A sometimes misunderstood, yet viable, vehicle for long-term savings is a fixed rate annuity (also called a fixed annuity). Fixed annuities can be used to help fund a variety of savings objectives, and can be particularly useful to investors seeking relative safety of their funds, as well as a stable source of income.

A fixed annuity is a financial contract between the owner (annuitant) and the issuing insurance company. Simply put, the owner pays premiums to the annuity insurer. Then, for a deferred annuity, the issuing insurance company credits interest to the annuity for a specified period. At the time of distribution, the insurer pays out the principal and earnings to the owner (usually the annuitant), or to a named beneficiary. Fixed annuities offer several features by the issuing insurer, among them: the money’s value; the annuity’s interest rate; and income payout options.

Comparison to Other Savings Vehicles

Fixed annuities are noted for their relative low risk nature and stability. Interest rates are generally comparable to—and sometimes higher than—those of other conservative financial vehicles like certificates of deposit (CDs) and high-grade bonds. The interest rate earned on the annuity will never be less than the minimum interest rate guaranteed in the policy. Contributions to annuities are generally unlimited, except in the case of immediate annuities that are funded by lump-sum payments.

Tax Considerations

Fixed annuity premiums are paid with after-tax dollars (unless used for an Individual Retirement Account (IRA) or other qualified retirement plan), are not deductible, and earnings grow tax deferred until the time that distributions are taken (unless a withdrawal or a loan against the cash value of the annuity is taken). Each payment consists of the nontaxable return of cost (premiums paid), and taxable income (interest). This calculation is computed using the Internal Revenue Service (IRS) annuity exclusion ratio.

Payment Options

At the time of distribution, there are a number of options from which you, the annuitant, can choose, including guaranteed income payments: 1) for your lifetime; 2) for your lifetime and that of another person; 3) for a specified period, for example, up to 30 years; 4) for the longer of your lifetime or a specified period; or 5) in an amount that increases annually. The amount of income payments depends on the income option chosen, the premiums paid, and prevailing interest rates. Lifetime income payments are based on the annuitant’s age when payments commence.

It is important to note that there are early penalty withdrawals from the IRS for annuity withdrawals taken prior to age 59½. Individuals anticipating a need to access the annuity prior to age 59½ may want to explore other options.

If you are looking for less risk and guaranteed stable income, fixed annuities can be an important part of your overall savings strategy, helping to meet diverse financial goals and objectives. Speak with your financial professional to determine whether a fixed annuity fits into your financial plan.

Fixed annuities are not a deposit and are not insured by the FDIC or any federal government agency. Fixed annuities may decline in value.

Securing adequate retirement income is a major concern for many Americans. Annuities that offer a guaranteed fixed rate of return and tax deferral on earnings, as well as income that can last for life, can be an appealing money management option for present and future retirees with a low risk tolerance and/or a need to diversify assets.

When you purchase a fixed annuity, you receive a guarantee that your money will earn interest at a specified rate and that your return (the money paid back to you) will occur on a set schedule in fixed amounts. You can purchase an annuity with one lump-sum payment or payments made in installments. Payouts to you can begin immediately or at a future time—they are usually scheduled for retirement—and can last for your lifetime or another scheduled length of time. Earnings on premiums are tax deferred.

Fixed annuities can be an important part of your overall savings and income strategy, helping to meet diverse financial goals and objectives. If you are currently saving for retirement, a fixed annuity can help supplement your existing long-term vehicles, such as a 401(k) plan or an Individual Retirement Account (IRA). If you are a retiree, a fixed annuity can provide you with a regular income stream during your golden years. Remember that, in order to plan for the future, you must consider it before it occurs.

Note: Fixed annuities are neither insured nor guaranteed by the FDIC; they may decline in value if surrendered prior to maturity. Guarantees are based on the claims-paying ability of the issuing company.

If you are thinking ahead to your retirement years, now may be the time to fine-tune and revise your retirement portfolio.

As you contemplate this process, keep in mind that you are dealing with the longest of long-term investments—retirement funds. This means you must keep your focus on the long term, whether you’re dealing with tax-sheltered plans like 401(k)s or other savings plans. Your age is an important factor when considering how to update your portfolio. If you are in your twenties or thirties, you may wish to have your portfolio include as much as 70%-80% of stocks or stock funds, with the balance to be in fixed-income investments.

Once you are in your fifties, you may wish to gradually start decreasing the equity portion until it approaches a still sizable 50% at retirement. Due to inflation and an extended life expectancy of retirees, growth built into a portfolio is vital to achieving your goals and needs for a successful retirement.

It is important to choose the most cost-effective and tax-advantaged plans to assist you in building up your retirement nest egg. If you believe, as many people do, that taxes may continue to remain high or even rise further, tax deferral may be more valuable than ever. For example, if you set aside $4,000 each year for 35 years in a company-sponsored 401(k) plan that earned an average of 8%, you’d have $744,409 at retirement; whereas if you invested the same amount in a taxable vehicle, you’d only have $301,042 at retirement.

