1. Protection of my principal and gains!
  2. I do not have to worry about market ups and downs.
  3. I am not losing sleep worrying about outliving my retirement.
  4. I am able to participate in some of the market upswings but none of the downside.
  5. I am able to pass the account value directly to my beneficiary.
  6. I can get an income for the rest of my life.
  7. I do not have to pay high broker fees.
  8. My money will grow tax-deferred.
  9. Liquidity. I can draw up to 10% per year.

Without question, safety is a top priority for every person when they are saving their money. But safety means different things to different people. To some people, safety means putting money in the bank because banks have FDIC insurance.

To others, it means having money diversified across a variety of stocks. To some people, safety means picking their own stocks after they have researched the underlying companies; and to others, it means entrusting their money to professionals.

I think we can agree that no one puts their money in a place where they expect to lose it. They put their money in a place where they expect to get it back one day, hopefully after experiencing some nice growth. The great thing about fixed annuities is that they uniquely offer three levels of protection, which makes them the gold standard of safety.

Three Levels of Protection

LEVEL #1 – By contract, a fixed annuity guarantees that your principal is protected and that you can get it back again. There may be a penalty for early withdrawal, but as the annuity owner, you can control your withdrawals. So, there is no circumstance that can cause you to lose money in a fixed annuity.

LEVEL #2 – Insurance companies rarely fail because they are heavily regulated by your state’s Department of Insurance. State regulations require that insurance companies keep reserves (money held in safe investments like T-bills) to back up your policy value. Certain state programs also may provide an additional layer of protection (contact your department of insurance for further details)

LEVEL #3 – If you have a problem with the insurance company that issued your annuity and you want to get a regulator involved, the regulator is located in your home state no matter where that insurance company is located.



There is one type of deferred annuity I deliberately didn’t mention above, and that is the variable annuity. The reason for that is, nearly every expert I interviewed for this book agreed that variable annuities should be avoided. They are extremely expensive, and the underlying deposits are invested in mutual funds (also known as sub-accounts). So not only are you paying fees for
stock-picking mutual funds (which don’t beat the market and can average upward of 3% in annual fees), you are also paying the insurance company (between 1% and 2% annually.) These products can be toxic, and yet brokers manage to sell about $150 billion in new deposits each year.


It’s been said that if you give a man a hammer, everything becomes a nail. This is to say that the solution outlined below, as exciting as it is, is not the be-all-end-all solution, nor is it for everyone or every situation. It’s part of overall asset allocation. My objective here is to outline a powerful financial product, a hybrid annuity, that gives us great upside potential during its growth phase but also provides a guaranteed lifetime income down the road when we crest the top of the mountain and begin the “second act” of our lives. It’s called a fixed indexed annuity (FIA).


To receive conflict-free advice, we must align ourselves with a fiduciary. A fiduciary is a legal standard adopted by a relatively small but growing segment of independent financial professionals who have abandoned their big-box firms, relinquished their broker status, and made the decision to become a registered investment advisor. These professionals get paid for financial advice and, by law, must remove any potential conflicts of interest (or, at a minimum, disclose them) and put the client’s needs above their own.

Q. How do I know if a guaranteed indexed annuity is right for me?

A. If you do not want to take any risks but still want to play the stock market, a good index annuity may be right for you.

Q. My financial advisor is recommending that I buy a variable annuity within my retirement account, what should I do?

A. Get yourself another financial advisory, pronto.

Q. You say there is a guarantee on the downside, what if the S&P 500 goes down 30 percent?

A. Yes, there is a guarantee on the downside, which is why investors in index annuities accept a ceiling of 10 perfect a year on their own gains. In fact, for those who do not want to take any downside risk, the index annuity can be a good option. Unlike regular index funds, where you claim 100 percent of the gains but also suffer 100 percent of the decreases, in an index annuity your money can only go up; it cannot go down.

If you invest $20,000 in an index annuity on index annuity on March 15 and by the following March 15 the index has fallen by 30 percent, you will still end up with $20,000 at the end of that year. The next year, when the market rises by 20%, you will be credited with 50% of that increase up to a maximum of 10% or, in this case, 10% or $2,000. So instead of having a total of $18,000 after two years (you would have lost $5,000 in the first year and gained back only $3,000 in the second year), as you would in a typical mutual fund account, you will have $22,000.This kind of annuity limits your upside but effectively protects you from a downturn.

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