If you look at your most recent social security statement, on the front page, right hand column, there is a paragragh that reads:  “In 2016 we will begin paying more in benefits than we collect in taxes.  Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for every dollar of scheduled benefits.  We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.”

However, changes could be made to the program that could put Social Security on firmer financial ground for at least 75 more years, according to a U.S. Senate Special Committee on Aging report released in May. Potential fixes currently being considered by Congress include tax increases, benefit cuts, and pushing back the retirement age.  While none of these options are great, I guess they wouldn’t be the end of the world. 

The bottom line is, you need to make sure that you’re not counting on Social Security as your ONLY source of retirement income.  As you do your financial planning for retirement income, plan on getting a portion of what your Social Security statement says you’ll get.  That way, if you get more, it will be a nice surprise.  Saving more for retirement and setting up multiple sources of income will help secure a solid financial future for yourself and your family.  My “Income For Life” post is a good one for more information on this topic.

The instability of the Social Security system makes all of us think a lot harder about other ways that we can provide ourselves with safe, lifetime streams of income.  We have to rely less on money that will come from the government, and more on our own planning and savings.  Fortunately, there are many investment vehicles available today that allow us to secure a long and stress-free retirement.  I recently helped a client do just this with part of his IRA.

The particular vehicle that we used was a fixed index annuity with an income rider issued by a very stable and well rated insurance company.  These types of fixed annuities are very different from the traditional pension-type annuity that most people think of.  Fixed index annuities are designed to grow and accumulate money on a tax-deferred basis.  At some point in the future, determined by the investor, these annuities can be converted into a stream of retirement income.  These annuities pay interest each year based  on how a stock index performs.  However, one of the big benefits of them are that in years when the market goes down, you don’t lose anything.  The trade off is in years when the market is up, your returns are capped at a certain level.  Here are some of the basic features of this annuity:

• You earn an up-front 8% bonus on your premium
• Any indexed interest is locked in once a year, and can never be lost due to market declines
• Your income account value earns a guaranteed 7.2% compound interest per year for the first 20 years (this means it will double every 10 years!)
• You can start taking lifetime guaranteed income at any time
• You can stop taking the income at any time
• If you become confined to a nursing home, your income amount DOUBLES for the rest of your life
• When you pass away, your beneficiaries would get whatever amount is left in your accumulation account.

This annuity provides a very safe, guaranteed source of income that will last as long as you live.  The longer you wait to start taking the income, the higher your withdrawal percentage will be.  And the Confinement Income Doubler Benefit offers a great way to protect yourself from the high costs of long-term care, without the hassle of buying traditional long-term care insurance.  No matter how long you live, the income will never stop or be reduced.  But if you pass away early and there is still money left in the annuity, your beneficiaries would receive it.

In planning for retirement income, diversification is still the key.  Just as you would never invest all of your money into one stock or one mutual fund, you don’t want to have all of your retirement income coming from one source.  The more you can diversify your retirement income sources, the better.  Having income from a pension, social security, dividends, rental properties, annuities, bonds, etc. is a good idea.

Fixed index annuities can have many variations and moving parts, and some are better than others.  We can help you evaluate the world of fixed and variable annuities to help you understand all the details and find the best one for your situation.  If you would like to find out if an annuity makes sense for part of your retirement income plan, please call us at 1-866-983-4222.  We offer free consultations to help investors evaluate their entire situations and find solutions that work.

With an HSA Qualified plan, you have a higher deductible that must be met each year BEFORE the insurance company will cover anything.  In many cases, once you meet this deductible, all of your healthcare expenses thereafter are covered at 100%.  So if an employee can set aside enough money to meet that deductible, they will be just fine.

There is a great tax benefit here in that you can set aside money pre-tax into a “Health Savings Account” (HSA) that can be used to meet your deductible.  The money in the HSA account grows tax free, and can be rolled forward to future tax years.  In other words, it’s NOT a use-it-or-lose-it type of account.  This allows you to build up a tax-free savings account that can be used for healthcare related costs down the road.  Many banks now offer HSA type accounts, and there are also several providers who specialize in these types of accounts.  Many of them will allow you to invest part of the money into mutual funds for longer term growth as well!

These plans can also be purchased by individuals and families who don’t have group insurance available to them.

The Caution

If you’re going to opt for this type of plan, you need to make sure you set aside money into an HSA savings account to help you pay for your medical costs.  If your deductible is $5000, you’re going to have to pay the first $5000 worth of medical expenses out of your own pocket each year (including doctor’s office visits, medications, etc.).  If you don’t do this, you risk putting yourself into debt to pay for medical expenses, and that is never good.

Here is a news story that one of the TV stations here in Charlotte ran this week on these types of plans… 

“WSOC Channel 9 HSA Qualified Health Plans.”  Please don’t laugh too hard at the goofy guy in the brown suit!