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Retired Investors Alert: Cutting Through the Fog of Annuities

Retired Investors Alert: Cutting Through the Fog of Annuities

if there is anything that we should have learned from recent full-blown financial crises this century, it is that we need to be extra-cautious about financial products that: a) make extravagant claims that seem too good to be true, and, b) are sold by agents receiving huge commissions.

In the case of annuities, both a) and b) are true, which is precisely why the retiree hoping to spend his or her golden years with a healthy bank balance should proceed with extreme prudence when considering these options for their retirement savings, says Retirement Wealth Specialist Jeff Voudrie, president of Common Sense Advisors.

Voudrie has spent the past several years warning his clients and the general public about numerous annuity features that could spell big trouble for naïve investors. “Insurance companies legally have to give you all the facts,” he says, “but they deliberately make it so complex that even educated, savvy investors can’t figure out what’s really happening.”

The force with which these products are being pushed has alarmed Retirement Wealth Specialist Voudrie and other financial experts. “Annuities are being heavily promoted by advisors/agents on television, the radio and in seminars across the country. I’ve heard that some retirees are receiving 5-10 dinner seminar invitations a week,” he notes.

Despite this abundant pressure to buy annuities, not all investors are taking the juicy bait of signing bonuses and “guaranteed income.” Perhaps many of those who refuse to buy annuities have read one of Voudrie’s many publications detailing their dangers.

As an article in Money said of annuities: “People love them in concept, but they aren’t nearly as enthusiastic when it comes to actually buying these insurance products, which are the only investments that can provide guaranteed income for life. For example, a recent survey by the Insured Retirement Institute and Jackson National Life Insurance Company found that while more than 90% of people 65 and older said they were very or somewhat interested in lifetime income, only one in four planned to buy an annuity.”

“That reluctance is understandable,” the article continued, “There are plenty of valid reasons to be wary of annuities, as many can be mind-numbingly complex and laden with onerous fees to boot.

Voudrie has long unpacked the complexities of annuities and usually urges the public to steer clear of them, noting, “The insurance companies don’t stay in business by giving money away. So, if you do get a bonus for signing up, you can bet your bottom dollar there are higher and longer surrender periods, and the annual fees are higher.”

He especially hates to see retirees with little margin for error fall for bonuses to sign, then have fees and surrender penalties rapidly “explained” in the slick presentations of agents. “So the insurance company gives you an upfront bonus—but then it takes that much and more back over time,” he says. “I talked to someone who only thought they paid 1% a year in fees because that’s what the agent told her. Yet, those fees would easily total 3-4% a year.”

In addition to signing bonuses and hidden fees, the sureness of “guaranteed” returns should also be plumbed for specifics, Voudrie cautions. “Do you realize you are not guaranteed a 7% minimum return each year? In the vast majority of cases, what you will earn is almost completely dependent on the stock market.”

    The guaranteed return will come to fruition if a host of factors fall perfectly into place, including:

  • Healthy stock market gains throughout the life span of the annuity
  • The annuity owner lives throughout the contribution and dispersal phase (20 years after signing, on average)
  • Owner does not withdraw early or take a lump sum at any time

As an insightful Kiplinger article detailed: “Variable annuities and fixed-index annuities introduce higher fees and complicated formulas that many investors don’t understand. And some salespeople take advantage of the complexity, focusing on the benefits while glossing over the fees, surrender charges and complicated rules that can limit access to the guarantees.”
[1] retrieved 1/12/18. http://time.com/money/4955118/is-guaranteed-income-for-life-the-right-option-for-you

“One of the challenges is that there are an awful lot of guarantees that come with big asterisks that are never fully explained,” chimes in Tim Maurer, a certified financial planner and author of Simple Money. “You have principal protection or high-water-mark protection, but the only way you can take advantage of that is if it’s paid out over the course of many years, and that, to me, is not a real level of assurance,” he adds.

