What the Heck are Fixed Index Annuities? (And are they a good idea for retirement?)

One of the ways I fall asleep at night is by reading nonfiction books. I like these books, don’t get me wrong, but they still don’t totally suck me in and keep me awake like fiction books sometimes do. Usually, as I’m in bed reading my nonfiction book of choice for a few minutes, my eyelids get heavy and I drift off. It’s a very effective, as well as instructive, bedtime routine.

For quite awhile, my nightly book of choice has been Tony Robbins’ Money, Master the Game. I’m a big Tony Robbins fan, as I enjoy his motivational talks and writings, and was extremely excited to see that he’d written a book on finance- one of my favorite topics.

I devoured a lot of the beginning of the book (which got me through quite a lot of bedtimes as the book is 638 pages long). I really enjoyed most of the way Tony Robbins was trying to make finance information accessible to everyone, and he even included interviews with finance experts I loved such as Jack Bogle from Vanguard. A bulk section of the book was concerned with savings accounts and starting a retirement account, as well as the magic of compound interest- I love these subjects. These are some basic money topics to me, but I enjoy being reminded, and many people don’t understand concepts such as compound interest, which Robbins makes easy.

However, somewhere in the last third of the book, I got lost. The subject of Fixed Index Annuities came up and stayed prominent for many, many pages. Robbins was touting how great annuities are, and how the right annuity would bring you retirement income for life. I was extremely confused and started thinking “how have I not heard anything about any kind of annuity from any finance blogger or writer or podcaster ever before?” I was baffled. For years, I’ve listened to the podcasts and read a few of the blogs and books of some quite entertaining and well-known finance professionals including Suze Orman, Dave Ramsey, Farnoosh Tohlrabi, J. Money, Shannon McLay, Ramit Sethi, Paula Pant, J.D Roth, and more. I couldn’t remember any of them ever suggesting, or even bringing up, annuities.

I actually reread the entire 638 page book (it’s a break from my other favorite bedtime book, The Elegant Universe), and once again attempted to understand Robbins’ take on fixed annuities, but to no avail.

In the back of my mind, I associate annuities with scams. But Tony Robbins was so convincing in his book, even talking about how variable annuities are the actual scams, and fixed annuities are the good ones. So I thought maybe I had missed something. And, in the interest of this blog, and for my own personal pleasure (I have some weird pleasures), I looked everything up, paying special attention to my favorite finance experts and finance news sites, including Forbes and Suze Orman, to see what they had to say.

Basically, without going into the extremely complex and intense detail, my hunch was right. Unbiased (i.e non-commission-based) finance professionals almost never recommend annuities- unless they’re still somehow trying to sell you something…like an annuity. There are very rare circumstances in which SOME annuities would kind of make sense, but those circumstances generally affect people in one of two categories:

  1. If you have an extremely high income and have maxed out both your 401k and IRA and want to try putting tax deferred money elsewhere.
  2. If you are extremely, incredibly risk averse and would rather have complete peace of mind that you will have some money while alive than a good rate of return. Because the odds are against you that you’ll have more money for yourself and for your beneficiaries (spouse, kids, etc) with an annuity than with any other retirement strategies (401ks, IRAs, Roth IRAs, etc).

Otherwise, low cost index funds in IRAs, Roth IRAs, and 401ks are significantly better retirement options, with much better rates of return and way lower fees.

Again, without going into numbingly complex details, the issues with most annuities include:

  • Most people selling them stand to make a major profit off of you, and may not inform you of the other retirement options you have. So there can be quite a bit of shadiness in the annuities business because of the high commissions paid out.
  • Your money is tied up for a very long time, and you will pay major fees if you try to take it out early! These fees can range from 10% up to 20%! So even if you purchase an annuity for $50,000 and in a month you change your mind, you can’t get that money back without getting hit with a ridiculous fee. About $5000 (10%) will already have been removed from your 50k as a commission fee to whoever sold you the annuity! Plus you’ll get hit with that major fee for early withdrawal, so your $50,000 can possibly become only $38,000 in the span of only one month!
  • If you die early, your beneficiaries can get absolutely nothing! The one major benefit of most annuities is a guaranteed monthly income for life, until you die. So if you live a VERY long time, you may somewhat benefit from an annuity. But an annuity is actually a life insurance product, and the companies are banking on you dying earlier rather than later- because if you die early, in most situations, the rest of your payout is their’s to keep! And even if you find an annuity that leaves your money to your beneficiaries (which will of course be pricier to begin with), the beneficiaries will have to pay taxes on all of the interest your money made! So if your original 50K grew to 150K, your beneficiaries will have to pay taxes on the difference- that means paying taxes on the 100K difference!! That’s a huge tax bill!