Another important aspect in planning how to invest and diversify is to put money away early. One possible choice for your first retirement savings dollars would be a workplace plan such as a 401(k). This is a relatively easy investment, as it doesn’t require you to make many decisions. In 2015, contributions of as much as an estimated $18,000 (or $24,000 if you are age 50 or older) are automatically taken from your paycheck in pre-tax dollars. This automatic withdrawal affords you the discipline of enforced savings and is a tax minimizer at the same time. Another plus is that your employer may match at least part of your contribution, resulting in an automatic gain for you.

If you are employed by a school or nonprofit organization, they may offer you a 403(b) pension plan or a tax-sheltered annuity in which you may contribute up to $18,000 (or $24,000 if you are age 50 or older) in 2015.

If you’re self-employed you have the option to set aside even higher amounts. A tax-sheltered Simplified Employee Pension (SEP) plan may be the easiest and less costly way to go for a sole proprietor. The maximum contribution in 2015 is 25% of self-employment income or $53,000, whichever is less.

An Individual Retirement Account (IRA) is another beneficial plan to utilize for retiring, after completely funding company plans. If you don’t have a company pension or if your adjusted gross income (AGI) is below $98,000 (for a married couple), or $61,000 (for singles), you’ll qualify for a full or partial IRA deduction. If you don’t receive the write-off, you may still put up to $5,500 into a nondeductible IRA each year and profit from the earnings, which are tax deferred.

One of the few remaining shelters is the variable annuity. You can invest any dollar amount, earnings are tax deferred, and there is no set time for withdrawal. If your rates increase, you may find variable annuities even more of an attraction. You should be aware, however, that if you withdraw the money before age 59½, there will be surrender and early withdrawal fees. Variable annuities are constructed similar to families of mutual funds, in that you may switch among them.

An annuity payout may extend to your lifetime or the joint lives of you and your spouse. Some annuities guarantee a ten-year payout if you die early. If you have the option of whether your co-beneficiary will receive 50%, 75%, or 100% of your annuity following your death, the higher the percentage, the lower your annuity while you live.

The most beneficial way to take your distributions depends on your current circumstances and future cash needs, future tax rates, and the chance for future appreciation. In order to determine the best strategy for you, a consultation with your financial professional should prove of great benefit.

More than ever, it is time to consider ways of keeping your investments divided between many alternatives. Money managers try to accomplish this by choosing a set of financial assets with performances that tend to offset one another as market conditions change.

The development of specialty mutual funds with portfolios weighted toward investments outside the United States stock market has made diversification easier. Some funds are now managed with the goal of the best diversification among different assets.

In managing your portfolio, keep in mind that even diversified portfolios need frequent review. Some investment managers have responded by increasing investments in foreign bonds. These will gain if the dollar falls lower, a condition that typically depresses domestic stocks. Financial professionals have always maintained faith in planned diversification. Their method of diversified investing through volatile economic times is essential for long-term financial success. 

Fear of the unknown need not prevent you from studying the financial pages and understanding the evening stock reports on your favorite radio or TV station. A short course in “Wall Street Speak” can help unlock the wealth of information provided by these investment-reporting vehicles.

The Stock Tables

The three major national stock markets that report stock performance for the previous trading day are:

The New York Stock Exchange (NYSE)—The largest and oldest stock exchange in the United States, through which NYSE-listed securities are bought and sold on an auction basis.

The American Stock Exchange (AMEX)—The second largest U.S. stock exchange, also operating on an auction basis. Trading volume on the AMEX is much smaller than on the NYSE.

National Association of Securities Dealers Automated Quotations (NASDAQ National Market)—The major over-the-counter (i.e., non-exchange) market for trading of securities of more than 5,000 companies that generally are smaller or newer than the companies listed on the NYSE or AMEX. Trading is conducted through a telephone and computer network among dealers who are members of the National Association of Securities Dealers, Inc. The volume of NASDAQ trading always exceeds that on the AMEX and generally exceeds that on the NYSE.

Other smaller regional stock exchanges are the Boston, Cincinnati, Midwest (Chicago), Pacific (San Francisco or Los Angeles), and Philadelphia stock exchanges.

Stock Indexes and Averages

There are several useful measures of value changes in representative stock groupings. A sampling includes:

The Dow Jones Industrial Average (DJIA, or the Dow)—An average of 30 major stocks that many use as a reflection of overall stock market action.

Standard & Poor’s 500 Index (S&P 500)—A broad-based measure of market activity based on the performance of the stocks of 500 of the largest companies.

National Association of Securities Dealers Automated Quotations Composite Index (NASDAQ Composite Index)—An average of the trading in approximately 5,000 over-the-counter stocks not traded on exchanges.

Other commonly used measures include the NYSE Composite Index, the Russell 2000 Index, and the Wilshire 5000 Equity Index.

