Farm Horizons, June 2012

The greatest product you’ve never heard of

Submitted by Brian Wolf, Wolf Tax and Financial Group

Recently, I wrote a newspaper column about “getting rich quick,” and although getting rich quickly is possible, it’s just not very likely. So, if you give up on the “get rich quick” ideas, what are you left with? Most people think of investment choices in these terms; risk = higher returns and safety = low returns.

If these were the only choices, you might have to make the hard decision of how much money can you afford to put at risk, or how much you can afford to get little return on. Either choice leaves the investor completely frustrated. There is, however, an alternative. What if you could purchase a product that was guaranteed safe by an insurance company, and backed up even further by The Minnesota Guarantee Association? This product has been called many things; a fixed indexed annuity, equity indexed annuities, pension annuities, or even hybrid annuities.

The main thing to realize is that no matter what they call it, it’s a guaranteed safe product issued by an insurance company. And when I say safe, I mean that the company backs up the product’s benefits and features, the most notable being that the policyholder will never lose any of their invested principal.

So far, you might be thinking, big deal, I can get that feature at any local bank. However, this is where it gets more interesting. Not only will they guarantee the principal, but you have an option to take a fixed interest rate or you can link the policy to an index like the S&P 500 in order to potentially receive double- digit gains in years that the market goes up. Not that double-digit gains are by any means the norm, but it certainly happens sometimes. This will answer the question of, “Is there any place to put your money where you could get double-digit gains, but not have any of your principal at risk?”

This special product has been around now for nearly 20 years, and millions of people have taken advantage of these products. The latest and greatest feature is that you can now put an income rider onto these products that will also guarantee an income value growth, as well as a guaranteed income for life feature. For example; let’s say there was a product that was completely safe and was guaranteed to grow at 8 percent compounded annually. Doesn’t that sound too good to be true?

Well, not only are these products approved for sale by the Minnesota Department of Insurance, but they are also what I call a win-win scenario. The customer wins, and the insurance company wins.

OK, so what’s the catch? The catch is that you don’t want this product if you need 100 percent liquidity with your money. All of these income riders are designed to solve long-term income needs. That doesn’t mean you can’t get at your money, it just means that if you take out too much, too soon, you may have a surrender penalty of some kind. Typically, retirees will have money that they need for today, and then other money that they will spend later in life. The later-in-life money is what works best for this kind of product. After all, if an insurance company will give you a guaranteed, 8 percent compounded growth, why would you want to take money out right away anyway?

At this point, you probably have a lot of questions, or you’re thinking that this is just some kind of a “fly-by-night” scam product because it sounds too good to be true. There certainly are a lot more details that you would need to be aware of, but this is a totally legitimate product that millions of people own right now.

So, you may want to ask yourself, if it’s offered by the biggest insurance companies in the world and millions of people own this product with and without the income riders attached and every State Insurance Department has approved it for sale, why wouldn’t you want to take a closer look at it? I generally don’t get too excited about products, because there’s no such thing as the perfect product; however, for many people, this comes pretty darn close. I remember when I first found out that someone combined vanilla, chocolate, and strawberry ice cream all in one container and I thought it was just too good to be true! Yes, this product and income riders have restrictions, but many people feel that the restrictions are a small deal when you consider the long-term benefits. Knowing that your money is guaranteed safe, growing at a very nice interest rate, and whenever you want you can turn on an income for life, without having to annuitize and lose control of your money, is just a really cool product. Oh yeah . . . I’ll take me three big scoops of that!

To learn more about these products, give me a call at Wolf Tax & Financial Group.

Guarantees are based on the claims-paying ability of the issuing company. Information and descriptions of products and services are provided solely for general informational purposes and are not intended to be complete descriptions. Policies contain exclusions, limitations, and restrictions. For complete details of limitations and restrictions, the actual policy should be consulted.

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