The house where I grew up was in a small neighborhood of mostly elderly people who rarely left their houses. The couple next door was friendly. My father and they would exchange garden produce and they'd invite my sisters and I to swim in their pool. But most of my exchanges with the other neighbors were limited to waves and hellos.
In my adult life I've lived in four cities: St. Louis, New Orleans, London, and Boston. In none of them did I even know my neighbors. I couldn't have told you their names. No one came by to introduce themselves when I moved in, and few even had a smile to offer when passing.
What ever happened to the days when new neighbors showed up on your doorstep with a casserole or invited each other for dinner or just to chat on the front porch? I wondered. Didn't I see that on Leave It to Beaver or Little House on the Prairie?
I don't want to slag on Americans in general (There are plenty of other people to do that, right?), but what's the deal? I made attempts to get to know and befriend the people in my neighborhood in every place I lived, but without luck. Nobody was interested. And look, I'm a pretty damn interesting person. I don't smell. I'm not insane, annoying, or pushy. I don't have any weird tics or a third eyeball or anything. So what gives? I don't have trouble meeting people or making friends elsewhere, but I'll be damned if I can make friends with the people who live 50 feet away from me and whom I see nearly every day.
Until now, that is. Since MDT and I have been in Costa Rica (a little over a month), not only have we met all our immediate neighbors (and their extended families), but we even consider them our friends.
The couple across the street is awesome. They have been incredibly helpful. The guy is a contractor, and has come over to help us fix several things around the house that had us stumped (the frighteningly named "suicide shower" that is endemic to Central America, for one), and given us lifts to town, etc. His girlfriend made us rice pudding, her parents brought us Guanabana shakes, and her daughter stops by almost daily to practice her English and play with the cats and often brings us oranges or bananas that she's picked. They're like our adoptive family. It's pretty cool.
Plantains brought to us (and wrapped with birthday paper) by Angelica, age 7.
An entire branch of bananas from our friend Pablo.
Our landlady and her daughter live next door and two doors down, respectively. They've also brought us fruit and given us rides, and her seven-year-old granddaughter is always running around playing and bringing me flowers.
Flowers, picked and delivered by Angelica. Yes, that's a giant tin of tomatoes. We didn't have a vase.
Another neighbor, a guy MDT plays fútbol with, has invited us for drinks at the bar next door and to his upcoming birthday bash, and others routinely give us a lift to or from town if they're passing by. We know everyone's names (and their dogs', cats', and horses').
It's always difficult when you're new in town, but this time we're new in the country, and the language is new, too. I can't even believe how much at home they've made us feel here, in so little time. When our time comes to move on, we'll be very sad to leave them.
Um. . . so where are you going with this? I know this post isn't exactly about personal finances or being thrifty, unless of course you count my passing mention of us walking everywhere (not owning a car) or the fact that we've saved money on food because people keep bringing us stuff. But the whole point of being frugal and minding your financial situation is, ultimately, to be more comfortable, right? I'm not saying having money makes you happy. But I am saying that life's a hell of a lot easier when you don't have a huge debt hanging over your head or when you don't have to worry about how you're going to pay your bills at the end of the month or how you'll ever be able to afford your own home (seriously, can someone fill me in on how the hell people do this?).
I've talked a lot about sharing garden produce, tools, rides, etc., in other posts. And I hate to take things back to the kindergarten level, but you know what? It's nice to share. And to be friendly. It's makes everyone more happy.
So go make a casserole, already. Pick a neighbor you don't know very well, knock on their door, and make their day. Go ahead. You'll feel good afterward, and you just might make a new friend.
Just in time for the Holidays, our sponsor DigitalRoom.com is rolling out another giveaway: a 16¨ x 20¨ rolled canvas print (with free UPS shipping to the US, of course). Rolled canvas prints are perfect for home decor, photo prints, and signage. And they make fantastic, thoughtful gifts.
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We'll announce the winner on the blog and a coupon code will be sent to the winner’s registered email on November 27, 2009, so if your blogger profile doesn't display your email address, be sure to leave it in your comment.
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Thank you to DigitalRoom.com for providing us here at TAiMH with our own free print. It´s awesome. And thanks to UPrinting for hooking us up with them. See their review at YouTheDesigner.