Decoding the Tables

For an understanding of stock table coding, here are some helpful definitions:

52 Weeks/Hi Lo—Highest and lowest prices reached over the previous 52 weeks, but not including the latest day’s trading.

Stock—Each stock is listed in alphabetical order by full or abbreviated name. Local stocks are sometimes printed in boldface type. 

Sym—Stock symbols (trading symbols) of one to five letters used to identify companies on the securities exchange or other market on which they trade.

Div—Annual dividend per share, based on the most recently declared dividend.

Yld %—The stock’s dividend yield determined by dividing the annual dividend by the trading day’s closing price.

PE—Price-earnings ratio of the trading day’s closing market price to earnings per share over the most recent four quarters.

Vol 100s—Total daily shares sold volume, quoted in hundreds (two zeros omitted).

Hi Lo Close (or Last)—Highest, lowest, and last price at which the stock traded on the trading day.

Chg (or Net Chg)—Change from previous day’s closing price to this trading day’s closing price, normally quoted in eighths of a point (which was changed to a decimal system beginning in 2000).

It is helpful to look for explanatory notes regarding the coding used on Highs, Lows, Dividends, PE ratios, or other topics. You will also find figures of total daily volume and most actively traded stocks for each major national market and the performance of various stock indexes.

As you read the financial pages regularly, you will become more “fluent” in “Wall Street Speak,” a language that will help you gain knowledge about the world of investments.

What is bond yield? This may be the most commonly asked, and often the only asked, question posed by those choosing a municipal bond fund. Decisions based solely on yield, however, may be shortsighted at best. Investors need to gain an initial understanding of the various types of yields and their respective total returns before jumping on to the bond playing field.

When most people mention yield, they are referring to current yield, i.e., the current annual interest income divided by the initial price paid for the investment. For example, a $1,000 bond paying a hypothetical 6% interest, or $60 a year, which was purchased for $1,020 carries a current yield of 5.9% ($60/$1020).

A better measure is yield to maturity. It is more complex than the basic calculation of current yeild, but it is also the most complete measurement of performance, taking into account the present value of future interest payments. Total return includes reinvested dividends, along with any capital gains or losses.

What Affects Yield and Total Return?

Several factors can affect yield and total return. One important consideration is credit rating; lower quality issues tend to pay higher yields to compensate for added risk. Some funds have a majority of the portfolio invested in the highest rated bonds, and although those funds may not have the highest yields in the marketplace, they may perform very well in terms of total return over a meaningful period of time. For bonds carrying similar credit ratings, the longer the time until maturity, the higher the yield tends to be, though some professionals believe this is only true in an upward sloping or “normal” yield curve.

Many investors who understand yield still have a difficult time comparing the performance of bond funds accurately in a marketplace where mutual fund companies calculate and advertise yields in different ways. Some funds declare dividends daily based on income that has accrued at the close of each business day, with dividends paid at month’s end. Other funds declare daily dividends based on projections of estimated net income. Still others declare dividends monthly in amounts that are not necessarily the same as the actual income.

Since most yield calculations are based on past earnings, they may not precisely reflect the performance of the fund’s current portfolio, making projections of how the portfolio will perform difficult. When individuals buy managed funds, they must recognize they’re also buying the resources of the fund’s sponsor, including in-house credit research capabilities. An investor needs to determine the track record of the fund manager, the amount of risk in the portfolio, and the durability of the yield.

Setting Standards

The Securities and Exchange Commission (SEC) has established an industry standard for computing yield in mutual fund advertisements and sales literature. The standard creates a fixed-yield quote requirement for bond mutual funds, making it easier for investors to decide which bond funds are most suitable for their investment portfolios. In addition, investors are encouraged to consult a prospectus for a complete list and description of its bond holdings.

Bond funds can be a valuable addition to any portfolio. However, before investing, be sure that bonds are consistent with your overall financial objectives.

In 1958, the Internal Revenue Service (IRS) created 403(b) plans to encourage employees of certain organizations to begin saving for retirement. In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) increased the amount employers and participants could contribute and created a Roth option. Thanks to the Pension Protection Act of 2006, these changes will be permanent.

A Closer Look

403 (b) plan contribution amounts are subject to annual inflation increases. An employee’s contributions to a traditional 403(b) are made with pre-tax dollars, and earnings grow tax deferred. In retirement, distributions will be subject to income tax; withdrawals made before the age of 59½ may be subject to a 10% federal income tax penalty. The following guidelines outline the amount that employees may contribute to 403(b) plans:

• There is an elective salary deferral limit of $18,000 in 2015.

• As much as 100% of compensation, as long as that amount is less than the elective deferral limit.

• Those above age 50 may contribute an extra $6,000 for 2015.

In addition, under the 15-year rule, employees with 15 years of service for the same employer (not necessarily consecutive years) may contribute an additional $3,000 per year, if previous contributions were not higher than an average of $5,000.

