{"id":32334,"date":"2012-09-14T18:27:25","date_gmt":"2012-09-14T22:27:25","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/09\/buyer-beware-private-pension-plans\/"},"modified":"2012-09-14T18:28:20","modified_gmt":"2012-09-14T22:28:20","slug":"buyer-beware-private-pension-plans","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/09\/14\/buyer-beware-private-pension-plans\/","title":{"rendered":"Buyer Beware: \u201cPrivate Pension Plans\u201d"},"content":{"rendered":"<p>Article by <a href=\"http:\/\/www.investmentu.com\/\" target=\"_blank\">Investment U<\/a> <\/p>\n<p>Have you ever been trapped in automobile purgatory? It\u2019s when you\u2019re in a car with no satellite radio, no iPod docking station, or suitable CDs to play. You\u2019re forced to station surf on the public radio airwaves.<\/p>\n<p>Once in a while you find a gem from your days in high school on some out-of-state station that gives you about two and a half minutes of memories. Then, it\u2019s back to pushing the tune button.<\/p>\n<p>Last Saturday, while I was pushing radio buttons, I came across a financial program expressing the plight many retirees currently find themselves in. They have a lack of options in investing rollovers and other retirement funds. Europe, the U.S. debt problem and miniscule rates of return have many of them terrified.<\/p>\n<p>But this program was offering some light at the end of the tunnel. They had a new \u201csafe and secure\u201d solution to all of their problems. It\u2019s called the \u201cPrivate Pension Plan.\u201d I\u2019ve dealt with pension plans before \u2013 but this was new.<\/p>\n<p>The wealth management company who was sponsoring the show didn\u2019t give the name of the company providing this product\u2026 or many details. But this is what they did say the plan offered:<\/p>\n<ul>\n<li>Guaranteed upfront bonus of up to 10%<\/li>\n<li>Guaranteed returns for income<\/li>\n<li>Guaranteed protection of your principal<\/li>\n<li>Guaranteed lifetime income for you and your spouse<\/li>\n<\/ul>\n<p>At that point, I knew exactly what they were talking about. This had nothing to do with ERISA qualified pension plans. They were talking about annuities. More accurately, with the description they gave, a fixed-index annuity.<\/p>\n<h2><strong>Just a New Marketing Tactic<\/strong><\/h2>\n<p>The fact is these are nothing new\u2026 This re-labeling move may be due to the bad reputation these products received during the height of the economic downturn.<\/p>\n<p>Four years ago the Securities Exchange Commission cracked down on abusive sales practices targeting seniors. It seemed that fixed-index annuities were one of the investment products found in the midst of senior investment fraud. I think there was even a sting operation on NBC\u2019s <em>Dateline<\/em>. That\u2019s when things have gotten out of hand.<\/p>\n<p>So, if you hear this term going forward, here\u2019s what you need to know.<\/p>\n<p>First of all, don\u2019t get confused. A fixed index annuity can also be referred to as an equity-index annuity. Many fixed-index annuities on the market are set up where they have two phases. The first is called the accumulation phase. This is when you\u2019re supposed to let your money grow and earn interest. The other part of this process is the payout phase.<\/p>\n<p>That\u2019s when you get your withdrawals.<\/p>\n<p>Like a traditional fixed annuity, it guarantees your principal. This vehicle doesn\u2019t act like most securities or mutual funds. The premium deposited into a fixed-index annuity is guaranteed to never go down because of the market.<\/p>\n<p>This vehicle also guarantees you will get at least a guaranteed minimum interest rate that\u2019s written into the contract. Remember that the guarantees in the contract are backed by the insurance company\u2019s claims-paying ability.<\/p>\n<h2><strong>Are Fixed-Index Annuities Good for Me?<\/strong><\/h2>\n<p>I started in the financial services industry back in 1997 and concentrated for years in retirement planning and products. And over that time I found a great many different opinions on annuities. Some think they are really good. Some think they\u2019re horrible. But as it applies in most cases, the answer depends on the investor, investors and\/or their specific situation.<\/p>\n<p>So what I\u2019ll do is give you the pros and cons, and then you can decide if it\u2019s worth a second look.<\/p>\n<p>Here are the pros:<\/p>\n<ul>\n<li>What you initially put in is safe and guaranteed to grow at a contracted rate. The contract you sign with the insurance company will tell you the minimum amount you can expect when the surrender (or accumulation) period is over.<\/li>\n<li>Just like all annuities, your money grows tax-deferred.