So, I’m sticking with my classic retirement strategy- the Roth IRA, filled with low cost index funds from Vanguard. I write about Roth IRAs and how to set one up here.  And although I enjoy Tony Robbins’ advice and greatly respect him, I’m not planning on taking any of his advice on annuities.

If you want more information on annuities, here are some of my sources for this article:

The Motley Fool annuity advice

Suze Orman explains annuities

Time Magazine’s advice about annuities

Forbes talks in detail about annuities

Get Rich Slowly shares annuity knowledge

As always, feel free to ask me any questions. I’m just learning about this topic myself, so I’d love to hear your thoughts! Thanks!

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What Are Some of the Smallest Baby Step Lifestyle Changes You’ve Made in Your Thirties?

It’s amazing how habits take shape and slowly, incrementally change the structure of our lives. I feel like it’s usually not the big, sweeping ‘grand decisions’ made in bold statements that change our lives (ie most New Years Resolutions, most “I’ll never drink again!” statements, most “no more sugar for life” proclamations, etc), but actually the small changes made in private moments and repeated again and again that actually make a major long term impact.

In the past year, I’ve made a few changes- most of them arbitrarily or unpremeditated. But these particular changes have slowly but surely changed my everyday patterns of thinking and feeling. Here’s a list of the ones the made the biggest impact.

1. Deleting the Facebook app from my phone- I did this in a moment of pain and anguish on election night back in November. I mean, you get it. But I never put the app back, and that in turn has me going on Facebook a whole lot less. Which in turn frees up a lot of my time. Which also in turn really tones down a bad habit I have of comparing myself to others. I still go onto Facebook and read stuff and post things, but the amount of time I spend on the site has decreased immeasurably. Results of deleting Facebook app on my phone: I feel happier and have more time. And I still have Facebook so I don’t even feel any weird “I deleted my profile feel sorry for me” stress or Fear Of Missing Out.

2. Starting to make green smoothies full of vegetables – I’ve made green smoothies on and off for a few years now, but it’s only recently that I followed nutritionist Kimberly Snyder’s basic recipe for her diet staple: the Glowing Green Smoothie. This smoothie is made up of all vegetables with the inclusion of an apple, almond milk or water, and some stevia. She includes a bit more fruit but I’d rather eat that fruit separately. This smoothie is the equivalent of having something like three or four salads before lunch, without all that annoying chewing. The ingredients of my smoothie, if you want to try it, are a head of romaine, either a bunch of celery or a large cucumber, a handful or two of spinach leaves, a handful of cilantro, an apple, half a lemon, stevia to taste, ice, and a bunch of almond milk or water. Results: I put a TON of nutrients in my body before I have time to think about anything or eat a bunch of nonsense food. Therefore my mind feels clearer and my body feels happy.

3. Tracking my spending- I wrote about this in the post How Tracking Money is Like Weighing Yourself and then again in The Anti-Budget Budget In Your Thirties. I began using the app Goodbudget to track each and every dollar I’ve spent. I started this back in June, and it was very painful. I didn’t want to track every dollar because I felt like I knew where every dollar went already, and the whole thing felt tedious and filled me with guilt whenever I spent a penny. However, after about a month and a half it all got a lot smoother and easier. I realized exactly where my money was going each month and that small purchases really add up to way more than I thought. I swear I’ve saved a ton of money simply by writing down my expenditures- because I think about where my money’s going every time I spend it. And I feel more accountable for a purchase if I know I have to write it down and it goes into my monthly total.

All of these small activities have added up to big change in my life. Are there any small changes you’d like to start or have recently begun? Don’t worry about those big, scary changes- concentrate on a little tiny change every day, or even every other day. Don’t underestimate what seem like small tweaks- they add up.

