A Retirement Savings Tool You Might Be Missing

By David Chazin

America's pending retirement savings crisis has drawn a lot of media attention lately, and for good reason. As millions of baby boomers approach retirement age, more demands are being made on our Social Security system and most companies (luckily not Chevron) have done away with pensions.

You probably already participate in the Chevron employer-sponsored 401(k) plan/ESIP (which has an especially nice 4:1 company match) and/or contribute to an Individual Retirement Account (IRA) or Roth IRA. If so, you’re one more step ahead of many other Americans when it comes to saving for retirement.

How Will You Live When You Retire?

Unfortunately, over time the effects of inflation may significantly erode the value of your CRP (if you choose to take it as a pension) and any hard-earned retirement savings. In fact, even a low inflation rate of just 3% will cut the purchasing power of your nest egg in half in just 25 years.

Therefore, even though Chevron offers the CRP, ESIP, and other deferred compensation plans for executives (PSG 26 and above), you may still need additional retirement savings to secure your financial future and help reach your retirement goals.

A Variable Annuity Can Help You Save

A variable annuity is a long-term investment vehicle designed for retirement purposes. In essence, a variable annuity is a contractual agreement in which payment(s) is/are made to an insurance company, which agrees to pay out an income or lump sum amount at a later date. There are contract limitations, fees and charges associated with variable annuities, which include, but are not limited to, mortality and expense risk charges, sales charges, administrative fees, and charges for optional benefits.

A tax-deferred variable annuity can help you reduce your current taxes and fight inflation as you save for your retirement. It's a strategy that more and more Chevron employees are using as Americans' fear of outliving their savings grows.

Here are some things to think about when it comes to using a variable annuity to meet any additional retirement income needs you have:

Need to get started. If you haven’t started contributing to the ESIP, you may look to vehicles that help toward retirement planning and shift some of your tax burden to your post-Chevron retirement years, when you may be in a lower tax bracket. A variable annuity has this kind of tax benefit, but be sure to consider your short-term savings needs before committing to this long-term investment.

Need to catch up. Home purchases, college tuition and other expenses can all hinder our ability to save for retirement. A long-term investment strategy of a variable annuity can help you start moving toward your retirement goals, because it offers unlimited contributions and tax-deferred compounding.

Need to contribute. Contribution restrictions in IRAs and the Chevron ESIP limit the amount of money you can invest. But you can contribute an unlimited amount into a variable annuity.

Need to manage savings. If you are close to or already in retirement, a variable annuity can help you control income taxes and manage your retirement income. With a variable annuity, you can choose to receive a guaranteed income for life. And, unlike traditional IRAs and 401(k)s, you do not have to begin taking income from your variable annuities at age 70½.

Need to control income. If you take your CRP as a pension, the amount you receive every month is set and does not change much, nor do you have the option of “turning off” this income stream. With a variable annuity, you can determine the exact amount you would like to withdraw from your account and when you want to receive it. Just like with a pension, taxes are due upon distribution at ordinary income tax rates, and withdrawals taken prior to age 59 1/2 may be subject to an additional 10% IRS penalty tax.

One option is to take your CRP as a lump sum and invest it in a variable annuity. By doing this, if you and your spouse pass away, there is a death benefit that goes to your children or any desired heirs if you use a variable annuity. 

What it all boils down to is that variable annuities offer both long-term, tax-deferred growth potential and flexible payout options in retirement. Additionally, only variable annuities combined these benefits with investment flexibility, guaranteed retirement income, and insurance protection for your heirs.

I’d be happy to sit down with you to discuss whether a variable annuity fits into your overall financial picture. Because I work with Chevron executives, managers, employees and retirees, I'm knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of my Chevron clients and you can ask them how working with a financial planner has helped them. 

Please contact me at (925) 659-0251 with specific questions or to schedule a time to meet in my San Ramon, Point Richmond or Houston, TX offices. 

Variable annuities are offered by prospectus.  An investor should carefully consider the investment objectives, risks, charges and expenses of the variable annuity and the underlying fund options before investing.  To obtain a prospectus that contains this and other information call your investment professional for a free prospectus.  Read the prospectus and underlying fund prospectus carefully before you invest or send money. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor’s shares when redeemed may be worth more or less than the original amount invested. Guarantees are based on the claims paying ability of the issuer. Withdrawals may be subject to a withdrawal penalty, are subject to ordinary income tax, and if taken before age 59 1/2; a 10% penalty may also apply.

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