The Children's Health Environmental Coalition is a national non-profit organization dedicated to educating the public, specifically parents and caregivers, about environmental toxins that affect children's health, and has as it's ultimate goal the elimination of children's exposure to man-made toxic substances by ensuring the public's right-to-know what is in their air, food, water and commercial products

CHEC will achieve its goals by informing parents, and all others concerned with children's welfare, about the risks of exposure to toxic substances in Palm Beach County homes, schools and communities as well through advocating action of state government through our state senators and representatives.

CHEC will also mobilize and motivate individuals in Palm Beach County and the tri-county through educational outreach programs and events to make healthier lifestyle choices Palm Beach County area

Your Concerned Fellow Senior

By Jim Feit
November 2003
Two thoughts prompted me to write this series of articles: (1) my genuine concern for my fellow Seniors' ability to make the right choices unless they are armed with the facts that hopefully will help them avoid bad decisions; and (2) my desire to use my knowledge to do something worthwhile for South Florida's communities.

The only financial product I know that permits us to take advantage of stock market gains without exposure to any stock market loss whatever is the product known as the Equity-Indexed Annuity. Considering the market's extreme downward plunge not too long ago, a Guarantee of this kind is a superb benefit for Seniors who absolutely cannot afford market risk. However, unless you know just how these Annuities work and how to avoid those whose moving parts can severely undermine or even kill any chance for gains you might be better off putting your money into products that pay a fixed rate of interest. It is the absolute responsibility of the agent or planner who sells Equity-Indexed Annuities to recommend only those he or she has personally investigated and determined to provide the greatest opportunities for market-based gains, with no impediments to growth.

With this responsibility in mind, I continually search and study the ever-changing Equity-Indexed Annuity market to determine which of these unique financial products offer their owners the most (and safest) Bang for their Bucks. My criteria for this search are these:

The Annuity must have a 100% Participation Rate currently in force and Guaranteed for the life of the annuity.

Example: If the S&P 500 Index were up 8% for the year, then 8% should be the starting point for computing gain; not the lower figure resulting from any arbitrary reduction in a participation rate that can be lowered at will! I even found Equity-Indexed Annuities whose participation rates could be lowered any time on the insurerís initiative to a mere 20%!! In those Annuities, an annual gain of 10% in the S&P 500 would automatically reduce the starting point for computing gain to 2%!!! And that figure, mind you, is before applying the high administration charge that may be present in Annuities without solid guarantees!

There can be No Fees of Any Kind charged to owners At Any Time, Guaranteed as long as they own the annuity. At all times, 100% of their money must be working for them not being paid out to the insurer.

Example: I was astonished to realize that with some Annuities, these fees can go as high as 8% at the insurer's discretion. Each year, before crediting any gain, these fees are subtracted from any gain realized by the market index being utilized (S&P, Dow Jones Industrial, or other) after first applying the participation rate as explained above. In some annuities under certain circumstances, even a 20% or higher index gain could wind up being credited as 0%! Wow!! Imagine having $100,000 in that kind of Annuity, having a computed gain of $8,000 in a given year, and having it wiped out by an 8% administration or asset fee!!!

A reasonable percentage cap on earnings is acceptable so long as the annual percentage cap has a realistic Guaranteed floor over the entire life of the annuity and there are no annual fees to reduce it.

Example: In my thinking, that guaranteed floor should never be less than 5% in any one year over the life of an annuity, with no annual fees. When an Annuity meets the first two criteria above, I recognize the insurer's need for some leeway in setting a cap on earnings in order to assure its own profitability, especially when it is furnishing a 100% guarantee that no Annuity Owner will ever lose one penny of principal or credited earnings due to a drop in the stock market!

Fortunately, some Annuities offer higher guaranteed minimum cap rates of as much as 7% without charging any fees to reduce them. Beware the Annuity that offers a higher current cap rate: Always ask the percentage of the guaranteed minimum! Moreover, be sure to ask the current and guaranteed maximum fees that are in effect or can be applied against earnings each and every year at the insurer's discretion.

Suppose, for example, we are dealing with an Equity Indexed Annuity that has a 100% current participation rate, a 15% current cap rate and a 2.5% current asset fee. If the market index on which the Annuity's gains are based were to increase, say, by 7% in a given year, the actual credited gain would be 4.5% after subtracting the asset fee. In that same year, however, if the Annuity had a 7% current cap rate with no asset fee, the full 7% index gain would be credited. In my opinion, an Annuity with a high current cap rate, a low guaranteed cap rate, and an asset fee is unlikely to earn you as much over its life span as an Annuity with more closely aligned middle-of-the-road current and guaranteed cap rates, and no asset fee. My personal preference and recommendation would be the latter.

In Part 2 we will explore the many different methods these Annuities use to calculate your gains and why I believe one of them is far superior to all the rest. If any of my statements or explanations in this article have raised a question in your mind or cause you to doubt the value of an Annuity you may already own, please call me at (561) 734-5510 so we can seek the answers together. I'll do my best to answer your questions and help you resolve any uncertainties about your current annuity holdings. There is no charge for these services.