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Lessons From a Fever in Your Thirties

I was traveling for work for the last 25 days, and for most of that time I was well- physically at least. Mentally, I was exhausted at times, from both the amount of travel and the sheer magnitude of people and bustle and noise constantly surrounding me at most shows.

But the mental and the physical are intertwined, and during the last week of my travel, I developed a fever while working in Cleveland, Ohio. It’s funny how illnesses sometimes sneak up on you, and my weakening muscles deceived me into thinking that I had always felt so unsteady. I tried to furtively stretch while still on the work floor, but every tendon in my body ached, and it felt more agonizing by the minute to simply stand up, never mind give infinite presentations and answer the slew of questions coming at me. Plus, my stomach was wrestling with my mind as well- telling me it was utterly starving one minute and then agonizingly full the next- right after I’d eaten only 3 bites of something.

My coworkers said I had The Cleve- a mythological disease known to strike first-timers to the Cleveland area we were in: the airport area of despair. You see, almost everyone who’d worked this particular show fell deathly ill at some point at least one of the years they’d worked it. Why? Who knows. The lighting is yellow and dim- sort of despairing. The convention center used to be a military facility, if that adds anything. I googled whether there was something up with the water supply in the area but my search returned nothing. No offense to any of you who may be from/live in Cleveland. The downtown area seemed awesome, but alas we weren’t ever near there.

Somehow I made it to the end of the work day that day, and with the help of lots of zinc and rest that night was able to make it back to work the next day (sick days are unheard of in my field during a show). Even though my muscles ached less and my stomach was slowly starting to unclench, I ended up taking it extra easy on myself for the remainder of the show…and even into this week. I probably should always be taking care of myself so thoroughly, if not more so.

This week -and last- I put myself to bed earlier and sleep in when I can. I eat and chew extra slowly in case my stomach turns on me. I lie in bed and bask in the sheer bliss of a few moments of extra meditation. Sometimes I’m not even meditating- just staring at the ceiling, feeling smooth sheets underneath me. I drink less- well, I drank less last week anyway. We had a Cleveland bowling onesie costume party one night, and somehow I got through that without touching a sip of alcohol. I allowed myself to go very slow as I packed for the next trip. I ran outside extra carefully this week. I spent a few lovely  moments staring out of the airplane window or watching a movie as opposed to trying to accomplish tasks. I let myself breathe. I give myself room.

And as I do, I feel healthier, but I also feel more loved. I’m taking care of myself as if I love myself and as if I’m treasured. And as I do that, all of those things are true to me.

But you don’t need to be sick to treat yourself with love.

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How to Exercise More Easily in Your Thirties (Or The Things That Don’t Have Labels)

I was never that into exercise classes, or into any kind of collaborative workouts, really. But yoga classes and Pilates classes and Urban Rebounding (aka trampoline classes) sound so cool. Theoretically, workout classes seem like a great idea to me, but I never actually go. Well, it’s rare. Even when classes sound cool, it’s super rare that I can commit to being at a specific class at a specific time. Maybe it’s that certain rebellious streak running through me. Honestly, when I exercise, I just want to be alone.

Running and strength training became two of my favorite exercises around sophomore year of college, when I realized that I really liked the gym when I had headphones on. Before college, the idea of avoiding sports at all costs very much appealed to me, and I had lumped the gym in with ESPN and dodgeball. But running is a solitary sport, and no one can hold me accountable if I don’t run more than a mile (except self-critical me). And strength training is another loner activity most of the time, where I can lift as heavy or as light as I want and people mainly leave me alone save for the occasional ” here’s how to lift better!”

Both running and strength training are very mainstream, acceptable forms of exercises to do, even if not at the gym. But sometimes I don’t feel like going outside and running, or outside to the gym (my gym is 11 blocks away), so I do a “home workout.” These workouts usually consist of body weight strength training exercises (i.e lunges, squats, pushups) and the equivalent of half an hour of jumping jacks spaced out in intervals. When I get into a conversation with someone about working out, and I tell them I didn’t go to the gym today but instead did a “home workout, which includes a lot of jumping jacks,” people usually kind of snicker. Jumping jacks seem to be a weirdly unacceptable exercise to do. They are part of an unlabeled and non-mainstream exercise program that I made up. But that’s okay- it works for me.