The Roth Option

With the Roth option, 403(b) participants make after-tax contributions to a Roth account. Earnings grow tax deferred, and distributions are tax free, provided the participant has reached the age of 59½ and has owned the account for five years.   Any matching contributions made by employers must be invested in a traditional 403(b) account, not a Roth account. This means that, even if employees make all of their contributions exclusively to a Roth account, they would still owe tax in retirement on withdrawals from funds contributed on a pre-tax basis by their employers.   Workers should also be aware that the 403(b) annual deferral limits apply to all 403(b) contributions, regardless of whether they are made on a pre-tax or after-tax basis. If employees contribute to a Roth 403(b), they may have to reduce or discontinue their contributions to their employer’s traditional 403(b) plan to avoid exceeding these limits. Provided employees comply with these limits, however, they are allowed to put money into both types of 403(b) plans.

Rollover Guidelines

Funds in a 403(b) plans are eligible for rollover into a 401(k) plan as long as the following apply:

• The individual must be a 401(k) participant.

• Rollovers must be allowed in the 401(k) plan’s rules.

• Distributions from a 403(b) plan must be qualified, such as: death, disability, employment severance, or reaching [attainment of] age 59½.

The Pension Act permits any beneficiary to roll over his or her interest in a 403(b) plan to an IRA, upon the death of the account owner. Taxes will only be due when normal distributions are taken. Formerly, only spousal beneficiaries were permitted this option.   403(b) participants may roll over funds from a 403(b) plan directly into a Roth IRA, and the rollover will be treated as a conversion. However, participants must satisfy all conversion requirements. In addition, 403(b) participants are now able to make hardship withdrawals on behalf of any listed beneficiary.   The combination of favorable legislation and the personal advantages of 403(b) plans make participation more appealing than ever. Even employees who expect benefits from a traditional pension plan should consider building additional retirement savings with a 403(b) plan, if possible. Don’t wait: Start participating in your plan today. After all, it’s your retirement.

The term “compound rate of interest” is frequently encountered in discussions of investment performance. Compounding, or the earning of interest on interest, is simply a method of making an investment return on a return previously earned.

All investors should appreciate the value of compound interest and have an understanding of its operation. The following example should aid in developing this understanding.

Suppose you invest $100,000 at a simple interest rate of 6% per year for three years. It will earn 6% of $100,000 yearly, or $6,000 x 3, for a total of $18,000 over the three years. Now, let’s take the same $100,000 and invest it at 6% compounded annually. It will perform as follows: The first year’s interest is 6% of $100,000, or $6,000; in the second year—assuming no withdrawals—interest is earned on the principal of $100,000 plus the first year’s interest of $6,000, resulting in another $6,360 interest paid; in the third year, interest is earned on the principal plus the two years’ interest, for a total interest after three years of $19,102 vs. $18,000 simple interest.

Sometimes, interest is compounded more frequently than annually. For example, if a 6% annual interest rate is compounded monthly, the monthly rate is 6% divided by 12, or .5%. For the first month, the interest on $100,000 would be $500. For the second month, the interest earned would be $100,500 x .5%, or $502.50, and so on. For 36 months or three years, the total interest earned would be $19,668. 

Quick Math and Your Investments

Sometimes it’s challenging to figure out just how fast your money is growing. Sure, you can check compound interest tables or compute it with algebra yourself. However, mathematical “shorthand” provides an even quicker answer. It’s called The Rule of 72. 

To determine how long any amount of money invested on a compound interest basis will take to double, simply divide the interest rate into 72. If you’re receiving 10% interest, for example, your money will double in 7.2 years: 72 ÷ 10 = 7.2.

Here are some common interest rate calculations using The Rule of 72:

Rule                                                    Percent                     Years to Double

72                      Divided By             20%         =                      3.6

72                      Divided By             15%         =                      4.8

72                      Divided By             12%         =                      6.0

 72                      Divided By             10%         =                      7.2

 72                      Divided By               7%         =                    10.3

 72                      Divided By               5%         =                    14.4

 72                      Divided By               3%         =                    24.0

Special Note: To find out how long it will take for your money to triple, simply divide 115 by the interest rate. This is called The Rule of 115!

“There’s a time and place for everything.” You’ve probably heard that expression a bunch of times. In fact, you’ve probably used yourself, as well. That age old axiom applies to so many different things. And, life insurance is no exception.

Over the years, a variety of life insurance products have been created to meet the needs of individuals like yourself. That’s how the concept of survivorship life was conceived. Survivorship life (also known as second-to-die or last-to-die) is a unique type of life insurance that allows two people to be insured under one insurance policy. So, you may be wondering, what’s the big deal?

Survivorship life insurance pays a death benefit at the death of the second insured. Therefore, these types of policies are generally less expensive than two individual policies. In addition, even if one of the insureds is considered medically uninsurable, a policy can generally still be obtained. However, it’s important to recognize that survivorship life insurance is not for everyone.

