Entries Tagged 'Annuities' ↓

If you’re nearing or in retirement, chances are you’ve heard about annuities and possibly considered investing in one. After all, annuities can provide you with income for life, which provides much-needed peace of mind in retirement. But when does buying an annuity make the most sense, at least for you? Here are three times.

You don’t want to worry about outliving your nest egg. A major worry for many retirees is running out of income when it’s too late to get a job. A fixed annuity protects against that possibility by offering a guaranteed level of income for life. So, if your number one priority is predictable, guaranteed income, a fixed annuity could make sense.

You want a low-risk investment. All investments come with some downsides. With fixed annuities, one downside is relatively low payouts in today’s low-interest-rate environment. But fixed annuities may make up for the downside by offering guaranteed income for life. For a price, you can even include a number of riders, such as cost-of-living adjustments (which protect against inflation risk) and options that cover long-term care expenses, should you require it.

Minimal maintenance is important to you. When you invest in a portfolio of stocks and bonds, some maintenance is necessary (by you or your financial advisor), including review and rebalancing, often annually. With an annuity, on the other hand, you essentially set it and forget it.

We can provide the input you need to help you decide if an annuity is right for you. Please call or email us today.

Financial planners often use a simple analogy to explain retirement income: a three-legged stool. The three legs symbolize Social Security, pensions, and personal savings.

But where do annuities fit?

On one hand, an annuity is a self-created pension plan. On the other hand, an annuity is created from personal savings. But it may be best considered as a different leg that replaces pensions.

Why? Pensions are quickly becoming a thing of the past. They are nearly a relic of a bygone era.

At one time, 88% of private-sector workers with a workplace retirement plan had a pension. That number is now closer to 33%, according to the Center for Retirement Research at Boston College. And as pensions have gradually disappeared, annuities have taken their place, given their similarities. Both provide a guaranteed stream of income for life.

Regardless of where you place an annuity in a retirement plan, however, an annuity can play an important role in assembling a nest egg that can keep you comfortable throughout your golden years.

As evidence, consider a recent study from Global Atlantic Financial Group, which found that retirees who collect income from annuities can sustain much higher expenses than those who do not collect income from annuities. How much higher? The average retiree with an annuity spends 37% more than the average retiree without one ($2,545 per month versus $1,850 per month).

Moreover, retirees who had annuities were considerably less likely to have regrets about their retirement-planning choices than those who did not have annuities (42% of those with annuities had regrets, while 58% of those without annuities did.)

The key takeaway: As pensions have declined, uncertainty around Social Security has grown, and personal savings have often proven inadequate, the three-legged stool needs a replacement leg as another source of income for retirees.

An annuity can fill that role very well.

Most investors understand that the basic benefit of fixed annuities is that they offer the potential for a guaranteed payment. Regardless of whether the economy or markets are performing well or poorly, an annuity pays a minimum amount of income every month. But just how much money should you put in an annuity versus other investments?

When it comes to fixed annuity allocation, some financial advisors recommend that you put no more than a third of your assets into annuities. Others recommend that you limit it to three-fourths of your assets. But that’s a big difference.

The reason for the discrepancy is that some financial advisors feel they can get better returns for their clients by investing in a diversified portfolio of securities. But that’s a harder sell today than it used to be, given the huge losses the stock market has experienced in the past few years.

So how much money should you allocate to a fixed annuity? As is the case with any element of a portfolio, fixed annuities are best used in moderation. That’s because they’re a compelling way to guarantee a certain amount of fixed income in retirement. If overdone, however, they can rob a portfolio of flexibility.

No single answer fits every investor, but one guideline is to use an annuity to cover your basic living expenses. You may have to put a significant part of your nest egg into the annuity to receive the amount you need, but you’ll know it will be there, through good times and bad.

Looking at an annuity? You’re not the only one. Annuities are becoming more popular, according to a new study that looked at how retirees are rolling over retirement plan assets.

When you leave a company or retire, you have the option of rolling over money that’s in your retirement plan, such as a 401(k) plan. But what do you roll it into?

Rollover retirement money is more likely today than it was in 2000 to go into an income arrangement, such as an annuity, according to a new study by Spectrem Group.

In 2000, about 4% of retirement assets that rolled over went into an income strategy. That number is 11% as of 2011. Moreover, of that money in 2011, 30% went into annuities. The rest went into systematic withdrawal plans, structured portfolios or other solutions.

As you may know, an annuity is a contract between an investor and a life insurance company. You give the life insurance company a sum of money, either up front or as a stream of payments, and in exchange the life insurance company guarantees you a stream of payments for a specified time period, sometimes life.

Annuities may appeal to more retirees because they can potentially help protect seniors from the risk of outliving their retirement savings. An annuity can have two potential benefits. It can give retirees an idea how much income they will receive in retirement, and it can help provide a retiree with a measure of protection from investment losses, which are very, very real in today’s volatile markets.

http://www.americanannuityadvocates.com

The summer of 2011 brought plenty of drama, with the debt-ceiling debate, the downgrade of U.S. debt and concerns about European debt all sending the stock market significantly lower.

It wouldn’t be surprising, given the market mayhem, to hear that financial advisors are juggling calls from worried clients. But many aren’t, because their clients invested in annuities.

An annuity is a contract between an investor and a life insurance company. You make a payment to the life insurance company, either in a lump sum or in a series of transactions, and in exchange the life insurance company offers you an ongoing stream of income at some point in the future.

Because fixed annuities promise guaranteed income payments, in good times and bad, investors who have purchased them don’t have to worry about market volatility.

That’s why sales of annuities have risen significantly in today’s market environment. They were up more than 16% to $60 billion in the first quarter of 2011, according to industry research group Limra. And, sales may rise even more.

In June, the Government Accountability Office, the investigative arm of Congress, suggested that some investors could benefit from buying fixed annuities rather than trying to manage their money themselves.

If you’d like to maintain a certain level of income, then an annuity might be worth consideration. But note that annuities can be complex, meaning it’s a good idea to have the assistance of an advisor when researching options and purchasing one.