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Dr. David Eifrig Jr's - Make the Insurance Companies Pay


Make the Insurance Companies Pay

One quarter of the Baby Boom generation expects to work until they die...

For Americans ages 46-55, having enough money to retire is among their most pressing worries.

As a medical doctor, I can tell you that if you’re relatively healthy right now and a nonsmoker, you could live a lot longer than the averages. How long? It’s impossible to say. There are just too many variables. And that leads to important questions:

  1. How do you ensure you won’t run out of money if you don’t know how long you’ll need it?
  2. How can you be certain you’ll have enough money to last for your retirement?

That’s why I’m going to lift the veil on one of the most misunderstood secrets of the wealthy... annuities.

Annuities get a bad reputation because they’re boring. But these insurance-based products can help secure a steady flow of income in retirement. Unlike a bank or brokerage firm, your future payouts must be guaranteed as well.

Also unlike any other investment vehicle I know, the money you receive from an annuity could be sent to you for the rest of your life and can even be passed on to your heirs.

But before I go any further, I have to warn you... these insurance products are not right for everyone, and you must meet several requirements before you can begin collecting payouts. The good news is, most Americans near retirement age qualify.

Better still, if you live past the age the insurance company predicts, you can still earn more money – all extra profit from these greedy corporations.

Let’s take a closer look...

Will You Have Enough Cash in Retirement?

If you are nearing retirement, you can drive yourself crazy trying to figure out how much money you’re going to need.

How long will you live? How high will inflation be? What will happen to the stock market and the economy? All these things affect your retirement income... and it’s impossible to know the answers.

That’s why you should consider making sure you’ve got at least a certain level of guaranteed income. Even in the worst-case scenario, you’ll know that you’ve got enough money to meet your basic expenses.

(And please remember, Social Security was only meant to be a safety net.)

One way to be prepared is with annuities. The products are designed to pay retirees guaranteed income and are created by the insurance industry.

Over the years, annuities have gotten a bad name. But according to several folks I’ve spoken with in the business, when used properly, annuities can be a vital tool in ensuring you have the income you need to retire.

The problem is you can find thousands of annuity options on the market. You can invest in an annuity that pays you for the next five or 10 years... or one that pays you for as long as you live. You can find ones that pay you immediately or defer your payments for 10 years or more. You can buy an annuity that increases your payouts when inflation rises or when stocks go up... or one in which the payouts stay the same for the rest of your life.

It’s easy to get frustrated or confused.

But don’t panic – over the next few pages, I’ll spell out the basics of annuities, some of the options, and how they work. I’ll tell you the eight things to think about when investing in an annuity... And show you a real-world example and how the process might work for you. Then I’ll explain my favorite type of annuity, which I think offers the best options for most retirement-age Americans.

Let’s get started...

How These Investments Work

An annuity is part investment and part insurance.

It’s an investment in the sense that you put money in and hope to get back more later, depending on how the investment performs. It’s insurance in the sense that you pay a premium to make sure your money will never lose value... and you will collect a worst-case gain.

It’s like a mutual fund that offers you insurance. No matter what happens in stocks, bonds, real estate, or the rest of the economy, your income will never go down. Remember, it’s the only investment in the world – besides Social Security and a pension – that guarantees you a certain amount of income, for as long as you live.

Here’s another way to think about it: You pay to insure your home against damage. You pay to insure your car against collision. When you buy an annuity, you’re insuring your future income stream until you and/or your spouse both die.

Dozens of U.S. insurance companies offer annuities. When you buy an annuity, you enter into a contract with the insurance company. You give either a lump sum (my preference) or several payments over time; the company guarantees you income according to the terms of the contract.

There are several basic differences in annuities:

FIXED RATE VS. VARIABLE: Fixed-rate annuities give you the same payout every month. Variable annuities, on the other hand, typically have a guaranteed minimum payout, but the payout can go up depending on how your investments do. We prefer variable annuities, because your payment can go up, but won’t ever go down. Those are the annuities we’ll be talking about in this report.

IMMEDIATE VS. DEFERRED: Immediate annuities begin paying you, as the name indicates, pretty much immediately. Deferred annuities pay at some point down the road. Whether you’re interested in an immediate or deferred annuity depends on whether you’re looking for income now... or are preparing for retirement down the road. Generally, the older you are when you start receiving payouts, the larger the payouts will be. The deferred annuity is my preference.

SINGLE PREMIUM VS. FLEXIBLE PREMIUM: When you start an annuity, you can make one single principal payment, or you might have the option of making multiple payments in the amount and the time of your choosing.

If this all sounds confusing, don’t worry... It’s easier than it seems at first. And we’ve prepared a checklist of things to keep in mind when you’re shopping for the perfect annuity...

Annuity Checklist: Eight Things to Look for
in Your Guaranteed Retirement Contract


An insurance company guarantees your annuity. So you want to know that the insurance company is going to be around in 20 years. One corporation, A.M. Best, “rates” the insurance company’s ability to pay claims now and in the future.