Reminded by the mention of couchsurfing in Man vs Debt's recent post that I compiled for the Money Hacks Carnival I hosted last week, I've decided to write a review, of sorts, of couchsurfing based on my and MDT's experiences as couchsurfers. We have not as yet had the pleasure of hosting any surfers as we've been in the process of moving first across the U.S. and then to Central America and setting up shop here. But, as we've been here in Costa Rica a whole month now (!!!) and just purchased an air mattress, perhaps we'll receive guests soon and I'll be able to update this article with our experiences hosting.
What is CouchSurfing?
I heard about couchsurfing.org a year or two ago, but didn't try it out until this fall. MDT and I had decided to move to Costa Rica, but needed a place to stay during our two-week house-hunting visit. Couchsurfing.org describes itself and its purpose thusly: "CouchSurfing offers you, via our website and regional events and activities, the opportunity to intimately encounter the world. Through meaningful connections with locals, Couchsurfing seeks to promote self-awareness and understanding of others. Being a CouchSurfer means you are part of an international community of travelers who recognize similarities and appreciate differences in all peoples."1 It's a travel community with a (supposed) purpose and with a general attitude of acceptance that can come off sounding a bit peace-and-lovish. Not that I have anything against peace and love, of course. But I've had enough random experiences with, let's say, "the less down-to-earth" sort to be slightly wary of people one might encounter via couchsurfing. However, my concerns have so far been unfounded.
As an aside, I have had a close encounter of the hippie kind here (an aging—and braless—Californian woman who invited me to her monthly New Moon women's group where they dance and "summon [their] ancestors and [their] progeny," but it had nothing to do with couchsurfing.
I will say, however, that on the couchsurfing site it's best to carefully read the profile of anyone you're considering staying with. Personally if I see phrases like "sacred space," "auras," "star-child of the universe," (yep, that one's real) in a profile, I just move on. Depending on where you're traveling to, the type of people you'll see on couchsurfing vary widely.
To sign up for couchsurfing.org, you simply fill out a basic profile (10-15 minutes, depending on how in-depth you want to be) and then you're free to start searching for available couches. The search feature is easy to use and includes information about each registered couchsurfer (and/or host—you can choose to be one, the other, or both). Select the area you're planning to travel to and start browsing profiles. You can do more in-depth searches if you're traveling to populous areas with a larger selection of profiles.
Our Experience
We e-mailed (via couchsurfing.org's interface) eight or nine people. A few didn't respond, and a few who did weren't available at the times we needed, but we ended up finding three available hosts in different areas.
Our first night in Costa Rica, we stayed with a young Tico man in what turned out to be his mother's house (though she was out of town). This first couchsurfing experience was the worst: the house was filthy, I mean disgusting. It looked like nothing had been cleaned or so much as dusted for five years. The young man and his friend, who was also staying the night, were mostly friendly and we chatted, somewhat uncomfortably for me at least, for an hour or two before we were shown our room. It was during the chatting that MDT spotted and discreetly pointed out to me the biggest roach I've ever seen in my entire life—and I've lived in New Orleans. This thing was big enough to have facial features I'd probably recognize if I saw it again. I behaved very well, however, and no one noticed my horror. The bathroom was horrible, so much that we couldn't even shower for fear of coming out dirtier than before, and the bedding was so repulsive that we slept (or attempted to sleep), fully clothed, on top of our jackets laid on top of the bedding. It was an experience I hope never to repeat.
At this point, I was pretty terrified of what to expect of our next "couch," but thankfully, our second host, another young Tico, just our age, was a ray of sunshine—and has since become our good friend, whom we hang out with often. He, too, lives with his parents (or rather they live with him), but his house is very clean and he and his family are very hospitable. We only planned on staying with him for a day or two, but he offered for us to stay as long as we like, and he even devoted several days of his time to driving us around town and helping us house-hunt. He showed us how to make traditional Tico-style food and introduced us to his friends. We felt very much at home, even though he is the only one in his family who speaks English and our Spanish at the time wasn't fantastic. After a few days, we were already friends, hanging out, going to the bar, etc. He even took us to the beach for the day where we all swam, ate home-grown oranges, and picked coconuts. You couldn't ask for someone more generous and friendly.
