The following is a headline from our local Naples newspaper.

Analysis: Trustees say Social Security will be insolvent by 2041
LAWRENCE M. O'ROURKE, McClatchy Newspapers via SHNS
Thursday, March 24, 2005
WASHINGTON : The political fight over Social Security took on added urgency Wednesday as the retirement system's trustees reported that it will turn into a money loser in 2017 , one year sooner than previously projected. More long range, Social Security will run out of cash reserves in its trust fund by 2041, again a year earlier than thought to be the case just a year ago, the trustees said in an annual report that added new material to the already raging debate.
By 2041, the trustees said, Social Security would be able to pay only 74 cents of every dollar of promised benefits barring a White House-congressional deal that could entail some major changes in retirement plans.

The article then goes on to address some of the things that might be done to correct the problems. But, if you are 30 years old today, and are not planning for your retirement properly, where do you think you will be in 2041?

Guarantees.
The main reason for Social Security has always been the guarantees provided by the Federal Government. Never mind that the money is not there, you still have the promise of the government that you will be paid. But what if they change their minds? What then? Is there any other way to guarantee your retirement savings?

The answer is yes and you already know what it is... Insurance. The insurance companies have been taking care of this for us for a long long time.

I like to ask this question:

What is the insurance companies job?
Answer: They are willing to assume all of the risks we do not want to take by ourselves.

Is your car insured? Is your health insured? Is your home insured? Is your life insured? Most will say they have all 4. Why did you bother to do this? It is because you want to have the insurance company assume those risks of financial loss that would devastate most of us should we have to assume them by ourselves.

Why then would you not insure the most valuable asset you will need when you retire and have no more income? Why would you not insure your retirement savings?

The insurance industry has had one possible answer for you forever, they are called annuities.

Why should I purchase an annuity?

There are several good reasons:

For a safe vehicle for your funds
For tax-deferred growth of earnings and
To ensure that your resources last as long as you need them.

An annuity can help meet the long-term financial goals of many different people. Should you consider learning about annuities and buying one? If you answer "yes" to any of the following questions, a fixed annuity could be a wise choice for you:

Are you interested in controlling your own retirement destiny?

Do you currently have $5,000 or more in a certificate of deposit*, money market, or other fixed return investment?

Will your savings fall short of providing a comfortable standard of living in retirement if Social Security is not there to help?

Do you like the idea of ensuring an income that will continue as long as you live?

Fixed annuities combine tax deferral and guarantees of principal and income to help you make the most of your money and ensure an income that will last as long as your needs. The following questions and answers should provide a better understanding of the important role annuities could play in long-term financial planning.

What would President Bushs proposal to privatize Social Security mean to me?

According to an article in the Washington Post, dated 2/3/2005: If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars. All of that money would be the worker's upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 -- the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system. While this may not seem like much when you look at the dollars, it represents an actual increase of over 28% better than what Social Security would have provided. The only difference becomes who is guaranteeing the return, the government or the insurance company?

What does tax deferral mean to me?

It means you pay no taxes on the interest your annuity earns, as long as that interest remains in the contract. The money that would otherwise go to the government in taxes goes to work for you instead. Your funds grow much faster as a result. Its called the magic of compounding. Albert Einstein, when asked what was the greatest discovery ever made? replied compound interest is the greatest mathematical discovery of all time.

How do I decide what my premium will be? You determine your own premium! (subject to insurance company minimum requirements.)

Your decision should be based on three major factors:

How much retirement income you'll need in addition to Social Security, pension income and other investments.
Whether you will need income only for yourself, or for someone else, too. How much you can afford to pay.

With a single payment deferred annuity (SPDA), you pay one initial premium; with a fixed payment deferred annuity (FPDA), you pay an initial premium but may add to your account at any time.

Your financial advisor professional can help you determine how much to invest and which type of annuity best suits your needs.

What will the insurance company do with my premium?

The company invests the funds in its investment portfolio and credits interest to your account. It's important during this accumulation phase to know that your annuity company manages its investments wisely. You want to choose a company that is highly rated by independent analysts for its ability to meet its obligations. The company should have a strong capital base and a history of quality service.

What makes an annuity a better alternative than other savings and investment programs?

An annuity provides tax-deferred growth of income, which many other investments cannot. In addition, an annuity can guarantee you an income. The protection of your money is another advantage: The full amount of your premium payment (less any withdrawals) and your interest (less any possible surrender charge) are guaranteed by the insurance company. How does an annuity compare to an IRA or retirement savings? Annuities and IRAs are similar in that they both offer tax-deferred growth. However, that's really where the similarities end. Not everyone can open an IRA - only those with earned income. Anyone can purchase an annuity.

