Who Holds the Investment Risk with a Fixed Annuity Contract?


Annuities are a growing solution for people wanting financial stability and protection, especially in their retirement years. While all annuities can pay a steady, guaranteed income stream for life, fixed-type annuities can be appealing at times when markets are chaotic and economic conditions are uncertain. They offer the benefit of principal protection.

Of course, if you are considering a fixed annuity as part of your financial plan, you may wonder about the risks tied to owning one. After all, annuities are supposed to be a tool for managing risk, right? Who assumes the investment risk with a fixed annuity contract?

In this article, we will cover this question in depth, but here is a quick answer. The life insurance company standing behind the fixed annuity contract bears the investment risk. The insurer pools this risk across thousands of annuity contract holders, including you, and manages this risk in a variety of ways so that it can make good on its promises to you and everyone else. Life insurance companies have a strong record of fulfilling their contractual promises in good and bad economic times.

Before we take a deeper dive into fixed annuities and how insurance companies stand behind the investment risk of upholding them, let’s delve more into fixed annuities and what they involve.

Read More

Why Do People Buy Annuities? A Closer Look at Some Reasons for Owning Them


If you are exploring ways to generate income in retirement, you may have thought about annuities at some point. Of course, annuities can be quite involved sometimes. They come in many flavors, and it’s quite natural to ask why people buy annuities.

The reasons are different for everybody. But one short answer is because annuities can provide more financial peace of mind with their contractual guarantees, backed by the life insurance company.

Annuities have grown in popularity, as people can use them to supplement their Social Security payouts, have a guaranteed lifetime income stream, earn interest on their money, protect their assets against market losses, and enjoy tax-advantaged financial growth. Paying for long-term care, offsetting inflation, and shielding assets from probate and creditors are a few other reasons as well.

In this article, we will delve into reasons behind why people buy annuities and how these guaranteed financial vehicles can contribute to a well-rounded financial strategy.

Read More

Using Annuities for Retirement Planning: Maximize Income and Protect Savings


Retirement planning is a critical part of financial planning. It’s the point at which people leave behind a career and enjoy the fruits of their life’s work. Since they are no longer bringing home the bacon from their job or business, the money has to come from somewhere.

To that end, ensuring a secure and stable income during retirement is a top priority. While there are a variety of financial vehicles that you can tap for income, annuities are an effective way to maximize retirement income.

With their contractual guarantees, they offer a unique way to provide a steady stream of income throughout retirement, helping retirees maintain their lifestyle and meet their financial needs. The risk tied to annuity payouts is pooled by insurance companies across thousands of contract holders, creating efficient risk management that no individual retirees can produce by themselves.

In this article, we will cover using annuities for retirement planning, their benefits, and some reasons for including them as part of a comprehensive retirement plan. Before going further, let’s cover the basics of annuities.

Read More

Does an Annuity Bonus Make Sense for You?


You may have heard of an “annuity bonus” if you have ever looked at annuities before. Bonuses are just one annuity feature, but are they warranted? Are these annuity bonuses a good thing in general, or are they more of a good fit in certain situations?

In this article, we will go over the basics of an annuity bonus, what it involves, what situations in which you might consider one, and the pros and cons of an annuity bonus. In general, annuities that come with a bonus are called “bonus annuities.”

Read More

How to Roll Over an IRA or 401(k) to an Annuity


If you are like millions of other workers in America, you have probably saved for retirement in an IRA, a 401(k) plan, or another tax-deferred account. The chances are also high that you worry about running out of money in retirement. Fortunately, you can put some of that fear to rest by having an annuity as part of your overall retirement strategy. Annuities are fundamentally unique savings vehicles because they can pay you a guaranteed, set stream of income that will last as long as you do.

Annuities can supplement your Social Security payments by providing additional guaranteed income that will remain steady regardless of how the markets perform. They can also help ensure that you have enough money coming in every month to cover all your living expenses.