We stayed at a hostel in another town for a few nights, and then for our last night in Costa Rica we stayed just outside the capital with an Italian girl a few years younger than us (and her mother), who own a nearby gelato establishment. The girl picked us up in a taxi and brought us back to her home, which was pristine, huge, and magnificent. I'm not sure if I've even been in such a fancy house. The girl was very hospitable, but left soon after we arrived to go to a friend's party. She invited us along, but we'd been traveling for two weeks and just needed to shower and rest that night. She very trustingly left us alone at her house, telling us to make ourselves at home, and after briefly showing us around disappeared for the rest of the night. We had showers and a snack and settled down to watch one of the movies she'd pointed out to us before she left. Her couch was magnificently comfortable, but we were given the guest room to sleep in, whose bed was also immensely comfortable. I commented to MDT that we might as well have been in a hotel. The girl returned around 3 am with a friend, partied a bit more (which woke up MDT but not me), and was still sleeping when we left in the morning. We had a bit of trouble maneuvering around her two very large (but deceptively friendly) dogs whilst attempting to unlock and get through the front gate without letting them loose, but otherwise it was a relaxing and good experience.
The verdict:
If you're looking for a possibly wild and crazy experience and are the adventurous (and imperturbable) type, give couchsurfing.org a try. Don't expect to be waited on or fed—though it could happen. If possible, talk with the person on the phone before you stay with them, just to get an idea of who they are and if you'll get on well. Again, much of your experience will depend on the culture and general way of life of the area you're visiting. That said, we had three very different experiences in the same region of the same country. My advice, if you're interested in couchsurfing, is to try it out in your own country first and see what you think before you do it halfway across the globe.
If, however, you're not an extremely social person or are just looking for an easy, relaxing vacation and you're on a budget, you might want to skip couchsurfing and check out some hostels or budget hotels.
Even if you don't need a place to stay, I'd say that couchsurfing is a good way to meet people wherever you are traveling, or even in your hometown. There's even a search option to find people who are willing to just meet you for coffee or a drink and talk with you about their country, culture, travels, etc. It's a great way to get to know an area and to meet a variety of people.
Other Opinions? Have you ever couchsurfed? If so, what do you think about it? If not, would you ever consider doing it?
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We can't help reiterating that one of the best ways to save money is to make your own food. It's almost always fresher, healthier, and tastier this way.
Take my salsa recipe. We were able to pluck nearly all of the major ingredients from our summer garden—the tomatoes, cilantro, and habaneros. Yes, the onion, lime, garlic, salt, and black pepper were store-bought, but these come cheap. So in a sense we only paid a pittance for about a liter of deliciousness.
Try out this recipe, but also experiment. Add your own ingredients like chipotles, mangoes, etc., if you wish to create your own flavors. Let us know about your recipe in a comment below.
Homemade Pico de Gallo
6 medium red tomatoes 6 medium yellow tomatoes 1 1/2 medium white onions 1/2 medium orange habanero (substitute: 1 Tablespoon cayenne) 1/2 cup cilantro 2 cloves garlic 1 lime, or to taste salt, pepper to taste
1. Chop all ingredients and throw in a large mixing bowl. Chop garlic and especially the habanero super-finely. 2. Add the juice of one lime, salt, and pepper to taste. 3. Refrigerate for at least an hour before eating for flavors to blend.
You'll never want to buy any of that jarred stuff again.
We promised another giveaway today, and here it is. Our awesome sponsor UPrinting is offering two lucky TAiMH readers 100 free custom postcards (with free UPS shipping to the US, of course). Make them for yourself or someone else. Use them to promote your blog, special event, or business. Get creative and use them for invitations, thank-you cards, moving announcements, or whatever your little heart desires. These are really fantastic cards: 4 x 6, full-color on both sides on a sturdy 14-point glossy cardstock.
Ready to enter? All you have to do is leave a comment on this post telling us how you might use the free postcards if you win.
Really want the cards? For additional entries, you can do any or all of the following and leave a comment here telling us you've done it:
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Giveaway ends at noon on Thursday, October 29th, so get your entries in quick!
We'll announce the winner on the blog and a coupon code will be sent to the winner’s registered email on November 6, 2009, so if your blogger profile doesn't display your email address, be sure to leave it in your comment.
Thanks to everyone who entered and helped promote the UPrinting business card giveaway.
The winner by randomly generated selection is:
lonestarlifer
Congratulations! UPrinting will be contacting you soon with the coupon code for your 250 free business cards. We hope you enjoy them and that you have success promoting your new business.
If you didn't win, don't fret. We'll be offering lots of other giveaways in the future. In fact, there's a new one coming up today, so check back in a bit. You can also enter theUPrinting Vinyl Banner Giveaway; it runs until October 29th.
As a side note, MDT and I have recently moved abroad for some long-term travel, so until we get settled into the new blogging groove here, posts may be fewer and farther between than usual. But we'll do our best.
