Retirement Planning Blog

Is Suze Orman Off the Mark on Annuities?


Suze Orman is a household name for personal finance. She has published many financial books, and millions of listeners tune into her interviews and radio shows. If you have ever heard Suze talk about annuities, you may wonder whether her annuity opinions are on the mark or are a nothingburger.

Yes, opinions are subjective, but even the self-styled “Money Lady” gets it wrong on annuities, especially fixed index annuities. That does a disservice to retirees and those planning for retirement. Ultimately, it limits their options that could help them reach their financial goals: paying them reliable monthly income, giving protection against market risk, offering guaranteed growth above what various fixed-interest assets may earn, and providing other benefits.

Another issue with Orman’s anti-annuity stances is that they often capture only part of the picture of a specific annuity kind or feature. Just like other financial products, annuities come in many flavors, and each one has its own strengths and purpose.

In this article, we will focus on Suze Orman and her public statements on fixed index annuities — and how these opinions miss the mark on how the unique guarantees of these products can help people in retirement.

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FIFO vs. LIFO: How Does It Affect Your Financial Picture?


You may have heard of acronyms called “LIFO” and “FIFO” in financial discussions with your advisor or in some other circles. But what exactly do they mean?

LIFO means “Last-In, First-Out” – in other words, the gains or interest earnings in an account are distributed first and subject to taxes. FIFO means “First-In, First-Out,” referring to how your principal, or the original sum of money in the account, would be distributed first and would be taxed.  

While they aren’t common terms, LIFO and FIFO generally come up in discussions around retirement assets or other financial holdings. For example, non-qualified annuities are subject to LIFO for tax purposes, and both LIFO and FIFO can apply to stocks that someone owns, as another example.

This article will look at both FIFO and LIFO and explain the basics of how they work.

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Dividend Paying Whole Life Insurance: How Does It Work?


If you are exploring ways to protect your family’s financial well-being, you may have come across permanent life insurance as one option. Whole life insurance is a type of life insurance that millions of Americans own, and it has its strengths and downsides, just as other life insurance kinds do.

As a permanent life product, whole life insurance lets you build cash value. It also offers a guaranteed death benefit, predictable premium payments, and the possibility of dividends that can pay your premiums or provide you with cash.

In later times, you can borrow against the cash value or use it eventually to pay premiums and keep your policy in force. Among the best benefits of whole life insurance are the payment of dividends and the fact that any dividends you earn will most likely be tax-free.

Life insurance policies are either participating or non-participating. A participating policy pays dividends to policyholders. These policies are usually sold by mutual insurance companies (which are owned by policyholders). Non-participating policies don’t pay dividends.

In this article, we will go over some basics of dividend paying whole life insurance so you have a foundation about which you can ask your financial professional for more information.

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How Does a 401(a) Plan Work?


Do you have a 401(a) plan at work for saving for retirement? What is it, and how does it work?

401(a) plans are a type of retirement savings plan that offer tax-advantaged growth potential for those who use the plan. In this guide, we will explain how 401(a) plans work and some other essential details that are good to know.

We will also answer some typical questions about 401(a) plans that people often have. So, if you are looking to learn more about a 401(a) plan and how you might be able to take advantage of it with your employer, then read on!

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25x Retirement Rule: How Does It Work?


You may be familiar with the Rule of 25x as a method for estimating how much you will need to save for your retirement. But most of us don’t really know what the Rule of 25x is or how it works. Is it still useful in today’s retirement world? 

At its simplest, the Rule of 25x says, if you save 25 times what you would like your annual income in retirement to be, that sum could last for 30 years.

As with every retirement rule, whether it’s the three-legged stool for retirement income or the Rule of 120, the Rule of 25x is imperfect. It’s good to remember these imperfections when using the Rule of 25x for planning your retirement.

This article will examine how the Rule of 25x works, some of its problems, and alternative ways that you can work to ensure that you will have enough lifelong income in retirement.

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What Is a Cap Rate and How Does It Work in an Annuity?


An annuity cap rate is the uppermost limit on how much a fixed index annuity can grow in value for a certain timespan. The fixed index annuity earns interest based on a benchmark index. When the benchmark index goes up in value, the annuity is credited interest based on a portion of that growth. When the benchmark index falls in value, the annuity is simply credited nothing for that period, and the principal and previous interest earnings stay intact.