<\/li>\n<li>Many times a \u201cnew base contract value\u201d can be locked in if the index the vehicle is based upon does pretty well over a certain period. This helps you by securing a new guaranteed basis during market upticks.<\/li>\n<\/ul>\n<p>Here are the cons:<\/p>\n<ul>\n<li>One con is called the capitalization rate.<strong> <\/strong>All fixed-index annuities will have a maximum amount of interest that will be credited to the account. They can be calculated monthly or annually. This means that if the market index returns more than your maximum, you don\u2019t get the difference.<\/li>\n<\/ul>\n<ul>\n<li>Also, there are participation rates. Once again<strong>, <\/strong>all contracts tell you specifically the percentage of the index gain that will be credited to the account. Usually this will be somewhere from 60% to 100%. Here\u2019s a quick simple example. So, if the index goes up 10% and the contract has a 70% participation rate, the account will be credited with 7% interest.<\/li>\n<\/ul>\n<ul>\n<li>Fixed-index annuities usually have long surrender periods. Your money will be tied up or you will have to pay a fee if you surrender your contract.<\/li>\n<\/ul>\n<ul>\n<li>Be weary of how your return is accredited to your account. This can significantly affect the annuity\u2019s performance. The two most popular methods are<strong> <\/strong>monthly averaging and point-to-point. Averaging will take the monthly index average and credit that to your account. The point-to-point method will take the starting and ending values of the index and figure out the total return to the annuity.\u00a0This can be done on a monthly or annual basis.<\/li>\n<\/ul>\n<h2><strong>And What You Must Remember\u2026<\/strong><\/h2>\n<p>I\u2019ve made an attempt to simplify the basics of fixed-index annuities. I mentioned that the radio show talked of up-front bonuses. That\u2019s not a typical option. The aforementioned are the basics.<\/p>\n<p>Also, remember that these products are insurance contracts, so expect them to be complicated. Also, being insurance contracts, they can also come with riders that can include other guarantees and options. There was no way to even attempt to touch on everything out there available. As with anything, just make sure to read <em><span>all<\/span><\/em> the fine print before entering one of these contracts.<\/p>\n<p>Hope this may clear some things up.<\/p>\n<p>Good Investing,<\/p>\n<p>Jason<\/p>\n<div>\n<a rel=\"nofollow\" target=\"_blank\" href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=d09tneae0Q8:cTOR5WYKwGY:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=yIl2AUoC8zA\" border=\"0\" \/><\/a> <a rel=\"nofollow\" target=\"_blank\" href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=d09tneae0Q8:cTOR5WYKwGY:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=d09tneae0Q8:cTOR5WYKwGY:V_sGLiPBpWU\" border=\"0\" \/><\/a> <a rel=\"nofollow\" target=\"_blank\" href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=d09tneae0Q8:cTOR5WYKwGY:qj6IDK7rITs\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=qj6IDK7rITs\" border=\"0\" \/><\/a> <a rel=\"nofollow\" target=\"_blank\" href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=d09tneae0Q8:cTOR5WYKwGY:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=d09tneae0Q8:cTOR5WYKwGY:gIN9vFwOqvQ\" border=\"0\" \/><\/a> <a rel=\"nofollow\" target=\"_blank\" href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=d09tneae0Q8:cTOR5WYKwGY:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=d09tneae0Q8:cTOR5WYKwGY:F7zBnMyn0Lo\" border=\"0\" \/><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/InvestmentU\/~4\/d09tneae0Q8\" height=\"1\" width=\"1\" \/><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/SyndicationFeed\/~4\/6U3MK5A2kKQ\" height=\"1\" width=\"1\" \/><\/p>\n<p>Article by <a href=\"http:\/\/www.investmentu.com\/\" target=\"_blank\">Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Article by Investment U Have you ever been trapped in automobile purgatory? It\u2019s when you\u2019re in a car with no satellite radio, no iPod docking station, or suitable CDs to play. You\u2019re forced to station surf on the public radio airwaves. Once in a while you find a gem from your days in high school &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/forex-news\/2012\/09\/14\/buyer-beware-private-pension-plans\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Buyer Beware: \u201cPrivate Pension Plans\u201d&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-32334","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/32334","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=32334"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/32334\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=32334"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=32334"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=32334"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}