Since these policies pay a death benefit at the second insured’s death, the uses of survivorship life are a little different than traditional “single life” policies. Their cost effectiveness generally make them an ideal tool for funding future estate tax liabilities, maximizing gifts to future generations or a favorite charity, or keeping a business within the family.

When shopping for long term care (LTC) insurance, a rider can provide valuable benefits. These are provisions that can be added to an insurance policy, at an additional cost, in order to alter or expand the policy’s conditions or terms of coverage. Essentially, they allow policyholders to obtain extra protection in certain situations.

Below are some of the common riders that may be available for LTC insurance, along with a general description of each:

Inflation Protection

Inflation protection helps ensure that policy benefits keep up with the rising cost of health care, by increasing the benefit in line with inflation. Many LTC insurance policies offer a number of options to allow individuals of different ages or with varying degrees of risk tolerance to select the one that best fits their needs. 

Sharing Coverage

Sharing coverage allows a couple to extend the provisions of their policies to share each other’s benefits. This rider maximizes the value of coverage by allowing one spouse to draw from the other spouse’s benefits, if his or her own policy is exhausted. 

Return-of-Premium

The return-of-premium rider provides a benefit if the insured dies during the rider eligibility period. Premiums paid for the policy and all riders will be returned, less any amounts paid for claims incurred. The returned premiums are generally paid to the estate of the insured or to a beneficiary that is designated by the policyholder.

Nonforfeiture Benefit 

Nonforfeiture benefit riders guarantee that benefits will not be forfeited in the event of nonpayment. There are two types of nonforfeiture. Contingent nonforfeiture, which may be a part of base coverage, provides a shortened benefit period/non-forfeiture benefit if your coverage lapses after a substantial rate increase. Optional nonforfeiture provides for a shortened benefit period if your coverage lapses because of nonpayment of premium for any reason, including a substantial rate increase.

Restoration of Benefits 

A restoration of benefits rider will restore your policy benefit amount to the original maximum value if you recover from an illness or injury after receiving benefits. This rider may vary in the percentage of the benefit that can be restored and how long the insured must be free of treatment for benefits to be restored.

Depending on the individual, riders can provide valuable benefits to policy owners. When making long-term care insurance decisions, it is important to thoroughly evaluate coverage options and then determine what might be most appropriate for your needs.

If you were to become sick or hurt and lose your ability to earn a living, how would you pay your bills? One way to help protect yourself in the event of a disability is to purchase an individual disability income insurance policy.

Disability income insurance provides a benefit to replace a percentage of your income, in the event of a qualifying disability. The cost of coverage depends on such factors as the risk level of your occupation, your age, your health history, and the scope of coverage you wish to purchase. Individual disability income insurance requires an application process and is subject to underwriting approval.

If you have disability coverage through your employer, find out if you have short-term and/or long-term coverage. For each type, determine the benefit amount and the length of time benefits are payable. Understanding the coverage you already have can help you decide if you need additional insurance to help cover expenses for your home or apartment, automobile(s), utilities, food, clothing, education, etc., should you sustain a disability.

Disability income insurance can help protect your most essential asset—your ability to earn an income. Evaluating your needs can help you decide what type of policy would best help protect you and your family.

When faced with the wide range of life insurance coverage available, you may wonder what type fits your needs now and what coverage you should consider for future needs. A good first step is to look at two basic types of insurance coverage: whole life and term life.

Whole Life Insurance—Cash Value for Your Dollar

Whole life insurance helps to provide not only security from financial hardship in the case of a death, but also a cash value component of the policy.

Under a cash value life insurance policy, premium payments cover the cost of pure insurance coverage first, including the expenses and mortality factors of the insurance company; the insurance company then accumulates “leftover” dollars to build the cash value of the policy.

In addition to cash value buildup in the policy, some insurance companies may provide whole life insurance policyholders with dividend payments—due to lower expenses, lower mortality rates, and higher company investment results than were predicted when premiums were set.

Another whole life insurance feature is predictability of expense: premium amounts payable at policy inception will not change. The higher premium charged for a whole life policy helps to keep the premiums level over time, compared to the premiums for term insurance that increase as the insured ages.

A guarantee of insurability comes with any whole life insurance policy. Once the individual to be insured provides initial evidence of insurability—and as long as premium payment responsibilities are met—

the insured is guaranteed coverage for life, in accordance with the terms of the policy. Evidence of insurability will never be necessary again, as long as the original policy remains in force.

One final feature to consider is the value of whole life insurance as a “creditor,” if necessary. Funds may be borrowed against the cash value of the policy at any time. Loan approval must come from the insurer, but is generally fairly routine. No repayment schedule is set beyond regular payment of interest on the loan, with outstanding loan balances deducted from the death benefit in the event of the death of the insured. Thus, the loan ability of the policy should be used sparingly, with any loans paid off in a timely fashion.

There are numerous variations on whole life insurance as it was originally established. An exploration of which one best fits your needs may be in order. Let’s take a further look.