The interest credited to an annuity can’t go any higher than the cap rate. Among fixed-type annuities, a fixed index annuity is generally the only kind of annuity that has cap rates. A cap rate is also known as a ‘cap’ in financial circles.

Many retirement savers like fixed index annuities for their growth potential while having principal protection for their money. But in exchange for that protection, that growth potential can be limited by other ways than just caps: participation rates and spreads.

In this article, we will cover annuity cap rates in more detail – and briefly touch on spreads and participation rates, since they also serve as growth limitations for annuities.

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What Is the Participation Rate in an Annuity?


In a nutshell, the participation rate in an annuity is the portion of the gain in a fixed index annuity that you will be credited with. Your annuity will be credited that portion as interest. Fixed index annuities have benchmark index options into which you can put money so that it can earn interest.

Generally, a fixed index annuity is the only kind of fixed-type annuity that will have participation rates. In this article, we will discuss participation rates in an annuity and how they work.

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24 Retirement Planning Mistakes That Cost You Big Time


When it comes to saving and planning for retirement, there are several mistakes that can be made along the way. To avoid those crucial errors and set the groundwork for a secure retirement, it’s good to think about the future, plan ahead, and check that your financial goals are well-grounded.

To that end, keep in mind these twenty-four common retirement planning mistakes. While this isn’t an exhaustive list, it’s a good starting point, whether your “sayonara” to the workplace is on the horizon or you still have some years to go.

We will go into each of these frequent mistakes in more detail, but here is a quick sum-up:

  1. Having no retirement plan
  2. Not calculating how much you will need to retire
  3. Not knowing how much retirement income you will need
  4. Not taking full advantage of retirement plans and accounts
  5. Failing to capitalize on an employer match
  6. Not increasing retirement savings after a pay raise
  7. Neglecting to do annual reviews on your financial progress
  8. Not regularly checking beneficiaries on retirement accounts
  9. Raiding your qualified retirement plan early
  10. Cashing out your retirement accounts
  11. Underestimating how long retirement might last and its cost
  12. Failing to shift to a more conservative approach near retirement
  13. Not talking with your spouse about your personal retirement goals
  14. Thinking about retirement only in financial terms
  15. Not calculating required minimum distributions
  16. Not planning for taxes in retirement
  17. Taking Social Security too early (if not right for your situation)
  18. Forgetting about inflation in retirement
  19. Assuming you won’t work in retirement
  20. Thinking that you might be able to work for all of retirement
  21. Failing to account for retirement healthcare costs
  22. Starting retirement planning way too late
  23. Despairing because you started late
  24. Retiring too early

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Is Dave Ramsey Wrong on Annuities?


Among financial pundits today, Dave Ramsey certainly has a large following and has helped people with various areas of personal finance, such as getting out of debt. Millions tune into his radio show. That being said, Ramsey has very strong opinions on annuities. The question is whether his anti-annuity stances are on the mark.

While opinions are subjective, Dave Ramsey has been incorrect on the facts of annuities that he discusses on occasion on his show. In some cases, the inaccuracy has been notable.

For retirees needing a guaranteed lifetime income stream, guaranteed growth above what bonds or other fixed-interest assets offer, and other guaranteed benefits from an annuity for their goals, it’s a huge disservice to completely disregard these options as part of a retirement strategy. Just as millions of listeners turn to Ramsey for how to get out of debt, millions of people have benefited from having an annuity in their retirement financial plan.

One issue with Ramsey’s annuity positions is that annuities come in all sorts of flavors, just as mutual funds do. Each type of annuity has different strengths, downsides, and benefits in what they can offer. It’s a straw-man argument to group them all together as being the same.

While this isn’t meant to be exhaustive, here are a few instances where Dave has it wrong on annuities — especially fixed index annuities — and how keeping annuities as a serious consideration in retirement planning is better for the public.

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What Happens to an Annuity if the Stock Market Crashes?


Nobody can ever predict what the stock market will do in the future. If you have an annuity or are thinking about getting one, what can happen to your annuity if the stock market crashes? Will the market downturn impact your annuity? The short answer is that it depends on the type of annuity that you have. Other factors can come into play as well.

In this article, we will cover what can happen to your annuity when the stock market crashes. Keep in mind the five primary annuity types as you read this guide on annuities and market crashes: immediate annuities, fixed annuities, multi-year guarantee annuities (MYGAs), fixed index annuities, and variable annuities. As you will see, only the last two types of annuities can be affected by a stock market crash.

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