Retirement Basics: Common Sources of Retirement Income Social Security Benefits Though the future of social security is uncertain to say the least, right now the deal is that you pay into the system for as long as you work (6.2% up to the "wage base"--$102,00 in 2008), whether you're an employee or self-employed. In the case of the employed, the employer must also pay the same 6.2% on the worker's wages. In addition, both the employee and the employer must pay another 1.45% each on the total yearly income of the worker. The self-employed do not pay Social Security tax as such, but under a separate law are required to pay 15.3% of their total income; they basically pay both the employee and the employer shares of the Social Security tax, though they can deduct half (the employer's share) when they file their federal income taxes.
The calculation process for how much Social Security benefits a person will receive is ridiculously complex, so I won't get into it here, suffice it to say that it's based on the average of the worker's covered earnings (the largest amount covered in 2008 was $102,000) for the 35 years in which the worker earned the most.
Workers can begin receiving benefits at age 62, but they will be "reduced benefits." Workers are not eligible to receive the full benefits until the normal retirement age, which is currently defined as 67 years old for anyone born after 1960. For ever year after normal retirement age that a worker delays receiving benefits, the benefit amount will increase when they do begin accepting them.
Social Security also provides for the worker's spouse (though currently same-sex spouses are not covered) and children, and with a little maneuvering, it is even possible for the spouse and children to receive benefits even if the worker decides to continue working after his or her retirement age. A worker's widow or widower is similarly provided for, as is, in some cases, even a divorced spouse or divorced widow(er).
The problem is that even if (and it's a big IF) social security benefits are still around by the time we get to retirement age, it's doubtful they'll be enough to live comfortably on. Even now, the average individual's monthly social security check is only around $950, and it's taxable. Obviously, you're going to want to secure other sources of retirement income.
For more information about Social Security benefits visit their website.
Work Pension Plans/Employer-Sponsored Benefit Plans There are two main types of employer-sponsored retirement plans: defined benefit plans and defined contribution plans.
A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service--for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC).
A Cash Balance Plan is a defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance. In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as 5 percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate). Increases and decreases in the value of the plan's investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks and rewards on plan assets are borne solely by the employer. When a participant becomes entitled to receive benefits under a cash balance plan, the benefits that are received are defined in terms of an account balance. The benefits in most cash balance plans, as in most traditional defined benefit plans, are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC).
A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the employee or the employer (or both) contribute to the employee's individual account under the plan, sometimes at a set rate, such as 5 percent of earnings annually. These contributions generally are invested on the employee's behalf. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account will fluctuate due to the changes in the value of the investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans.
A Simplified Employee Pension Plan (SEP) is a relatively uncomplicated defined contribution plan geared towards the self-employed and owners of small businesses. A SEP allows individuals to make contributions (up to 25% of their annual earnings with a maximum of $49,000) on a tax-deferred basis to individual retirement accounts (IRAs). Fidelity has a good site with more detailed information regarding SEPs and even an SEP-IRA Contribution Calculator.
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) Don't get confused, you're right--whoever thought up the acronym for this defined contribution plan cheated a bit. Nevertheless, that's what it is, even though it's easy to confuse with the Simplified Employee Pension Plan above. Whatever. There are two main options for this type of tax-deferred IRA: 1) the employer contributes 2% of the employee's pay each year and the employee is able to contribute up to $10,500 per year. 2) The employee contributes to the plan (with the same maximum contribution) by deferring a percentage of their salary, and the employer must match that contribution (up to 3% of the employee's salary).
A Profit Sharing Plan or Stock Bonus Plan is a defined contribution plan under which the plan may provide, or the employer may determine, annually, how much will be contributed to the plan (out of profits or otherwise). The plan contains a formula for allocating to each participant a portion of each annual contribution.
A 401(k) plan is a defined contribution plan where employees can elect to defer receiving a portion of their salary which is instead contributed on their behalf, before taxes, to the 401(k) account. Sometimes the employer may match these contributions. The money in the account is then invested in stocks, mutual funds, and/or other securities. There are special rules governing the operation of a 401(k) plan. For example, there is a dollar limit on the amount an employee may elect to defer each year. An employer must advise employees of any limits that may apply. Employees who participate in 401(k) plans assume responsibility for their retirement income by contributing part of their salary and, in many instances, by directing their own investments.
An Employee Stock Ownership Plan(ESOP) is a form of defined contribution plan in which the investments are primarily in employer stock.
A Money Purchase Pension Plan is a defined contribution plan that requires fixed annual contributions from the employer to the employee's individual account.