We recommend buying annuities from insurance companies with a rating of A-plus or better. The higher the rating, the safer the company. You can simply ask your broker for the rating of the insurance company that’s offering the annuity.

All insurance companies submit to regulation by the government of the state where they operate. Part of what these state agencies do is run a “guaranty fund” to which every local insurance company must contribute. If the insurance company that issued your annuity goes out of business, the money from this fund will be used to pay back some or all of your principal. You can check with the insurance commission in the company’s home state for more details.


If you are looking for a highly liquid investment that you can buy one day and cash out the next, annuities are NOT for you. You must be committed to using them for the long term.

The issuer will only let you withdraw a certain amount of your principal each year during the “surrender period.” The surrender period typically lasts four to seven years.

So for example, you may be able to take out as much as 10% of your initial investment per year without penalty for the first four years. After that, you can take out as much as you want... or liquidate your investment entirely.


Because the IRS treats annuities as insurance products, your money grows tax-free. And annuities aren’t subject to annual contribution limits like with IRAs and 401(k)s.

If you withdraw your money before you’re 59 and a half, you’ll pay income taxes plus a 10% penalty tax. Otherwise, you only pay taxes on the payouts you receive that are over and above the amounts you initially put in.


For years, one of the big criticisms of annuities has been the expenses... that the stock market “generally” always goes up, so you don’t need to pay for protection. That may be the case “generally,” but what about now?

Guaranteed income does not come free of charge. Because annuities can offer more benefits, they have more expenses than mutual funds. You can expect to pay about 1% more than the costs of your typical mutual fund.

And you can shop for annuities on a “cafeteria plan.” It’s simple: You only pay for the benefits you want. You don’t pay for the benefits you don’t want.


If you die before you receive your full principal back in monthly payouts, your spouse or heirs can continue to receive payouts or a lump sum until the principal (at least) has been returned in full.

Let’s say you are 65 years old, and you would like to put $100,000 of your savings into an annuity to guarantee some income for the rest of your life. And let’s say you’ve found an annuity that will pay you $5,000 a year for as long as you live. If you live another 25 years, you’ll receive $125,000, no matter what happens in the stock market... even if we’re in a terrible bear market for the next 25 years. (As I’ll explain, you could receive a lot more if the market goes up.)

But what if you live just five more years? You’ll have received just $25,000 from your $100,000 investment. Doesn’t sound like a very good deal. That’s why we recommend you opt for a “death benefit.” If you live a long time, you make out great. But if you don’t, you still won’t lose a penny of your initial investment.

If you die before the original investment has been paid, your heirs will continue to receive payments until your money has been paid back in full. That’s in the worst case scenario. If your investment has gone up in value (see below for more details), your heirs can receive at least the cash value of your investment... if not more. Opting for a death benefit will increase your costs slightly, but it guarantees you can’t lose money, no matter what.


Some annuities allow you to invest your principal in “subaccounts,” which are like mutual funds. The more choices the annuity offers, the more control you have over your investment.

But that’s not even the best part: If your chosen investments go up in value, your payouts increase. But even if your investments go down in value, your payouts will never decrease.

So your downside is limited to zero. And your upside is unlimited. If your chosen investments skyrocket, you’ll see your monthly payouts balloon. Your monthly payouts can only increase. They can never go down.

Let’s look at an example...

Say you’re 65 and you’ve got $100,000 to put in an annuity. You’ve found one that will pay out about $5,000 a year. Now if you spread that out among subaccounts that end up losing value, your payments will stay the same. They’ll never go down. But if your investments double over four years, your payout could grow to $10,000. This higher payout is now locked in.

So now let’s say in Year 5, your subaccounts lose all of their gains and drop down to $100,000... or even down to $50,000. For most investors, that kind of loss would be devastating. But with the “lock-in” benefit, you will still receive at least $10,000 every year for life, guaranteed. It’s as if your principal is still worth $200,000 and didn’t lose a penny.

Given the market’s volatility – skyrocketing one year, plummeting the next – this benefit can be unbelievably valuable. Imagine if you could get all of the gains of the stock market and none of the losses. That’s what happens when you lock in your gains.


Many annuities will guarantee you annual compounding growth of 5% as long as you’re not taking payouts. This means that even if your chosen investments lose money, your income stream is growing.

Let’s look at our example again...

You invest $100,000. But you start right at the beginning of a horrible bear market. Five years later, your investments haven’t grown a penny... In fact, they’ve lost money. Your $100,000 has turned into $80,000. As I said above, your payments will never go down. So you’ll never receive less than $5,000 a year once you start taking payouts. But with guaranteed growth, your future income can increase, even if your investments lose money.

So with 5% guaranteed annual growth, five years later it’s as though your principal is worth about $128,000. It’s as though you’re up more than 25% instead of down 20%.

