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January 29, 2006
Secure Your Future
The Citizen, Auburn, New York
SECURE YOUR FUTURE
SECURE YOUR FUTURE
Inside
What is estate
planning
... pg. 2
Overhaul could
tighten squeeze on
pensions
...pg. 7
Investing for
beginners
.... pg. 10
January 29, 2006
A publication of The Citizen
f you owned stocks or stock
mutual funds at the start of
the 21st century, you no doubt
felt the financial pain of the
market's crash.
Between the stock market's
peak in March 2000 to its sub-
sequent bottom in October
2002, the combined market
value of companies traded on
the New York Stock Exchange
and NASDAQ fell by $9.3 tril-
lion -- the equivalent of more
than $31,000 for every man,
woman and child in America.
While the stock market has
recovered slightly since 2002,
that's little solace to those
whose portfolios were deci-
mated by the market's drastic
drop. Many consumers who
are especially risk-averse, such
as retirees and those nearing
retirement, are wary of ever
returning to the stock market,
given its inherent risks.
Yet during the same time
as the stock market freefall,
nearly all consumers who pur-
chased a relatively new type
o f f i x e d a n n u i t y, c a l l e d a n
index annuity (IA), did not
lose a dime of their original
principal. This prompts consumers to
ask, "How is this possible?"
A Newer Type of Fixed Annuity
T h e r e a s o n I A o w n e r s c a n f e e l
secure about not losing their principal
is because 100 percent of the princi-
pal in an IA is backed by the financial
strength of the issuing insurance com-
pany. Furthermore, IA owners earn a
guaranteed minimum rate of return
and potentially can earn more, depend-
ing on their annuity's index-linked
rate of return.
An IA, like all fixed annuities, is
an insurance contract between the
issuing company and purchaser. In
exchange for holding the IA contract
for a specified period of time, usually
seven to 12 years, the purchaser can
expect to receive tax-deferred gains
and a lump-sum payment or series of
income payments when the owner
elects a payout schedule as provided in
the contract.
The issuing insurance company
links the IA's interest rate to a select
external index. Most IAs have inter-
est returns linked to the S&P 500
Index, although some are linked to
other indices. The index-linked inter-
est rate earned is usually a percent-
age of the growth of the index. How-
ever, IAs are not securities, nor should
they be considered a direct alterna-
tive to securities.
Index annuities typically earn inter-
est rates that vary from 40 percent to
as much as 125 percent of the index to
which they are linked. For instance, an
80 percent rate would mean that you
would receive 80 percent of your index's
growth. Thus, a $100,000 index annu-
ity with an index growth of 10 per-
cent and a rate of 80 percent would
earn 8 percent, or $8,000 in its first
year.
Longer-Term Horizon
Because of their multiple-year hold-
ing period (similar to that of a long-
term CD or bond), IAs are most suit-
able for consumers with longer-term
financial goals, such as retirement.
IAs are not meant for short-term pur-
poses.
However, knowing that consumers
may occasionally wish to tap their IAs,
most IA issuers allow some sort of
annual withdrawal, up to a set amount,
without assessing withdrawal charges.
But it is more beneficial to leave your
IA intact for the contract term spec-
ified, since the interest you earn is
tax-deferred until withdrawal.
No Up-Front Sales Charge
Sold in amounts as little as $5,000
and offered by some of the most high-
ly ranked and financially sound com-
panies in the insurance industry, IAs
also are unique because purchasers do
not pay any up-front sales charge.
When you buy an IA, 100 percent of
your principal goes directly into the IA.
Your insurance agent is compensated
solely by the issuing insurance company.
If you're interested in diversifying
your assets with minimal risk and guar-
anteed return, find an insurance agent
with good recommendations and a
willingness to take the time to fully
e x p l a i n t h e f e a t u r e s , b e n e f i t s a n d
appropriateness of IAs. You may also
wish to find an agent who carries the
designation Certified Annuity Advi-
sor®, a specialized education program.
Index Annuities offer peace of mind, retirement income
I