For non-retirement specific investment information, see our Investments Primer.
When you buy an annuity, the bank or insurance company invests your money and agrees to pay you back according to the annuity's contract terms. In very basic terms, you make one or more (depending on the contract) payment to the bank/insurer as your investment, and they in turn agree to make a series of income payments to you, starting immediately or at some point in the future, for as long as you live.
Fixed annuities guarantee a set payment amount and are similar to CDs in that they have a fixed interest rate. Check around; often fixed annuities have higher interest rates than CDs. Note: Always read the contract carefully. Some so-called fixed annuities only fix the interest rate for a specified period, such as one year, and the rate is variable after that.
Advantages
Promises a steady stream of income when you retire.
Guarantees a fixed payment amount and interest rate.
Tax-deferred growth—interest is not taxed until you collect your money.
Typically low investment minimums (as little as $1,000).
Disadvantages
Not insured by the U.S. government or by the insurance company/bank where you buy them.
Often come with high fees and a heavy penalty, called a surrender charge, for cashing before a designated period of time has passed.
Payment amounts do not rise to keep pace with inflation, i.e. they will be worth less as time goes by.
Taxes Some annuities help you set aside money on a tax-deferred basis. You don't pay taxes on the income (interest) earned by this money until you retire. Other annuities allow you to receive income immediately, but it won't be tax deferred.
How they work An annuity has two phases: an accumulation phase and a payout phase. During the accumulation phase, you make purchase payments, which you can allocate to a number of investment options. For example, you could designate 40% of your purchase payments to a bond fund, 40% to a U.S. stock fund, and 20% to an international stock fund. In addition, variable annuities often allow you to allocate part of your purchase payments to a fixed account, which unlike a mutual fund, pays a fixed rate of interest. The insurance company may reset this interest rate periodically, but it will usually provide a guaranteed minimum. During the accumulation phase, you can typically transfer your money from one investment option to another without paying tax on your investment income and gains, although you may be charged transfer fees by the insurance company.
At the beginning of the payout phase, you may receive your purchase payments plus investment income and gains (if any) as a lump-sum payment, or you may choose to receive them as a stream of payments at regular intervals. If you choose to receive a stream of payments, you will often be able to choose how long the payments will last, e.g. for 20 years or for your lifetime. In addition, you may be able to choose to receive fixed payments or payments that vary based on the performance of your funds. The amount of each periodic payment will depend, in part, on the time period that you select for receiving payments. Note: Some annuity contracts are structured as immediate annuities, which means that there is no accumulation phase and you start receiving payments as soon as you purchase the annuity. Annuities with an accumulation phase are called deferred annuities. Many annuities carry a death benefit:if you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount—typically equal to your total payments. They also sometimes offer optional features (that carry extra charges), such as a guaranteed minimum income benefit, which guarantees a minimum payment amount even if you do not have enough money in your account (perhaps because of investment losses) to support that level of payments.
Fees, Charges, and Penalties Annuities carry a number of standard fees as well as extra charges and penalties that can be incurred. Like mutual funds, variable annuities often carry some administrative fees (in addition to the administrative fees of the mutual funds it contains!).
A fairly standard charge for variable annuities is the mortality and expense risk charge, which is expressed as a percentage of your account value, typically around 1.25% per year. This charge compensates the insurance company for insurance risks it assumes under the annuity contract and is sometimes applied toward your financial professional's commission for selling the variable annuity to you. (Yes, they get commission; financial professionals get commissions from every investment product they sell you—which is why you need to make sure you understand for yourself the terms of any prospective investment and not just let your planner delegate your money to best suit their pocketbooks.)
Many variable annuities also have penalties for certain actions, such as early withdrawal. For instance, if you withdraw money from your account during the early years of the accumulation phase, you may have to pay a surrender charge, which is usually a percentage of the amount you withdraw (sometimes up to 15%), though many contracts allow for withdrawal of a certain percentage of your account value without incurring surrender charges. Surrender charges, when they do apply, generally decrease over time; for example, a 7% charge might apply in the first year after a purchase payment, 6% in the second year, 5% in the third year, and so on until the surrender period is over. In addition to surrender charges, you may have to pay a 10% federal tax penalty if you withdraw anything before the age of 59½.
Other fees, such as initial sales loads and transfer fees may also apply. Plus, any special features or options you choose for your variable annuity, such as a stepped-up death benefit, long-term care insurance, or the guaranteed minimum income benefit, normally carry additional charges. As with mutual funds, you can find a description of all charges in the prospectus.