In other words, your future income will grow if the markets do absolutely nothing and even if they tank. So by locking in your gains, you get all the benefits of a bull market, but none of the volatility. And by getting guaranteed growth, you never have to suffer in a bear market again. But the best part is, you can combine these two features...


Nowadays, some annuities can “stack” your worst-case bear-market return (the guaranteed growth) on top of your best-case bull-market return (your locked-in gains).

Let me show you...

Start with the same $100,000, and we’re back in the bull market. By Year 4, your $100,000 has grown to $200,000. But then in Year 5, your investments take a hit and drop back to $100,000.

Remember, your future income doesn’t fall. Your gains are locked in, as though your principal is still worth $200,000. But if you’ve got 6% guaranteed growth (today’s current rate), it’s actually more like $212,000 ($200,000 plus 6%).

That 6% will keep compounding every year, as long as your principal is less than your locked-in highest gain and as long as you’re not collecting payouts. This gives you a worst-case return you can count on, without limiting your gains. Your money can grow in bull and bear markets... Your income will increase every year, guaranteed.

How Much Money Do You Want to Collect Every Month?

Here’s one rule of thumb to “guarantee” a comfortable retirement:

Figure out your basic living expenses and subtract any pensions or Social Security payments. Now you’ve got the minimum income you need to meet your basic expenses in retirement. That’s the monthly payout you should look for from your annuity.

For example, if you are receiving $1,000 per month from Social Security, and you get a pension that pays you $700 a month, that’s $20,400 a year. Let’s say you figure your basic living expenses are around $25,000 a year. You should look for an annuity that pays you at least $5,000 a year (or about $415 per month).

Beware of anyone who tries to pressure you into more than that... We would never recommend you put the bulk of your money into an annuity. Stay away from someone who tries to put all or most of your money into an annuity.

What I Recommend

Because of the large number of choices available to you, and because each individual’s circumstances are different, I can’t say for sure what the perfect annuity is for you.

But here are some of the options I think will get you the most out of your annuity:

  • Choose a variable annuity that will guarantee your payouts will never go down in value... but leave plenty of upside for your payouts to increase.
  • Look for a good selection of subaccounts to choose from. I’d recommend you put the subaccounts into funds like emerging markets (i.e. China or India) or Japanese funds. Look for an option where you can speculate with your choices. After all, you have a minimum amount guaranteed (6%) and if you do better than that with speculative funds, you could make even more. And with the markets down right now, it’s a great time to get into some riskier investments.
  • Choose an annuity that will give you payouts for life, not over a fixed term. This will give you maximum peace of mind and money for you and your spouse until you die.
  • Choose a single payment deferred annuity so your principal can build up over time before your retirement years. This way, you’ll ensure a higher payout amount than if you started collecting today.
  • Add a “death benefit,” which will guarantee you and any heirs you want will get at least what you put into it.

You should ONLY look for a minimum payment that covers your basic retirement expenses (after your existing pension or Social Security) and keep plenty of money outside of your annuity to have liquid funds on hand.

Guaranteed income-for-life variable annuities are ideal for a small piece of your retirement money so that you’ll know, beyond all reasonable doubt, you’ll have at least a certain level of income for as long as you live. You owe it to yourself to seriously consider them for a portion of your retirement money.

More Resources

Annuities are a great way to ensure you’ll have some income for as long as you live. You just have to figure out which options are best for you. Here are a few more sources to help you out...

  • Read the SEC’s “Investor Tips” on variable annuities:
  • Fidelity offers annuities... and has good information on annuities on its website: Fidelity Annuities.
  • MassMutual, a large life insurance company, has a good website that talks about annuities and how they might work for you... You can take a look at I encourage you to check out several sources to get the best combination of prices and lower fees while maintaining the quality of the insurer.
  • Talk to your financial planner and see if he deals with annuities. It’s important that he works with lots of different insurance companies so you can be sure he has an independent view.

Finally, we know two guys who have been working in the insurance and financial planning business for decades and are knowledgeable about annuities. You should know we have no financial relationship with either one of them. Be sure you’ve read about annuities online or spoken to a few other insurance agents about the products first so you can help these guys help you more easily. If you call them up naively, you’ll waste their time and yours.

Todd Phillips... You can reach Todd at 888-892-1102 or This email address is being protected from spambots. You need JavaScript enabled to view it..

Todd can give you a second opinion on anything you’ve gotten from your own financial or insurance agent, too. He is easy to talk with and knowledgeable. Few Americans have considered single premium deferred and variable annuities... But they’re an incredibly safe solutions to ensure yourself and your spouse a lifetime of income. And unlike stocks or mutual funds, there’s no guessing about how much you’ll have or when you’ll get your money.

You can step up and secure your financial future right now... and know exactly when and how much you’ll be collecting for the rest of your life.

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