Tuesday, September 1, 2015

Guaranteed Roll-Ups may become extinct!

Now that people are living longer and longer in retirement, and the "Baby-Boomers" are turning age 65 at an alarming rate of 10,000 per day! And with medical research extending and increased the quality of life as we reach and exceed age 100. It is going to become a major challenge for insurance companies to be able to offer lifetime incomes that are not driven by account performance.

Right now with FIA's or Fixed Index Annuities you can still get over 6% guaranteed roll-ups, down from the 8% just a few years ago. This is a great protection in decades where the markets are poor like in the 1970's where 4 out of 10 of the 10 year returns resulted in a loss. Long gong are the double digit 10 year returns of the BOOM in the 1980 and 1990's. When you look at the last 10 years of the S&P 500 we are at 3 of 10 of the last 10 years of 10 year returns losing money. This is why before the boom, the #1 Rule of investing was; "Don't invest what you can't afford to lose!".

Going forward the "Roll-Ups" are going to get replaced with "Index-Driven" Guaranteed Income products. Which means that you will still have the "Market-Loss" protection in bad decades which is still great compared to suffering a decade ending in a loss. However, the Guaranteed Income will not have the "Roll-Up" guarantee. As an example right now, a 6% Roll-Up will Guarantee you in most cases a 6% compounding interest rate for 10 years and may or may not extend some of that for the 2nd 10 years. So assuming you had a nest egg of $100,000 for retirement income, at 6% for 10 years is guaranteed to provide you an "Income Base" of $179,084. That is your "Safety-Net" in case you had a bad decade. IF however, it was a good decade, it is possible to have a greater balance in your index account. In that case your income would be based on the higher indexed account, thereby protecting your future income base regardless of the market returns.

So if you have been looking at FIA's as part of your retirement portfolio, you may want to lock up one with a "Roll-Up" before they're not available. My guess in they will no longer be available or continue to drop by years end or end of 2016. Take care and be safe.

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