Sometimes I feel too tired or too pressed for time to even do my home workout. For awhile, during one or two of the most exhausting auto shows I worked, where I was standing on a hard floor for 9 hours in heels all day, I would solely do my ‘5 minute workout’ every night before bed. All this workout consisted of was a bunch of different ab exercises (sit up variations), and a bunch of push-ups. Sometimes on super-motivated nights, I’d actually do this workout for 10 minutes instead of 5. This may sound like only a little bit of time, but the differences were notable to me. I felt better. And then eventually I’d go back to the gym and run and do hour long home workouts and get back to my irregularly scheduled program.

I guess the main thing about exercise in your thirties, or anytime really, is to do what works for you. I prioritize wanting to go back and work out again, and be consistent with exercising multiple times, so it’s important for me not to hate my workouts and feel like they’re too hard. They just need to be hard enough…or sometimes they just need to be easy. I try to stay kind to myself.

Once I’m actually working out, I find it easier to continue working out. The hardest part is usually starting- which is, coincidentally, the hardest part of doing anything.

And some days I just stretch…I put on music and stretch everything that hurts, and then I make up stretches that have no labels and that I have never done before, or maybe I have once but I’ve forgotten them. All I know is that it helps to let your preferences lead the way. Tell your body: ‘Remember, this is good- this is your favorite. This will be an easy one. We’ve got this.’

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Help! Something is Broken and I Can’t Fix It In My 30’s

Sometimes there’s an easy answer to what’s broken in your life.

The other day I realized my blender was leaking. Gooey green smoothie liquid ran down my wooden countertop and spilled onto the floor. When I lifted my blender jar, I realized that the smoothie was coming directly out of the bottom of the blender and then getting everywhere. I didn’t know what to do, and I had no one around to ask for recommendations. So I googled.

There were a lot of answers to my blender question, but they all required me unscrewing the bottom piece of the blender jar. Alas, for the life of me I couldn’t remove that bottom piece. The sticky sugars from the fruit in the smoothies had gotten it completely stuck. I tried using every ounce of my arm strength, and even used my handy rubber jar opener, but nothing worked.

For this new issue, there were even more Google answers. “Go to the hardware store and grab a wrench,” someone said. “Unscrew your blender jar with the wrench and then put the wrench back on the shelf.”

“It’s even easier than that,” someone else chimed in to the above responder’s comment, “wedge your blender in a doorjam, and hold it tight with the door as you unscrew. But don’t put too much pressure or you’ll crack it.”

That sounded complex.

“Just put your blender jar back in it’s base and turn the jar counterclockwise,” someone else responded, “and voila.”

Voila indeed. I decided to follow that last direction it took me all of 2 seconds and zero effort to unscrew my blender and fix the problem. So easy! My god, what if I had gone all the way to frigging Home Depot to borrow a wrench???!

And the whole blender debacle reminded me of other ceaseless issues that I suddenly solved in seconds. For years it took me almost 20 minutes at a time to pull the damn cap off of my travel contact lens fluid container in order to refill it. I macguyvered my tweezers and my nail file into a tool to jimmy that awful cap off, and even then I usually broke a few nails doing so. For years I hated this task, sometimes just spending lots of money buying new containers of travel contact lens fluid in order to avoid the hassle of refilling my old one.

But then one day I randomly googled “how to remove your contact lens solution cap” and this Youtube video came up entitled: “How to Refill Travel Sized Contact Lens Solution.” It solved all my travel solution problems. You just yank the cap off when it’s open in one fell swoop. Once I figured out that trick, it took me about 5 painless seconds to complete a task that used to take me a full twenty minutes of pain every time.

It’s funny how many broken or painfully annoying things may have easier solutions than we think. By our thirties, a lot of habits have been formed, both good and bad, and sometimes we need to find easier habits than we currently know. An easy, life-changing answer to an everyday annoyance might just be a google away.

On a related note for 30-somethings, what in the world would we do without the internet??