With an IRA, when it's time to contribute, you may be limited to $3,000 annually for singles; with an annuity there are no limits (except for a possible minimum purchase amount). On the tax front, IRA contributions may be deductible, although the law imposes limits based on income and pension plan coverage. Generally, no deductions are allowed for payments to an annuity.

Annuities generally provide two unique and important advantages: 1.If you annuitize, you can receive an income for life, even if you ultimately receive more than the total value of your account. With most IRAs, you have no such guarantee of an income for life.

2. While your savings are being invested, the insurance company guarantees your principal will never be less than you put in. Typical IRAs are usually invested in stocks and bonds and will fluctuate with the ups and downs of the stock market and interest rates.

Also, with an IRA you're required to begin taking distributions in the year after you reach age 70 l/2; the IRS imposes no such requirements on annuity distributions (although the insurance company may require you to annuitize by a certain age - usually 85). If the annuity funds an IRA, IRA rules apply.

What will the insurance company charge for its services?

Charges vary from company to company, but the most common charge is called a "surrender charge" and comes into play only if you decide to withdraw all or part of your money before a certain number of years (specified in the contract) have passed. In some annuities, a positive or negative market adjustment may be imposed on early withdrawals.

Will I have access to my funds if I need them?

Annuity liquidity features differ according to contract. Some allow you to make free withdrawals; others may not. However, if you withdraw funds before age 59 1/2, with some limited exceptions, you may be subject to regular income tax and a 10% federal penalty tax on the interest withdrawn exactly like your present IRA.

When does the payout phase begin?

The payout phase (annuitization) begins when you want it to (subject to a maximum annuity date, usually age 90 or, if part of a qualified plan, age 70 1/2). Once your annuity payments have begun, you cannot change your mind about annuitizing.

What are my annuitazation options?

Several basic options are almost always available in both SPDA and FPDA contracts, although they may differ:

The life annuity. Proceeds are paid throughout your lifetime, meaning you can't outlive your income.

Period certain. Proceeds are paid for a predetermined number of years, even if you die during this period. Different periods, such as five,10, 15, 20 or 30 years, are usually available. (If you die during the period, the remaining payments are made to your beneficiary or estate.)

Life plus period certain. Payments are made over your entire lifetime, but the company also guarantees that, if you die within a specified period of time, payments will continue to your beneficiary or estate for a certain number of years.

Joint and survivorship annuity. With this option, annuity payments are made throughout two lifetimes.

Lump sum. If you don't want to annuitize over a period of time, you can usually choose to receive your annuity funds in one lump sum.

Note: If you don't annuitize, you may be able to make withdrawals on a regular basis, depending on specific contract provisions.

How much will I receive in each annuity payment?

That depends largely on three factors: 1) how much money you put in the annuity 2) your age at the time you elect to annuitize and 3) what payout option you choose. The more money you put in, and the older you are, the bigger the payments to you will be.

What happens if I don't live long enough to begin receiving payments?

If you die before annuitizing your contract, your beneficiary will receive a death benefit, usually equal to your total annuity value (premiums paid plus interest earned). This benefit avoids the costs and delays of probate.

Are payments and withdrawals taxable?

It depends:

If you choose to annuitize, you pay income tax on the interest portion of the payments only; the rest is a tax-free return of principal.
If you choose to make regular withdrawals without annuitizing, interest is considered withdrawn first and is fully taxable, just like a traditional IRA.

What should I look for when choosing an annuity?

The strength of the annuity issuer. Be sure your annuity is backed by a financially strong and stable company - one whose investment philosophy is compatible with long-term growth and stability.
Annuity features. Compare the annuity contracts you are considering. Some FPDAs may offer different maturity options, as well as the ability to transfer assets between maturities. Other features you may want to consider include liquidity features, the death benefit, and how many payout options are available.

Insurance company charges. Are there any annual charges or fees? What's the surrender charge and how soon does it end?

When you have chosen an annuity and you receive the contract, read it carefully. Be sure to ask for explanations of anything you don't understand. For advice concerning the tax treatment of variable annuities and for complete, up-to-date details on tax law, consult a qualified tax advisor.

Compliments of Al Lang, Investment Broker, Raymond James and Associates

* Unlike CDs, fixed annuities are not FDIC-insured.