Kimberly Lankford, a Kiplinger editor, echoes Voudrie’s and Maurer’s caution: “Not only that, but you can’t access your benefit base as a lump sum; if you cash out your annuity, you’ll only get your actual investment value.”
In summary, Voudrie urges everyone considering the purchase of an annuity to understand clearly how annuities work, especially the contrast between their actual value and hypothetical value if the stock market performs robustly over the course of the annuity. He also counsels retirees to have all fees detailed to them, as well as how they can exactly receive a lifetime income at the level the annuity promises.

“There is a tremendous gap between how investors think these products work and how they actually work,” he observes. “Insurance companies and agents aren’t lying, but neither are they going to great lengths to make sure you understand. There are millions of investors that have purchased these under false pretenses that will live to regret it.

“Hopefully,” he concludes, “you aren’t one of them.”
Have a question or comment? Contact Jeff at
Jeff@Commonsenseadvisors.com.

Jeff Voudrie, a financial planner and money manager in Johnson City, TN has been interviewed by The Wall Street Journal, CBS MarketWatch, The London Financial Times and the Christian Science Monitor. He is a former syndicated newspaper columnist and the author of two ground-breaking books: How Successful Investors Tripled the Return of the S&P 500 and Why Variable Annuities Don’t Work the Way You Think They Work
He accepts a limited number of new clients in his personal investments management practice. He and his wife Julie live with their seven children in Johnson City, TN. He is
[2]https://www.kiplinger.com/article/retirement/T003-C000-S002-variable-annuities-guaranteed-income-with-a-catch.html.
heavily involved in his local church and has done missionary work in Hungary and Cambodia.

Retirement Wealth Specialist Jeff Voudrie| The Bernie Madoff Of Annuities

Retirement Wealth Specialist Jeff Voudrie| The Bernie Madoff Of Annuities

The salesperson is a trusted acquaintance. The office is comfortable and you are excited about finally making a decision regarding your nest egg. Then, your mood improves even more when you hear the words, “7% return on investment each year.”

“Where do I sign?” “Not so fast, my friend,” warns annuity expert Jeff Voudrie, president of Common Sense Advisors.

One of the core beliefs of people that invested with Bernie Madoff was that somehow, some way, they would always see a positive return on their investment no matter how the markets performed. Looking back, it’s hard to believe that so many intelligent people believed in the phony wizardry of Mr. Madoff.

Annuities are similar, says Voudrie, because the language in the documents explaining them seem to promise robust returns irrespective of the markets’ performance. And, like the promises that Madoff made to his clients, the illusion of large returns in annuities are nearly impossible, Voudrie adds. “Most of the purchasers wouldn’t have bought these products if they’d known the truth, that in the vast majority of cases, what they earn is almost completely dependent on the stock market.”

People who sign over their precious life savings for annuities should be completely informed about the actual conditions of those annuities, Voudrie cautions, for several reasons:
Insurance companies are offering large bonuses to salespeople who successfully lure investors with their annuity pitches
Once you sign on the dotted line, you release the salesperson of all liability, including his or her failure to explain the disclaimers and fine print on your new agreement
No annuity can be separated from market performance. “Guaranteed returns” have all sorts of conditions that should give any wise investor pause.

In his extensive reporting on annuities, which has earned him widespread vitriol from various insurance companies (coupled with abundant thanks from savvy retirees!), Voudrie has repeatedly spelled out the huge risks of investing in a typical annuity.

Think of an annuity as a machine with many moving parts, all influencing the amount of money that you can hope to receive from it. Blanket terms such as “guaranteed returns” and “income for life” do nothing to explain the many levers that determine an annuity’s eventual value. Voudrie has broken down the gears within an annuity machine by focusing on three parts:
1. Actual value of the annuity
2. Virtual value of the annuity
3. Value of the annuity when distribution begins

Regarding the actual value of the annuity–the most important aspect of your investment–he shares these facts:
There is no automatic, guaranteed increase to this value
It rises and falls based on the performance of the stock or bond subaccounts you’ve selected—just like a mutual fund
It rises only if there are true underlying gains on investment AFTER management fees are deducted
It can decrease to zero in light of market losses and withdrawals, as with a mutual fund or brokerage account
It is not an indicator of how much you would receive if you cashed in the policy because surrender penalties are not yet subtracted

Two key numbers you should verify before buying an annuity, therefore, are management fees and surrender penalties. If you are fine with ongoing annual management fees of 3-4% and the amount of your surrender penalty, then perhaps you will want to continue with your purchase. Keep in mind, though, that the only reason there is a surrender penalty is so that the insurance company can recoup the commission they paid the insurance agent either through higher ongoing management fees if you own your annuity for years or with the surrender penalty if you surrender it.