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Can I Put All My Debt on a Zero Interest Credit Card?

The other day a friend of mine was inquiring about paying off credit card debt using a zero interest credit card.

She had moved all of her debt from a high interest credit card to a zero interest credit card and had completely paid off that debt very quickly, which was awesome.  She had two other high interest cards and asked me if she should move the debt from those over to the same zero interest card or if she should open a new zero interest credit card. I had to pause a bit before I considered the answer.

First things first.

A zero interest credit card is a credit card that has zero interest for a certain amount of time, after which the interest rate spikes up, usually higher than a ‘regular’ credit card. If you’re really diligent about paying off a zero interest credit card quickly, you can pay it off before the high interest rate kicks in.

I wrote about these types of cards before in my post: Is a 0% Interest Credit Card Just a Blatant Lie In a Pretty Package?

Zero interest credit cards have their pros and cons, and both are pretty simple. In a nutshell:

Pro: You can pay off debt quicker when you have no interest gathering on the debt while it’s on a zero percent interest credit card.

Con: If you don’t pay off your debt fast enough on aforementioned card, you’ll have a hell of a LOT of interest gathering on that debt. 

So, let’s back to my friend’s question about whether or not she should move multiple balances to the same zero interest card. Here are the facts:

  1. My friend had 3 high interest cards she needed to pay off
  2. She had one zero interest credit card
  3. She had already moved two high interest cards onto the zero interest card and had paid off one card’s debt already. 
  4. In May, the zero interest would turn to VERY HIGH interest, probably around 20+ percent, which is awful. 
  5. She still hadn’t moved the third debt and was wondering if she should move it to the zero percent card or open up a new zero percent card for that last debt.

Here’s my answer, with additional questions, in 3 parts:

  1. Can you beat the balance transfer fee? Some zero percent interest cards have a 3 percent balance transfer fee. If your zero interest card has this fee, you have to calculate whether that 3% is less or more than the interest you will end up paying on the original card before your debt is paid off. For example, if you have $1000 in debt on a card and move it to a zero percent interest card with a 3% balance transfer fee, you’d have to pay $30 to transfer the debt. If you would end up paying less than $30 in interest on the original card before you paid off the $1000, it wouldn’t be worth it. If you had a zero percent interest card with no transfer fee (they do exist), you’re fine and wouldn’t have to make this calculation. If
  2. Can you pay off the second AND third debt by the time the zero percent interest expires? In this case, if she could pay off all debts before May, her interest rate would stay at zero percent and she would get all the pros out of the card with none of the cons.
  3. Can you put all the debt from various, different cards, on one zero percent card?  This was a question I had to ask myself, and then had to google. I wasn’t sure how things worked with putting multiple debts on one zero percent card. Turns out it’s fine. It’s equally fine to put the debts on different zero percent credit cards (you can open multiple at the same time, depending on your credit score and approval, of course.)

One last MAJOR note: Don’t close the original card after the transfer, unless it has an annual fee that you don’t want to pay. Closing older credit cards hurts your credit score. 

So my friend was able to get all her debt from 3 cards on one zero percent credit card, and is on track to pay everything of by May before the interest goes up. This will save her tons of money in interest in the long run.

Hope this helps you guys understand zero percent credit cards a little better, and wasn’t too complicated. If used wisely, AND QUICKLY, zero percent interest cards can be a great tool to help get you out of debt.

 

 

The Beautiful Holidays of Your Thirties

No matter what holidays you celebrate, or where you are right now, I want to take a moment to wish you a happy holiday season and thank you for being here with us. Holidays have meant even more to me in my thirties than they ever have before, because I’m simply so appreciative of the time I get to spend with my friends and family and loved ones. I feel lucky that the holidays are a time when I get to come home, and when the ones I care about are home with me as well.

More than ever, I appreciate the time I have with people who matter to me, and I realize more and more that life is short but beautiful because of the amazing people in my life.

So for a moment let’s slow down the fast paced work clock that ticks constantly at our heels, and allow ourselves to enjoy what we know really matters. Have a wonderful season, enjoy what matters to you in your heart, and lets bring the holidays into our lives as much as we can all year round.

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