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By Nancy Hughes Coe

“We can no longer rely on pension plans or Social Security to provide guaranteed income for life.”


members. But more of us are also now insuring our retirement assets. Why? Because most Americans can no longer rely on declining pension plans or Social Security benefits to provide guaranteed income for life. With tremendous increases in longevity, many of us could spend as many years in retirement as we did working toward it. With the possibility of 30-year retirements, we may have more to live for, but will we have enough to live off'?  (or: will our income expire before we do?)

What if you could get professional money managers and tax deferred growth plus guarantee of principal and income? Did you know that this is called a variable annuity? The redesigned variable annuities offered by the major insurance companies in the last couple of years are powerful products for growing and protecting retirement assets and income, regardless of what you may have read or heard in some financial advice arenas about older annuity products.

Variable annuities are long-term retirement investment vehicles designed to provide income that cannot be outlived, regardless of market conditions. Some risk-averse retirees retreat to bonds or certificates of deposit for perceived safety and income, but those investments are not free from the risk of inflation. The same person may retreat from the greater returns available in the stock markets because of fear of risk: and volatility, especially after the declining returns of 200l and 2002. With a variable annuity you have the opportunity to keep your assets in the stock markets but with protection.

How do they work? In a variable annuity, you invest in the market, but transfer the risk to the insurance company. Think of your retirement account as an empty container which you can fill with a wide variety of mutual funds and then wrap the container with a label that reads "insured". This allows you to invest confidentially in equities because the guaranteeing insurer provides the safety net in volatile markets.

In an UP market, you take advantage of the growth with no downside risk. You lock in your gains at the new higher account value no matter what the market's future performance may be. In a DOWN market, you protect your assets by placing a floor beneath them.  A variable annuity can guarantee a minimum compounding growth rate regardless of market conditions. When you die, your heirs get the full insured value of the account, including the stepped-up features.

For whom are annuities appropriate? Certainly not everyone, but they are very attractive solutions for many, particularly someone wishing to rollover a 40lK nest egg to protect it. An investor in a non-IRA account may wish to put those funds in a variable annuity to allow 1hem to grow by lax-deferred compounding rather than be eroded by yearly taxes. The guarantee of being able to lock-in investment gains within the account is unique to variable annuities.

Most of us would like to continue our current lifestyle in retirement but are afraid of outliving our assets. Do we postpone retirement or plan better for it? In short, control what you can. Insure what you can't. Retire the risk: but not the income. Variable annuities are complex products and should not be purchased without good professional advice.


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