Financial Planning in the New Year
2015 was an exciting year. If 2016 is anything like 2015 we are in for another great year. The Top 5 financial planning topics were:
- The Federal Reserve Raised Interest Rates for the First Time in nearly a decade
- QLACs (Qualified Longevity Annuity Contracts) became a reality
- Trusts Utilized for Inherited IRA Creditor Protection
- Currently, oil is cheaper than coffee, milk and water
- Wall Street’s Most Recommended Stocks for 2015 Lost Big Money
As we enter into 2016, what can investors do to prepare from a financial planning standpoint for the New Year? Lifespans continue to grow and people are living longer during their retirement years. From my experience the # 1 fear for investors is outliving their money. A 65-year old man is expected to live, on average, another 17.6 years. A 65-year old woman is expected to live, on average, another 20.3 years. Also, the age group of 85 and up is soaring. Health care costs continue to rise and the two major programs (Social Security and Medicare) designed to protect the aging generation faces cuts in order to balance the federal budget.
So what can we do to prepare?
For the investor approaching 50 and older a wonderful financial solution is an insurance product called a Fixed Indexed Annuities (FIA). A FIA is designed to provide investors with a reliable way to have their retirement savings grow on a tax-deferred basis with guarantees to protect against outliving their income.
There are two key features I like about a FIA.
- The growth within a FIA is tied to an index, such as the Standard & Poor’s 500 or the Dow Jones Industrial Average. However, the contract value will be no less than a specific minimum growth rate, regardless of the index performance. Therefore, if the index performs poorly for a particular year the minimum interest rate is credited to the account. This allows the investor to avoid losses within their portfolio.
- A FIA is the type of product that offers income riders that are designed to provide guaranteed lifetime income benefits. In other words, the investor is provided with a guaranteed steady stream of income that he or she cannot outlive.
Also, some FIAs offer a nursing care income rider. It is estimated that by the age of 65 there is a 70% chance that we will need some type of long-term care services. And women will need the care longer. Nursing care riders are a special form of penalty-free withdrawals. To qualify the beneficiary usually must be admitted to a qualified care facility (or receive home health care) after the first policy year, for a specified period of time (often 90 days). This type of rider is a great way to protect the investor from the devastating costs of long-term care.
The guarantees associated with a FIA are backed by the claims paying ability of the insurance company. Therefore, the insurance company needs to be highly rated before a purchase is made. Also, FIAs have surrender charges (also known as withdrawal charges) meant to discourage taking money out early and taking more money (withdrawals) than the contract allows.
A FIA is a great financial solution to the aging generation that fears they will outlive their income. I encourage you to work with a Certified Financial Planner® that works with clients in a fiduciary capacity to ensure a FIA is appropriate for your financial situation. FIAs can be confusing but working with the right financial professional can provide clarity and financial peace of mind.
To learn more about Blake Fambrough and his approach to financial planning view his Paladin Registry profile
Other posts from Blake Fambrough
