Florida provided the Changing Face of Retirement with a personal, even gritty reality that stands in stark contrast to the overly romanticized view of retirement shared by so many. The diversity of their experiences makes it clear that a comfortable retirement is not something that is stumbled upon, but achieved.

What does this mean for you? At the end of the day, retirement is the result of your willingness to plan ahead, work hard and spend time thinking about what exactly you want your golden years to entail. It’s crucial to think about what you want your retirement portfolio to look like – by building one that is diverse and emphasizes guaranteed lifetime income, retirement is not something to be feared, but to be appreciated. A Fixed Indexed Annuity (FIA) is a great example of a secure vehicle to consider in a savings portfolio, so that a meaningful and long-lasting retirement is something attainable.

To learn more, visit and check with your financial professional to determine if a fixed indexed annuity is right for you.

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Answering Retirement’s Most FAQs

In order to ensure a relaxing and secure retirement, planning ahead is key. It’s something we all know, but let’s face it — figuring out where to start can be daunting. That’s why the Indexed Annuity Leadership Council (IALC) compiled and answered some of the most frequently asked questions when it comes to planning for retirement.

How much do I need to save for retirement?

As life expectancies continue to rise, more money is needed for retirement to cover everyday costs. A general rule of thumb is you should aim to save 10 to 15 percent of your annual salary. However, how much you should save for retirement depends on your personal goals and how you envision spending your golden years—whether it’s travel, time with family or taking up new hobbies. Make sure you know how much you will need by using one of our retirement calculators.

What age do I need to start saving for retirement?

Don’t wait! It is crucial to start saving for retirement as early as you can – the earlier you start saving, the more likely you are to meet your retirement goals. It will be nearly impossible to catch up if you wait too long, so save early and save often.

Even if you can only contribute 1 percent of your annual salary, anything is better than nothing and it can add up quickly! Additionally, if your employer does offer a retirement savings plan, take advantage by contributing as much as possible.

Check out our Saving For Retirement tool to see how much you should be saving, taking into account your age and your retirement goal.

What type of retirement vehicles are best?

Financial experts agree that your portfolio should be balanced and include a variety of products. It is important to diversify your savings if you want to reduce risk and improve return. Contributing to your company’s 401(k) is a great way to start a retirement portfolio, but relying too much on one vehicle is a common mistake when preparing to retire. And, as the economic recession of 2008 illustrated, supplementing your 401(k) is important to ensuring your retirement security. One product that can help augment a 401(k) is a Fixed Indexed Annuity (FIA), which protects your principal and can provide a steady income stream for life.

Making sure your savings strategy matches the stage in your life is also critical. For instance, putting your money into high-risk vehicles might make more sense when you’re a young professional, but the closer you get to retirement age, it is a good idea to shift to a lower-risk portfolio. Talking with a financial planner can be a great resource when identifying what financial tools make the most sense for your portfolio at any age.

How much do retirees spend on average per year?

Although it can vary based on the individual situation, the standard guideline for ensuring a sustainable rate of spending is that you should aim to only withdraw about 4 percent of your retirement savings per year.

Products like Fixed Indexed Annuities can serve as a solution to budgeting issues, as they allow you to turn on lifetime income. This can help not only with budgeting monthly expenses, but it can also guarantee that you won’t outlive that income.

How much do medical expenses cost on average in retirement?

According to a recent estimate by Fidelity Benefits Consulting, a 65-year-old couple retiring this year will need an estimated $220,000 to cover medical expenses throughout retirement. That’s why it is so important to make savvy financial decisions and start planning for retirement early so you’re prepared for not only any medical expenses, but are also able to enjoy retirement.

How do I create a retirement plan?

Sit down and determine your fixed and variable expenses and use a simple budget worksheet like this one from personal finance expert, Ellie Kay. Using interactive calculators can also help correctly assess how much your dream retirement may cost. In addition, working with a financial planner to project how expenses might rise in the future is another way to help ensure that you are budgeting properly.

You can also check out our Retirement Income & 401(k) Calculator to see how saving even a small percentage each month can accumulate.

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Three Ways to Minimize the Tax Burden on Retirement Income

Tax day is coming up in just a few weeks and while tax filing will never be fun, some planning now can make a big impact down the road when it comes to dealing with taxes during retirement.
As with many financial considerations, planning ahead is key. By beginning to think about retirement years ahead of time and organizing a financial strategy that allows for guaranteed income and security, retirement can be one of the most rewarding periods of your life.

1. Once you retire, financial flexibility becomes more important than ever. Flexibility allows you the freedom to enjoy new hobbies, travel or spend time with family and friends. What’s more, it allows for you to control your income throughout the year and stay in lower tax brackets, minimizing your annual taxes. One important way to improve your flexibility is to eliminate major expenses before you retire. For example, paying off your mortgage—one of most households’ largest expenses— can allow you to use your retirement income for a variety of other purposes or simply continue to save.

2. Develop a withdrawal plan that lets you stay in lower tax brackets. Many retirement-focused vehicles are tax-deferred, meaning that you are only taxed on them once you withdraw funds. By planning in advance and developing and sticking to a budget, you can make sure you don’t exceed certain tax brackets and are able to limit income tax.

Current Tax vs. Tax Deferred Comparison

3. A Fixed Indexed Annuity, or FIA, can play an important role in your retirement planning process as it provides a low-risk vehicle that can provide guaranteed lifetime income. What’s more, FIAs can help you minimize your tax burden. This tax deferral is important because it allows even faster growth of the annuity. In addition, FIAs don’t have government-mandated contribution limits. That means you are allowed to save as much as you would like. Finally, once you begin to withdraw (or annuitize) the funds, only the interest will be taxed – leaving your principal tax-free when you need guaranteed income the most.

Taxes are a key consideration in any financial planning. In order to enjoy a secure and comfortable retirement, take the necessary steps now to minimize your tax burden and develop a diversified portfolio of products which will provide the most financial security. For more information on how to reduce taxes in retirement, check out this interactive calculator that will allow you to prepare for multiple scenarios.

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