By Lowell Ponte
Every day 10,000 Baby Boomers reach age 65, and this will continue until 2029. Many need to protect their life savings and prepare for retirement.
Boomers expected a comfortable retirement, but for many the autumn of life seems to be going another way. Private sector pensions enjoyed by 39 percent of their parents will now provide retirement income for only about 15 percent of Boomers. Their American Dream nest egg in the form of a home with an ever-increasing price went bust in the economic crash of 2008-2009, which initially destroyed up to 40 percent of family net worth.
The government and Federal Reserve have pressured banks to pay less to depositors in interest than the rate of inflation, a policy economists call “financial repression.” This forces savers either to lose purchasing power or to move their money out of safe accounts and into the stock market casino, a gamble that could burst like a risky bubble.
Many are now thinking of betting their futures on annuities, which, in our latest free White Paper The Annuity Trap, monetary expert Craig R. Smith and I describe as “the oldest, trickiest and stickiest of financial snares.”
Annuities, which “guarantee” to provide regular money in exchange for a lump sum payment, were sold in ancient Rome. The medieval church and Renaissance kings sold them to raise money because annuities are very lucrative – for those who sell them.
After 2,000 years, annuity contracts have refined how to squeeze cash out of customers. If you buy the wrong kind of annuity and soon die, your family might lose much, or even all, of the money you invested. (If this sounds familiar, it is because Social Security, which by law guarantees you nothing, is modeled on annuities.)
If you change your mind and try to leave after buying an annuity, you may have to pay a “surrender charge” of as much as 20 percent of what you paid, and you could be required to pay such a charge for up to 15 years. If annuities are such a good deal, why do insurance companies use a confiscatory penalty to keep buyers from leaving? It’s like a man who invites a woman to dinner, then padlocks the doors so she cannot escape.
Annuities come not from banks, but from insurance companies and are not backed by any federal entity such as the Federal Deposit Insurance Corporation (FDIC). One of the world’s biggest insurance companies and sellers of annuities, the American International Group (AIG), was bailed out in 2008 by the Federal Government to keep it from going under. The rating services that give top grades to insurance companies today are the same ones that back then led pundits to call AIG “safer than the U.S. government.”
Annuities come in three basic types. Fixed annuities promise to pay a fixed amount during the life of a retiree, but inflation can destroy a fixed payment’s purchasing power. Variable annuities are mutual funds inside an insurance policy, but the ups and downs of what they pay, as well as fees, restricted profits, and tax problems make them less profitable than simply owning a mutual fund or stocks directly. Indexed annuities tie payments to an index such as the Standard & Poor’s 500, but with very complicated limitations; Kiplinger calls this “an annuity you really should avoid.”
Even if annuities worked as buyers hope – and few do – buyers are still at risk of losing control of their savings, of being caught in “the Annuity Trap.” Soaring inflation, rising taxes, and government confiscation to pay for a swelling welfare state can also devour their investment. An annuity cannot guarantee security or a retirement free from life-shortening stress and worry.
People are right to be afraid, and to seek security; the signs that things are coming apart are all around us. But the way to “insure” your portfolio is to escape promissory paper, including paper money that politicians can confiscate via inflation. People would be wise to convert a portion of their savings into the universal store of value, gold. Baby Boomers need to act decisively to provide true security for their golden years.
To schedule a fascinating interview with Lowell Ponte, contact: Sandy Frazier at 516-735-5468 or email firstname.lastname@example.org.
For a free copy of the White Paper The Annuity Trap, contact: David Bradshaw at 602-918-3296 or email him at email@example.com