Term Insurance—Pure Protection for Your Dollar

As the name implies, term insurance provides pure insurance protection for a specific period—or “term”—of time. It does not generally offer any guarantee of premium stability or right of renewal. Nonrenewable, nonconvertible term insurance for one, five, or ten years probably provides the lowest cost protection available, and it is this cost factor that is its most beneficial feature for some individuals.

There are short-term and long-term policies that may provide for renewal, as well as for level premiums during the term (e.g., a 20-year renewable term policy). There are also “convertible” policies that allow the insured to convert the term coverage to some form of permanent insurance without proof of insurability. These features add to the overall cost of term insurance premiums, but may be of value to particular individuals.

In reviewing term insurance, ask the following questions:

• How much will premiums increase in future years should insurance coverage continue to be a necessity?

• What is the history of the insurance company regarding rate increases? Is there a “ceiling” on rate increases?

• Is renewability guaranteed? What are the renewal requirements?

• Are there discounts for annual vs. semi-annual premium payments?

• Are there non-smoker discounts, or reduced rate increases for showing good health over a set period of time?

• Are there large policy discounts for coverage above certain amounts, such as $100,000 or $250,000, or for aggregate coverage of a group of insureds?

• What are the rates for women vs. men?

Your Personal Life Insurance Needs

Once you have studied the available options, you need to view them in relation to your personal needs. You may seek an instant “estate” to provide for loved ones, financial obligations, and the fulfillment of your personal wishes in the event of your death. Your insurance professional can assist you in regularly reviewing your insurance coverage to help you determine if your current choices are helping you meet your short-term needs, as well as your long-term goals.

Women face unique financial challenges as they age. When compared with men, women live longer, earn less, and spend fewer years in the workforce. Financial concerns are often more acute for older women who are divorced, widowed, or otherwise single, as well as for those who have spent all or a significant portion of their adult years caring for children and other family members. Consequently, planning for long-term care (LTC) is an issue of particular importance.

LTC assists people, through various support services, with activities of daily living, such as dressing, bathing, eating, transferring, and toileting. If a woman has difficulty performing two or more of these activities due to physical limitations, cognitive impairment, or both, LTC may be needed. LTC services are provided in the community, in an assisted living facility, or in a nursing home.

Most people are unaware of the actual costs associated with LTC. For example, according to the American Association of Retired Persons (AARP, 2009), the average cost of a nursing home is $75,192 per year, and the average cost for assisted living is $2,968 per month. It is important to note that these figures are national averages. Actual costs vary widely from state to state. If cost of living is high an area, it is likely that costs for long-term care services will be well above the national average.

There are a number of reasons why it is important for women to plan for LTC.

First, women live longer. Back in 1900, women and men shared a similar life expectancy of about 47 years. Today, the longevity of both men and women has increased overall by 20 years, with the life expectancy for women generally five years longer than men. The U.S. Census Bureau (2009) reports that women represent 57% of those aged 65 and older, and 67% of those aged 85 and older. Unfortunately, with longer life comes an increased risk of health problems. In fact, the Administration on Aging (AoA, 2009) reports that women are twice as likely as men to live in a nursing home. They are also more likely to sustain a disability or be diagnosed with a chronic health condition.

Second, women often lack the resources necessary to fund the care needed later in life. According to the U.S. Department of Labor (DOL, 2009), the average woman in the U.S. who is employed full-time earns less than her male counterpart (80 cents for every dollar a man earned in 2007). In addition, women typically spend nearly 12 years out of the workforce while taking care of children or elderly parents. It is not uncommon for many women to spend years juggling family, professional, and caregiving responsibilities, and as a result, their income is disrupted, hindering their ability to save money or attain financial stability.

Finally, shorter careers and lower incomes often result in lower Social Security benefits. According to the Social Security Administration (SSA, 2009), the average annual Social Security income received by women 65 years and older was just $10,685 in 2007. Moreover, married women often don’t know that the benefits accrued by their husbands may be reduced if they are widowed or divorced. These factors put many women at high risk for poverty as they age, especially if they do not plan accordingly.

Many women think their children or other relatives will be there for them, should the need for LTC arise. But even if the willingness is there, the costs associated with caregiving often exceed the financial capabilities of the average family. And, if medical care is required, family members may not have the necessary skills to provide care. As you can see, the time has come for women to look toward the future and prepare for LTC.

The Insurance Alternative

The good news is there is an alternative. LTC insurance can help cover LTC expenses before you meet the strict requirements for Medicaid eligibility. Many policies cover the costs of nursing homes, assisted living/residential care facilities, adult day-care centers, and/or home care. The cost is typically based on your age, your current health, and specific policy features, such as scope of coverage, levels of care, and duration of benefits. LTC insurance is designed to help you maintain your independence and quality of life, while offering increased options for care.

Needless to say, it is difficult to prepare for the possibility that you may one day need LTC. While you don’t know what the future holds, planning today for an uncertain tomorrow may help preserve your assets, increase your options for care, and perhaps most importantly, bring you and your loved ones peace of mind.

