July 29, 2013

Inundated with low interest environment & healthcare reform?

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Lots and lots of things are going on in our world today. These two topics – low interest & health care reform – seem to dominate media focus. Let’s shed some additional light on these two topics.

We’ve been in a generally declining interest rate environment for most of the past decade. The last few years may have produced record low interest rates. These low interest rates are not an accident. They have been shaped by the Federal Reserve to help consumers borrow money more cheaply, with the hope that it will help spur the economy after the financial crisis of 2008. Unfortunately, low rates don’t just benefit borrowers. They also affect savers. Interest rates from savings accounts, bank CDs and bonds remain at near record lows. Today’s Bankrate.com showed the average yield on a 1-year CD was just 1 percent or less. Savings accounts yields are at almost 0 percent.

Some people renew their maturing CDs because they believe they have no other viable option, due to current conditions. There are other alternatives. Fixed index annuities provide minimum guarantees and interest potential not available elsewhere. There are pros and cons to any savings strategy. Compare these features of annuities with bank CDs:

• Long term insurance contract designed for retirement planning.
• Guarantees based on the financial strength and claims paying ability of the issuing Insurance company.
• Provide a death benefit & include mortality costs.
• Earnings accumulate tax-deferred and are not treated as taxable income until withdrawn.
• Early withdrawls & other distributions of taxable amounts may be subject to ordinary income tax, surrender charge and if taken prior to age 59 ? penalty tax applies unless an exception exists.

Bank CDs:
• Issued by a bank and typically used for shorter term goals.
• FDIC insured up to the applicable limits and offer a fixed rate of return.
• Do not pay a death benefit.
• Earnings are taxable in the year earned.
• Early withdrawals may be subject to interest penalties.

If a fixed index annuity is suitable for your needs, it could be a very viable alternative in today’s low interest world. Further combing the fixed index annuity with an immediate annuity as in a ‘split’ annuity may help the low yield problem.

On our other topic – health care reform, the media blitz on the health insurance market place is just beginning. The health insurance exchanges created by the Affordable Care Act are going to up and running by October 1. The website www.healthcare.gov provides a wealth of information on these exchanges. The term ‘exchange’ will be replaced by the term ‘health insurance marketplace.’ There will be much more to come on this detailed and complex law. Information and facts are available. See our ad below.