Fixed Annuities Provide Another Asset Class for Retirees By Kentucky Income Authority Alan Mercurio

www.mercurioadvisors.com

Today´s retiree has more to think about than those who retired a few years ago. Since early 2000 when the pension plan laws were changed, many companies have done away with the more expensive money purchase or defined benefit pension plans and opted for the less expensive 401k type plans. The elimination of these plans has put the burden for retiree´s income in retirement, back on the retiree themselves. The problem is many of the older employees don´t participate in 401k plans simply because they don´t understand them.

The risk of investing in the market is too great for some, so they simply have opted to stay out all together which could be to their own detriment! When our grandparents retired in the 50´s and 60´s the life expectancy was 65.6 for men and 71.1 for women, so they didn´t have to design a long lasting income plan. However, if you were age 65 in 2005 and male your expected to live another 17.2 years and females are expected to live 20.0 more years*. Therefore your need for income planning is much greater than that of your parents. Many investors today are leery of the volatility in the stock markets and have chosen to look elsewhere; Fixed Annuities could provide some direction for their planning.

Fixed Annuities have become a very attractive way to guarantee income without the risk of the market. Some actually use the market indexes to generate the return you will be credited. But you have to be careful how you choose your annuity and who to get it from. Here are three things you should look for when choosing your fixed annuity.

1. Decide whether you want a fixed constant rate of interest (traditional Fixed Annuity) or if you want your return linked to the markets. Some Fixed Annuities guarantee a fixed rate, similar to a CD offered through your bank, however they are not FDIC insured products like bank CD´s. Another popular fixed annuity is the Fixed Index Annuity (FIA), these annuities link your return to a popular index such as the S&P 500 and if that index goes up you have the potential to make a greater amount of money then you may make in a traditional annuity, but if the index goes down, you could earn nothing. One of the attractive features of these accounts are you can participate in market gains, but if the market retreats, you don´t loose value in your account. Be careful though, you need to know how these investments work before you invest.

2. Look at the commitment period – all annuities have some type of minimum time required to keep your money in the annuity, usually defined by the surrender charges linked to the account if you withdrawal your money early. Unlike most traditional investments that charge you a fee to buy them, or charge you a management fee, annuities typically have a surrender charge you will pay if you get out early. These surrender charge periods can be as short as 1 year to as long as 20 years, you decide how long you want to use this vehicle in your portfolio.

3. Take time to understand the bonuses they offer and why their offering them. Some insurance companies offer plans with a large up front bonus to your account. Meaning, when you open your annuity, the company may add as much as 10, 12 or even 15% of your purchase amount to your account. This is not always a bad thing but, make sure you understand what you have to do to get it in the end. A few companies use what is called two-tier annuities, which can make it very difficult for the owner to actually get the bonus.

My advice for any person looking at adding this product to their portfolio is to do some homework. Work with someone who has complete knowledge of these products and can explain how they work. In addition, be sure you are dealing with a full service advisor. There are many insurance agents out there that can not legally advise you on other investments, if they are not licensed to talk about stocks, bonds, mutual funds, etc., then move on to someone who is. Make sure you get the whole story, after all this is not your father´s retirement plan anymore.

For more information about how Fixed Annuities may fit in your retirement income plan, go to our website at www.mercurioadvisors.com and click on contact us for your free plan review.

* www.census.gov/compendia/statab/tables/09s0102.pdf

Mercurio and Associates Inc.

Alan Mercurio

330 N. Evergreen Rd., Suite #3

Louisville KY 40243

502-253-9366 or 866-672-5456

Registered Representative offering securities through First Allied Securities Inc. A registered Broker/Dealer Member FINRA/SIPC. Investment Advisor Representative offering services through First Allied Advisory Services Inc.