In its simplest form, most people think of life insurance as a means of securing future financial obligations such as their mortgage, their child’s college education, and their family’s income, so it’s no wonder that the death benefit under a life insurance policy often is its most important and most easily understood feature.

However, not all policies are the same. With permanent life insurance policies, there is typically a cash value component. This means there may be some cash available to the policyowner that can be used to help supplement a number of financial objectives. In this respect, permanent insurance is said to have “living value” in addition to the traditional death benefit features of life insurance, which is why this type of policy may be an excellent addition to an existing savings program. Let’s take a  closer look.

A Few Interesting Facts

The cash value of a permanent life insurance policy accumulates on a tax-deferred basis in the same way that your money does in an Individual Retirement Account (IRA). Because of this tax-deferred accumulation, there may be some income taxes due upon withdrawal. However, you generally are taxed only on amounts that exceed your total investment in the policy—the total amount of premium payments you’ve made over the course of the policy’s existence. In addition, if cash values are withdrawn prior to attaining age 59½, a 10% federal income tax penalty for early withdrawals may be incurred. Loan interest rates are stated in the policy and are generally comparable with traditional lending rates. Bear in mind that any cash value that is not repaid will reduce the policy’s death benefit amount.

Another interesting aspect of a permanent life insurance policy is that, unlike with an IRA, you are not limited in making premium payments after age 70½, nor are there any rules that stipulate you must begin mandatory withdrawals of cash values by age 70½. This feature may provide an appealing opportunity to continue making premium payments while receiving the benefits of tax-deferred cash value accumulation.

There are few rules that limit the size of premium payments under a life insurance policy. Simply put, the higher the death benefit, the higher the premium. Some forms of permanent life insurance allow you to make premium payments in addition to what was stipulated under the terms of the policy. Often, paying additional premiums may increase the cash value. However, you have to be careful not to “overfund” a life insurance policy, because doing so can lead to some adverse tax consequences. Generally speaking, policies are issued to avoid this possibility altogether.

Finally, some permanent life insurance policies (e.g., variable life insurance) allow you to dictate the investment direction of the cash values. Typically, you are given a variety of funding options that span varying levels of risk. You have complete discretion as to how your premium dollars are allocated among the various funding options, and you can create a mix of funding options that is comparable to your risk tolerance and overall financial objectives. Keep in mind that these funding options are subject to market fluctuations, and a decline in the value of any funding options that you have selected may result in declining cash values.

Dual Purpose Protection

Life insurance serves many purposes. Through a death benefit, it helps protect and secure your family’s future in the event you suffer an untimely death. At the same time, life insurance with a cash value component may provide the opportunity to enjoy the benefits of accumulated assets during your lifetime. In this respect, life insurance can be a ready source of cash that can help supplement an array of financial needs. Your financial professional can help show you how permanent life insurance can fit into your overall financial plans.

       Roth IRA                    Traditional IRA

10% penalty for                      Yes*                                 Yes**

withdrawals prior

to age 59½

Tax-deductible                        No                                    Yes***

contributions

Tax-deferred                           Yes                                   Yes

accumulation

Tax-free                                  Yes                                    No

distribution

Mandatory minimum              No                                    Yes

withdrawals required

to start at age 70½

*Withdrawals after age 59½ may be taxable if the Roth IRA has not existed for at least five years. Penalty-free withdrawals can be taken due to death or disability, and for qualified first-time home purchases.

**Early withdrawals due to death or disability can be taken without penalty. Also, penalty-free withdrawals can be taken for qualified first-time home purchases, qualified higher education expenses, and if taken as substantially equal periodic payments (additional rules apply).

***Contributions to a traditional IRA are tax deductible up to certain limits.

A growing number of people are relying on annuities to add safety and tax-deferred growth to their personal savings. However, did you know that annuities may be a good fit in many other situations as well? With this in mind, here’s a general overview of these intriguing, and often misunderstood, savings options.

Fixed vs. Variable: The Choice is Yours

Annuities have long been recognized as a relatively conservative investment. However, today’s annuities offer investors much more flexibility, if they choose. For individuals requiring safety of principal and a guaranteed interest rate, the fixed annuity can be a prudent choice. A fixed annuity is fairly straightforward in that it offers a guaranteed fixed interest rate.

For investors seeking potentially higher returns, a variable annuity may be a more suitable addition to their portfolio. A variable annuity differs from its fixed sibling because it allows you, the investor, to determine how your premium payments will be invested. Typically, you are given a choice of several funding options, allowing you to custom-tailor your variable annuity to meet your own investment goals and objectives.

Deferred Annuity or Immediate Annuity? 

Annuities, both fixed and variable, are primarily structured in two forms—which adds to their flexibility. A deferred annuity accumulates tax-deferred earnings until a future time when it will be paid out. In theory, a deferred annuity is similar to a bank certificate of deposit (CD), with your money generally being returned with interest after a specified period of time.