Another round of facts that you should consider are those that focus on the second lever in the annuity machine: the virtual value of the annuity. Voudrie alerts:
This value increases during the accumulation period only of your annuity
It is the amount used in lifetime income payment calculations
You will receive this higher value only if you meet certain conditions, such as: not cashing in early or remaining alive during the entire accumulation phase
Your beneficiaries will not receive this greater amount if you pass away during the distribution phase

So what is the use of this virtual value, the amount consistently touted by the salesperson? It has little relevance, Voudrie advises. “When do you get the make-believe bucket balance?” he asks, “Likely never. The only way you EVER get the full make-believe bucket balance is if you live long enough that your annual payments exceed the bucket balance. Whether or not your guarantee has any benefit to you depends on your ability to live longer than the money in the real bucket lasts.”

As for the third moving part in the annuity machine, the value when distribution begins, Voudrie offers more sobering tips: “The only time your ‘income guarantee’ comes into play is if you live beyond that point when your principal and gains run out. You can read in the fine print: ‘The income base is the amount on which guaranteed withdrawals are based; it is not a liquidation value nor is it available as a lump sum.’” In layman’s terms, “The virtual value of the annuity won’t ever be available as a lump sum, and remember, it stops increasing the day you start taking income.”

Given these caveats, Voudrie has written a publication called How 7% Annuity Income Guarantees Create a False Sense of Security and Threaten to Leave Tens of Thousands of Retirees Disappointed and Stranded. These “guarantees” are, in a word, Madoffian.

That could be why Sen. Elizabeth Warren (D-Mass.) released an investigation of the annuities business that discovered 13 of 15 insurers her office contacted “offered salespeople perks and kickbacks—including expensive vacations and other prizes—to push their products. Such incentives create conflicts of interest, Warren warns. Plus, sellers earn commissions that can be 7% of more of your investment.”1

The old saw about “anything that seems too good to be true, probably is” fits annuity promises in the huge majority of scenarios. No wonder salespeople are offered huge incentives to push them.

Please comment or share your queries and feedback here, ​I’m always happy to answer your questions.

[1] Retrieved 1/10/18 from https://www.kiplinger.com/article/retirement/T003-C000-S002-variable-annuities-guaranteed-income-with-a-catch.html

Retired Investors Most At Risk Using Buy And Hold ‘Strategy’

Retired Investors Most At Risk Using Buy And Hold ‘Strategy’

Retired Investors Most At Risk Using Buy-And-Hold ‘Strategy’. When it comes time to place your hard-earned savings into a retirement account, the formerly sage advice of “buy-and-hold” may sound appealing. But you had better make sure that you agree with that school of thought in investing because the majority of investment advisors will follow that outdated strategy

The reason why “buy-and-hold” no longer works is because the U.S. economy has experienced two significant, damaging recessions in the past two decades, one from which we are still recovering. Those who have innocently entrusted their money to buy-and-hold proponents have, at worst, lost a huge chunk of their nest egg or, at best, barely broken even or slightly up.

Is that really what you want to do with your savings as you approach the Golden Years?
Buy-and-hold, when it does benefit investors, overwhelmingly favors those who are younger in their careers (age 25-45), points out Jeff Voudrie, president of Common Sense Advisors Those workers are putting money aside on a regular basis, out of each paycheck, so that when the markets go down they are able to buy more shares. “Those in this age range have such long horizons before they need to start drawing out for retirement income,” Voudrie notes, “that they can wait out a significant downturn.”

But for those sliding into the retirement age range, buy-and-hold can prove disastrous, he adds. “Those that are closer to retirement, say 55 years old, don’t have the time to overcome significant downturns. Volatility is something that most retirees want to avoid. Buy-and-hold guarantees that they will experience every ounce of volatility.”