Equity-Indexed Annuities (EIA)
The first thing you need to know about EIAs is to be careful with them. Investment advisers get big commissions when they sign people up for an EIA, so some unscrupulous advisers will push EIAs even when they're not the best option for their client. Furthermore, EIAs are not regulated by the National Association of Securities Dealers or the Securities and Exchange Commission (until 2011).
How they work EIAs are almost always deferred annuities, and during the accumulation period, they credit your account with a return whose rate is based on the performance of a particular stock index. Most EIAs guarantee a minimum return, often 3%, during this period. After the accumulation period, the insurance company will make periodic payments (or one lump sum) to you under the terms of your contract.
It is important to note, however, that even with a guaranteed minimum return, you can lose money with an EIA if your guarantee is based on an amount that is less than the full amount of your purchase payments.
Factors affecting rate of return The index Some EIAs use a simple price index, which means they calculate the rate without counting reinvested dividends. This can make quite a difference to your ROR. For example, in the past forty years, the average S&P 500 gain is 3.8 percentage points higher with reinvested dividends than without.
Method of Calculating Index Changes EIAs also employ different methods for calculating yearly changes in an index, which can produce wide disparities in returns. Three common methods are:
Annual Reset (or Ratchet) - This method credits index-linked interest based on any increase in index value from the beginning to the end of the year.
Point-to-Point - This method credits index-linked interest based on any increase in index value from the beginning to the end of the contract's term.
High Water Mark - This method credits index-linked interest based on any increase in index value from the index level at the beginning of the contract's term to the highest index value at various points during the contract's term, often the anniversaries of the annuity's purchase date.
Caps Caps are limits on the rate of interest the EIA can earn, regardless of the performance of the index.
Participation rates The participation rate determines how much of the index's gain will be used to compute the index-linked interest rate. If it is less than 100%, you won't be getting the full index gain. For example, if the participation rate is 80% and the index increases 9%, the return credited to your annuity would be 7.2% (9% × 80% = 7.2%).
Between participation rates and caps, an EIA's earnings can be significantly lower than you might expect. Participation rates and caps may be changed annually, depending on your contract.
Principal Guarantee Many EIAs provide that you'll receive at least 100% of your invested funds; others guarantee only 90%.
Taxes Your EIA earnings are tax-deferred until you withdraw them, at which time they are taxed as income; gains from an S&P 500 index fund are taxed at lower capital gains rates.
Fees, Charges, and Penalties Spread / Margin / Asset Fee Some EIAs annually subtract a certain percentage of the index gain and call it a "margin," "spread," or "administrative fee." In the case of an annuity with a "spread" of 3%, assuming no cap and a participation rate of 100%, if the index gained 9%, the return credited to the annuity would be 6% (9% - 3% = 6%).
Surrender charges and tax penalties You also may have to pay a significant surrender charge and/or tax penalties if you cancel early. In addition, in some cases insurance companies may not credit you with index-linked interest if you do not hold your contract to maturity. Also, if you make any withdrawals before the age of 59 1/2, you'll be charged a 10% tax penalty in addition to the income tax on the amount withdrawn. The final word: Be very careful with EIAs. Read the contract meticulously, and do not rely solely on the assurances of the adviser or salesperson.
Variable Annuities A variable annuity is part insurance/part security investment; the "variable" means that its value and your income from it is variable—it can move up and down, i.e. you can lose money. Since variable annuities are long-term investments that can tie up your money for many years, the younger you are, the better.
Taxes Like 401(k)s and traditional IRAs, variable annuities are tax-deferred, which means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within a variable annuity without paying tax at the time of the transfer. When you take your money out of a variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will outweigh the costs of a variable annuity only if you hold it as a long-term investment to meet retirement and other long-range goals.
Choosing an annuity Like with any investment, before buying an annuity you should request and read the prospectus and compare the costs and earning potential to other variable annuities and to other types of investments, such as mutual funds. You'll also want to consider the financial strength of the insurance company, which can affect their ability to pay any benefits that are greater than the value of your account in mutual fund investment options, such as a death benefit, guaranteed minimum income benefit, or amounts you have allocated to a fixed account investment option.
I've never really had friendly neighbors before.
Plantains brought to us (and wrapped with birthday paper) by Angelica, age 7.
An entire branch of bananas from our friend Pablo.
Flowers, picked and delivered by Angelica. Yes, that's a giant tin of tomatoes. We didn't have a vase.
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