An immediate annuity begins paying you (the annuitant) within the first year of purchase (usually in monthly installments). There are a wide array of income payout options, that may make immediate annuities particularly attractive to you if you are retiring and wish to convert your assets into a lifetime income. Generally, all annuities can be purchased using flexible payments or in a single lump sum.

An IRA Alternative

If you have become accustomed to the benefits of an Individual Retirement Account (IRA) you may also look favorably upon annuities. Although you cannot take a tax deduction for the money put into an annuity, your money does accumulate tax free until it is withdrawn. Unlike an IRA, there is no annual limit on the money that can be deposited.

Once you decide to take income from your annuity, there are many basic choices available, starting with: 1) receiving payments for the life of you (the annuitant) only; 2) providing payments to a survivor in the event of the death of the annuitant; or 3) receiving payments for a specified period of time.

The amount payable varies with the age and gender of the annuitant and the option selected. Although you may withdraw all or part of your annuity balance at any time, there may be a 10% federal income tax penalty incurred (as with IRAs) on interest withdrawn before age 59½, as well as other internal charges for early withdrawals (this can vary significantly from contract to contract).

The Exclusion Ratio

Annuity payments consist partly of a return of principal and partly of interest—the latter portion is taxable, the former is not. To determine the amount that is not taxable, an exclusion ratio must be established. The total amount you may exclude from income is limited to the total amount of your premium in the annuity contract.

When you reach the point where you have fully recovered your initial premium, the remaining payments are fully taxable. If payments cease prior to the date the premium has been recovered, the amount not recovered is allowed as a deduction to you for your last taxable year. It is worthwhile to consult with your tax professional so the exclusion ratio formula is properly determined.

Annuities can be an important part of your overall savings and income plan. Tax-deferred growth, along with the choice of either fixed or variable rates, makes annuities an investment worth considering. Whether you need to supplement your retirement savings, or have the need for guaranteed monthly income, an annuity contract can be a valuable addition to your overall savings plan.

Asset allocation is an investment management strategy that divides your investments among the major asset classes of equities (e.g., stocks or stock mutual funds), fixed income securities (e.g., bonds, bond mutual funds, CDs, or annuities), and money market instruments (e.g., cash or money market funds). Since these investment categories have unique characteristics, they rarely rise and fall at the same time. Therefore, a combination of these asset classes can help reduce risk and improve overall portfolio return.

On the other hand, diversification is a strategy that divides your investments among different securities or instruments within each asset allocation category. By diversifying your investments (among, say, five different mutual funds), you can further reduce risk.

A Key to Portfolio Success 

For many people, investing typically begins with one stock or one bond or one mutual fund. Over time, other selections are added to manage the risk associated with investing everything in a single security. However, just “spreading money around” in a haphazard way may create only an illusion of diversification.

If you have assembled a “hodgepodge” portfolio, it may be difficult to evaluate the extent to which your investments are (or are not) consistent with your objectives. How do you go about setting up a framework that tailors your investments to your particular circumstances?

Plotting Your Course 

A sound portfolio management strategy begins with asset allocation—that is, dividing your investments among the major asset categories of equities, bonds, and cash. Since each investment category has unique characteristics, they rarely rise or fall at the same time. Within each asset category you can make finer distinctions (i.e., diversify). Combining different asset classes can help reduce risk and improve the overall return of a portfolio. Still, two nagging questions remain: What factors guide the asset allocation process? How much of a portfolio should go into each category?

Getting to Know You. . .

To answer the first question, match the investment characteristics of the various investment categories to the most important aspects of your personal investment profile—that is, your tolerance for risk, your return and liquidity needs, and your time horizon.

Investing according to your risk tolerance will help keep you from abandoning your investment plan during times of market turbulence. For example, if you have a low tolerance for risk, you may emphasize conservative investments over those that offer potentially higher returns, but may involve a greater degree of risk.

Return refers to the income and/or growth you expect a portfolio to generate in order to meet your objectives. For example, retirees may prefer a portfolio that emphasizes current income, while younger investors may wish to concentrate on potential growth.

Your personal time horizon extends from when you implement an investment strategy until you need to begin withdrawing money from a portfolio. For example, a short time horizon (less than five years) is probably best served by a conservative portfolio emphasizing the protection of principal. On the other hand, the more time you have to invest, the greater risk you may be able to withstand because you have time to recover from market downturns.

Your Final Destination

 Asset allocation is more a personal process than a strategy based on a set formula. However, there are guidelines to help establish the general framework of a well-diversified portfolio. For example, you may decide on the need for growth in order to offset the erosion of purchasing power caused by inflation.

Building an investment portfolio that is right for you involves matching the risk-return tradeoffs of various asset classes to your unique investment profile. One final point that is worthy of emphasis: You should consider all your assets when you put together your own asset allocation strategy—this includes your investments and retirement savings. Doing so can help ensure that all your assets are working in accord to meet your goals and objectives.