The Stock Market Crash of 2010 Part II: The #1 Solution for Safe Retirement Savings!

As I ended my last post, I mentioned that according to Harry S Dent, market collapses are tied to spending and there is a report being release on July 27, 2010 that will show consumer spending at less than 1%.  This, Mr. Dent's research shows, will precipitate a massive collapse in the market.  The impact is likely to be immediate but but occur sometime between July and Dec '10.

So what does this mean to you? How should you prepare? What can you do? With markets declining, States on the verge of bankruptcy, pensions, social security and savings in trouble, Banks going under by the hundreds (soon thousands) these are good questions that require answers. WELL, I HAVE A SOLUTION!

LIFE INSURANCE PRODUCTS: Specifically Fixed Indexed Annuities (FIA's)

Stay with me now!  I know many of you turn off just hearing the words "life insurance".  I'm with you!  When I was first introduced to the possibility of becoming and Insurance Agent I balked because my opinion of Agents was they were lower than car salesman (and many are)!  But then I was introduced to an Insurance world I never new existed.  You see I'm not talking about the typical Life Insurance products you've been presented with in the past or that you might be familiar with.  I'm referring to hybrids that have been developed for the senior market over the past few years plus products that seniors must have like Long Term Care, Medicare Supplement, Annuities of various stripes AND Life Insurance.  But I digress -please, read on.

As a Life Insurance Professional I do what I do because it's SAFE for my clients.  But don't just take my word for it. There was research done by Robert H. Mills PhD, CPA, which examined the dependability of Life Insurance Companies under various market conditions using the Great Depression as a bench mark of the worst case scenario .

In his paper  "Cash Flow and Solvency of Life Insurance Companies" , Mills states that, "The life insurance indudstry is a dynamic one with an uninterrupted growth pattern since 1890 through periods of prosperity and depression." It was also revealed that the companies that ceased operation between 1929-1938 represented only 2% of the total assets of ALL the life insurance companies.  By 1940 all the policyholder liability reserves were built back up by reinsuring companies so the net result was that the loss was reduced to 6/10ths of 1 percent:  THE INSURANCE LOSS DURING THE GREAT DEPRESSION WAS LESS THAN 1%!! How much more safety could you ask for when you compare it with the safety of other options.  So exactly what are ALL the options you have right now:

1) You could leave your money in the market; stocks, bonds, mutual funds, variable annuities, etc. Some feel this is the only way to get the "BIG" returns but to get the big returns it also requires that you time the market just right right and know when to sell and when to buy. Remember the saying "Buy low & sell high"? Good advise, if you can do it, but most can't; they just don't have the time daily to manage it or the expertise to know when to act. Plus there are NO indicators right now showing this market going anywhere but DOWN! Remember, IT'S NOT THE RATE OF RETURN YOU GET BUT HOW MUCH YOU GET KEEP! Here's an example

When Elvis Presley died he was worth millions; I believe it was over $7 mil. But by the time they settled the estate his heirs got around $2 Mil. Do you think the heirs were sitting around talking about the 35% gains he got in the market or what the hell just happened to the other $5 mill? DON'T CHASE RATES OF RETURN!

2) You could move your money to cash. This may seem like a safe move but what if the brokerage house goes out of business. There are NO guarantees on that money. Plus your rate of return will be practically zero and you can't put your money on the sidelines for very long and not get hurt with inflation.

3) You could move your money to Bank CD's. Again a safe move but low interest earnings. Rates right now are 1-1 1/2 % for the most part.  Some CD's may offer an Index option to get higher yields but there's still a problem with this strategy or leaving it in brokerage accounts in that you pay tax on the gains so whatever interest you do earn is reduced by the tax deflating your overall rate of return. CD's typically don't give you any liquidity either with paying a surrender fee.

4) A better option than CD's is a Fixed Deferred Annuity. This option will give you somewhat better rates than CD's (2-5% depending on the length of contract) but the gains are tax deferred so you get the advantage of triple compounding; make interest on the money, on the interest and on the money you would have sent away as a tax. This is called "opportunity cost". Terms are like long term CD's 3-5 years or longer but with better liquidity; typically you can withdraw 10% annually with no surrender fees unlike CD's; some even offer complete return of premium.

5) The fifth and probably the most desirable option is a FIXED INDEXED DEFERRED ANNUITY. This hybrid option gives you the best of all worlds allowing you to tie your earnings to an index similar to brokerage options but the safety of Bank CD's: NO RISK OF LOSS IS GUARANTEED IN WRITING BY THE INSURANCE COMPANY & BACKED BY EACH STATES GUARANTEE ASSOCIATION UP TO $500,000 DEPENDING ON THE STATE. Did I mention these were safe?! You can select more than one index option and change those options typically on an annual basis. Your principal is guaranteed and with annual reset your earnings are added each year and locked in so you can never lose them in the event of a market downturn. I'll cover the intricacies of these hybrids in another article but you have the ability to make 6-10% on average.  As an example, from 2000-2010 the net return in the S&P was -4% while the net return in an FIA attached to the S&P with a 6% cap delivered a +4%.  That's an 8% spread in favor of the FIA.

In summary, here's a graphic illustration I developed to show you your options.  The question you need to ask is are your retirement savings on a sinking ship?!

Safe SavingsRoger