Take, for example, one period of market turmoil over 15 months from 2009-11. Figures show that retirees who moved their money to cash and other safe assets actually did better than those who continued to buy and own stocks. The Congressional Budget Office reported that retirees lost more than $2 trillion during this short period

[1] Brandon, Emily. “Retirement Savers Lost $2 Trillion in Stock Market.” U.S News & World Report. https://money.usnews.com/money/blogs/planning-to-retire/2008/10/08/retirement-savers-lost-2-trillion-in-the-stock-market

Researchers and journalists agree on the peril of a buy-and-hold strategy when the bottom drops out of the market. As Emily Brandon reported in U.S. News & World Report, “Older workers’ average account balances are markedly higher, so they have more to lose in a significant downturn and less time to recoup losses before retirement.”

And, if you suppose that 2008 losses have been replaced during the current market upswing, you would be mistaken. Teresa Ghilarducci reported in The Atlantic that huge numbers of older workers have not recouped their losses in their 401(k) accounts in the decade after 2008. “We thought that this group of people would be relatively able to come back from the crash, but we found that the averages, as they often do, have hid some of the substantial differences between individual workers. These averages distorted the risks people are exposed to when their retirement accounts are tied to volatile financial markets, depend on employer contributions, and require people to maintain or increase their contributions themselves,” she wrote.

“The way American retirement accounts are set up suggests that an increasing number of workers, including those squarely in the middle class, will experience downward mobility in retirement,” she continued, “If current trends continue between 2013 and 2022, the number of poor or near-poor 65-year-olds will increase by 146 percent. These numbers are unlikely to change as long as retirement accounts are exposed to the fluctuations of financial markets and their uneven recoveries.”

To further prove his point about the hazards of buy-and-hold, Voudrie offers a quick analysis of the Investment Company of America (ICA), one of the most widely owned mutual funds, often recommended by Edward Jones and other prominent firms that still adhere to the buy-and-hold approach.
This behemoth, listed as AIVSX, hit a high of $33.63 on June 2, 2000. Approximately 16 months later, on October 4, 2002, it drooped to $21.81, a(retrieved 12/10/2017).

[2] Ibid.

[3] Ghilarducci, Teresa. “The Recession Hurt Americans’ Retirement Accounts More Than Anybody Knew.” The Atlantic. https://www.theatlantic.com/business/archive/2015/10/the-recession-hurt-americans-retirement-accounts-more-than-everyone-thought/410791/, (retrieved 12/10/2017).

stunning 35% decline. If you were a retiree during that time and wanting to draw on your retirement account, you would have seen more than 1/3 of your savings evaporate.

It took another four years for AIVSX to recover to 2000 levels. On May 5, 2006, it rose again to $33.77 per share. In the intervening years, AIVSX shareholders probably hated seeing any stock reports as the value plummeted then creeped up again, and after all the turmoil they ended up with an overall return of exactly 0%–and a huge bill for antacids.

Regrettably, that was not the end of the ride! AIVSX again creeped up in 2007, hitting $37.10 on October 12. Whoops! By March 6, 2009, it had plummeted to $16.73 per share, a mindblowing drop of 55% that was so painful that many sold at the bottom and never invested in the stock market again. And again, it took four years to regain that enormous loss. It wasn’t until October 2013 that AIVSX again crept above $37.

The end result for buy-and-hold account “managers” who have no strong incentive to protect you from such downturns? S/he could report to you 13 years later that you had earned exactly 0% on your money invested in 2000. And, by the way, please note the total fees charged.

This is why Voudrie argues for money management that anticipates downturns and protects the investor from the bottom falling out of the markets. In reference to the unhappy investors who stuck with AIVSX from 2000-2013, he says, “If they could have been out of the market even partially during the significant downturns, they would have done much better and with less volatility.”

Consequently, Voudrie makes a powerful argument for what he calls “tactical management.” He explains: “Tactical management typically involves some type of pre-defined approach that helps identify when to enter the market and when to exit. Tactical-based strategies are better suited for cyclical Bull and Bear markets that might only last for a series of months instead of years.”

