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Choosing a Diversified Retirement Plan that Closes the Lifestyle Income Gap

In today’s volatile market, it can be hard to feel balanced while riding the roller coaster stock market. That’s why a diversified retirement plan is essential. Annuities play an important role in closing the lifestyle income gap and making sure your paycheck is guaranteed for life. We believe this approach will give you peace of mind no matter what happens on Wall Street – and insure a longer happier retirement without financial stress and anxiety.

Consider this example:
The story of Bill & Karen

Bill invested $100,000 in stocks that make up the S&P 500® index, while Karen purchased a fixed indexed annuity with a purchase payment of $100,000. Over a 1 year period, both Bill and Karen faced a dramatic market. However, Karen’s annuity account value never dropped below her initial purchase payment of $100,000 since her fixed indexed annuity protects against market declines. Conversely, the value of Bill’s investment dropped as low as $70,185 because his investment didn’t offer downside protection.

If you think Karen made the better choice with her allocation of retirement income assets, then an Annuity might be right for you.

The following is a brief picture of the annuity landscape.

Annuities covered on this site:

  • Variable Annuities
  • SPIA ( Single Premium Immediate Annuity)
  • Fixed Annuity
  • Equity Index Annuity (Hybrid Annuity)

Types of Annuities

The major misconception with annuities is that they come in one size that fits all. In reality, there are many types of annuities offered to retirees today.

One of the unique benefits of an annuity as compared with other investment vehicles is that the annuity offers tax deferred growth on all account types: IRA/retirement and Non-Qualified/after tax dollars. Annuities also offer unique guarantees not offered by other investments.

Annuities come in two major categories: Variable and Fixed.

Variable Annuities have a rate of return that is dependent on the stock, bond or money market investment.

  • Therefore YOU assume the risk.

The majority of complaints about annuities and the majority of media coverage on annuities usually refer to Variable Annuities.

  • How many times have you heard claims that “annuities are too expensive” so don’t buy them. Again, this is usually referring to Variable Annuities.

The truth is, most of these complaints about Variable Annuities are true. Here’s why.

What’s the REAL cost of owning a Variable Annuity?

Expense Breakdown

  • Mortality Expense – Usually referred to as M&E. This cost ranges from 1% – 2%.
  • Administrative Fee – Ranges from .25% – .50%
  • Rider fee – Depending on how many riders you add, the cost can range from 1% – 2%.
  • Fund Expense – Depending on type of investment, stocks vs bonds – range from 0.5% – 1.5%.
  • Turnover or trading cost – Estimated at 1% depending on turnover.

So, the range of annual fees you pay for a Variable Annuity are 3% – 7%. Actual costs can be lower if you don’t have any riders or have selected passive investment strategies.

Why you should avoid Variable Annuities

This vehicle combines the two biggest retirement time bombs, Reverse Dollar Cost Averaging and excessive annual expenses.

You receive 100% of the upside and 100% of the downside.
High fees ranging from 3% – 7%
When it comes to income planning and allocation of your retirement funds, SG Wealth Management does not recommend Variable Annuities for your safe financial future.

Fixed Annuities

Fixed Annuities offer a minimum rate of return that never varies regardless of market swing. The insurance company assumes the risk.

There are 3 main types of Fixed Annuities.

SPIA – “Single Premium Immediate Annuities” – also referred to as “Longevity Annuity.” Think of this type as a pension. You pay the insurance company a lump sum of money in return for a stream of income.

The stream can be structured many different ways such as: single life, joint life, period certain, etc.

  • You lose control of your assets.
  • Income can be structured for 5,10,15, 20 years or life.

Fixed Annuity – Think of this like a CD. A fixed rate of interest for a fixed rate of time. At the end of the term you need to reinvest at current interest rates.

Equity Index Annuity, “Index Annuity” or the popular term today, “Hybrid Annuity”. This annuity is categorized as a fixed annuity, but also offers riders like a variable annuity. For our discussion we will refer to an Equity Index Annuity with a Lifetime Income Rider as a “Hybrid Annuity.”

Equity Index Annuity is the return portion of the Hybrid Annuity and the Lifetime Income Rider is the lifetime income component.

Indexing: How is the crediting/interest calculated?

An indexed annuity is an insurance contract linked to a common market index, such as the S&P 500. If the index experiences a gain, you are entitled to share in the earnings. If the index experiences a loss, your account is protected against that loss with a modest baseline rate. Indexed annuities are fixed annuities that provide an opportunity to potentially earn more interest than other safe money alternatives. The indexed annuity returns vary based on participation in a market index. However, unlike variable annuities, you are insulated against market losses. Growth potential for indexed annuities can be strong, and they have returned over 15 percent in the past.

The following is an example on two different crediting methods.

Incorporating indexed annuities into your overall retirement plan can afford you the following benefits:

  • Safety and guarantee of principal
  • Minimum guarantees
  • Tax deferral
  • Penalty-free withdrawals and liquidity options
  • Guaranteed Lifetime Income
  • Stock market index-participation growth
  • Probate avoidence
  • Ability to select and customize enhanced features, such as:
    • Guaranteed growth rates
    • Lifetime income (Based on either single or joint life)
    • Death benefit
    • Healthcare expense protection

The SG Wealth Management Difference:

Our search strategy is unique in that we search our proprietary database of over 60 companies and over 500 products to insure that the strategy we propose is tailored to your unique situation.

Sample Search

From our initial search of our proprietary product database, we analyze the top 3-4 annuities that meet your unique criteria and will create a side by side comparison of the unique features offered by each product to help us locate the optimal product.

Sample Annuity Contract Term Analysis

Put our proven expertise to work for you!

Call us for a complimentary personal consultation…
(609) 309-5533