Drawing on sophisticated electronic monitoring and software, Voudrie works with his clients to create a personal investments management portfolio that reflects their lifestyle goals and risk tolerance. He specializes in stable growth and prudent profits while applying a robust, patented risk management processes.

That stands in stark contrast to outmoded buy-and-hold approaches. The word picture that Voudrie, a veteran financial advisor with three patents and five books to his credit, uses to illustrate retirees clinging to hope for their savings stuck with buy-and-hold advisors is not reassuring: “They are adrift on the ocean without a rudder to steer.”

Jeff Voudrie, a financial planner in Johnson City, TN has been interviewed or referenced by CNNfn, The Wall Street Journal, “CBS MarketWatch,” The London Financial Times, Kiplinger, and the Christian Science Monitor. He is a former syndicated newspaper columnist (“Guarding Your Wealth in 40 newspapers with 150+ articles on investing and managing wealth) and the author of multiple ground-breaking books: The Retired Investor’s Survival Guide: Protecting and Maintaining Retirement Income Throughout the Looming Financial Crisis (2013), The Retired Investor’s Survival Guide: How Successful Investors Tripled the S&P 500: The SECRET to Stop Playing by Wall Street’s Rules, End Your Frustration, REGAIN Control of Your Finances (2012), The Retired Investor’s Survival Guide: The 7% Annuity Guarantee Exposed (2010), The Retired Investor’s Survival Guide: Why Variable Annuities Don’t Work the Way You Think (2008), The Retired Investor’s Special Report: Annuity Alert: Beware of Allianz MasterDex 10 (2006).

Investments Management Specialist Jeff Voudrie of Common Sense Advisors Reveals How YOU Can Profit From Coming Tax Reform

Investments Management Specialist Jeff Voudrie of Common Sense Advisors Reveals How YOU Can Profit From Coming Tax Reform

Investments Management Specialist Jeff Voudrie of Common Sense Advisors Reveals How YOU Can Profit From Coming Tax Reform. It has been just over a year since Donald Trump was elected President of the United States of America.

Back then, I wrote a few articles explaining the importance of US companies being able to repatriate their foreign profits back to the US at a special one-time reduced tax rate. I made the case that it would be a significant impact on US economic growth.

Since then, the economy has been strengthening and we have seen US GDP back over 3%. It is my belief that that tax reform has the potential to add a second wind to the US economy and to extend the current stock market rally.

If tax reform appears more likely to pass it will undoubtedly be positive for those who are owners of U.S. stocks.

Here’s the numbers.

  • There is currently an estimated $2.4 trillionin earnings held by U.S. multinationals overseas.
  • The top 30 companies with the largest amount of foreign earned profits account for 46% of that $2.4 trillion.
  • Of this top 30, there are two sectors that lead the pack with $579 billion and $425 billion respectively.

 

If you would like to know the specific two sectors that should benefit the most from this repatriation send me an email and I will let you know what they are.

We have been long the right sectors and companies most of this year through a variety of vehicles including low-cost exchange-traded funds, mutual funds and individual stocks. And the accounts have benefitted from this exposure.

Going forward, though, it is going to be essential to include these two sectors to the portfolios that I manage. You may want to as well!

A financial services industry veteran with more than 20 years’ experience, Jeff Voudrie is a new breed of private money manager. Using sophisticated electronic monitoring and software, combined with his 25 years’ experience as a money manager, Jeff works with you to create a personal investments management portfolio that reflects your lifestyle goals and risk tolerance. He specializes in stable growth and prudent profits while applying a robust, patented risk management processes. When you work with Jeff, you have the security of knowing that your life savings is getting the attention it deserves.

Jeff Voudrie, a financial planner in Johnson City, TN has been interviewed by The Wall Street Journal, CBS MarketWatch, The London Financial Times and the Christian Science Monitor. He is a former syndicated newspaper columnist and the author of two ground-breaking books: How Successful Investors Tripled the Return of the S&P 500 and Why Variable Annuities Don’t Work the Way You Think They Work. He accepts a limited number of new clients in his personal investments management practice. He and his wife Julie live with their seven children in Johnson City, TN. He is heavily involved in his local church and has done missionary work in Hungary and Cambodia.