In this article, we will go over more of the steps of how to roll over an IRA or 401(k) into an annuity. None of the steps are especially complex, but they must be done properly to ensure no tax consequences from the rollover (unless you are converting your annuity to a Roth account). To start off, let’s talk more about why someone might want to move some of their retirement money into an annuity.

Read More

Is Suze Orman Off the Mark on Annuities?


Suze Orman is a household name for personal finance. She has published many financial books, and millions of listeners tune into her interviews and radio shows. If you have ever heard Suze talk about annuities, you may wonder whether her annuity opinions are on the mark or are a nothingburger.

Yes, opinions are subjective, but even the self-styled “Money Lady” gets it wrong on annuities, especially fixed index annuities. That does a disservice to retirees and those planning for retirement. Ultimately, it limits their options that could help them reach their financial goals: paying them reliable monthly income, giving protection against market risk, offering guaranteed growth above what various fixed-interest assets may earn, and providing other benefits.

Another issue with Orman’s anti-annuity stances is that they often capture only part of the picture of a specific annuity kind or feature. Just like other financial products, annuities come in many flavors, and each one has its own strengths and purpose.

In this article, we will focus on Suze Orman and her public statements on fixed index annuities — and how these opinions miss the mark on how the unique guarantees of these products can help people in retirement.

Read More

What Is a Cap Rate and How Does It Work in an Annuity?


An annuity cap rate is the uppermost limit on how much a fixed index annuity can grow in value for a certain timespan. The fixed index annuity earns interest based on a benchmark index. When the benchmark index goes up in value, the annuity is credited interest based on a portion of that growth. When the benchmark index falls in value, the annuity is simply credited nothing for that period, and the principal and previous interest earnings stay intact.

The interest credited to an annuity can’t go any higher than the cap rate. Among fixed-type annuities, a fixed index annuity is generally the only kind of annuity that has cap rates. A cap rate is also known as a ‘cap’ in financial circles.

Many retirement savers like fixed index annuities for their growth potential while having principal protection for their money. But in exchange for that protection, that growth potential can be limited by other ways than just caps: participation rates and spreads.

In this article, we will cover annuity cap rates in more detail – and briefly touch on spreads and participation rates, since they also serve as growth limitations for annuities.

Read More

What Is the Participation Rate in an Annuity?


In a nutshell, the participation rate in an annuity is the portion of the gain in a fixed index annuity that you will be credited with. Your annuity will be credited that portion as interest. Fixed index annuities have benchmark index options into which you can put money so that it can earn interest.

Generally, a fixed index annuity is the only kind of fixed-type annuity that will have participation rates. In this article, we will discuss participation rates in an annuity and how they work.

Read More

Is Dave Ramsey Wrong on Annuities?


Among financial pundits today, Dave Ramsey certainly has a large following and has helped people with various areas of personal finance, such as getting out of debt. Millions tune into his radio show. That being said, Ramsey has very strong opinions on annuities. The question is whether his anti-annuity stances are on the mark.

While opinions are subjective, Dave Ramsey has been incorrect on the facts of annuities that he discusses on occasion on his show. In some cases, the inaccuracy has been notable.

For retirees needing a guaranteed lifetime income stream, guaranteed growth above what bonds or other fixed-interest assets offer, and other guaranteed benefits from an annuity for their goals, it’s a huge disservice to completely disregard these options as part of a retirement strategy. Just as millions of listeners turn to Ramsey for how to get out of debt, millions of people have benefited from having an annuity in their retirement financial plan.

One issue with Ramsey’s annuity positions is that annuities come in all sorts of flavors, just as mutual funds do. Each type of annuity has different strengths, downsides, and benefits in what they can offer. It’s a straw-man argument to group them all together as being the same.

While this isn’t meant to be exhaustive, here are a few instances where Dave has it wrong on annuities — especially fixed index annuities — and how keeping annuities as a serious consideration in retirement planning is better for the public.

Read More

What Happens to an Annuity if the Stock Market Crashes?


Nobody can ever predict what the stock market will do in the future. If you have an annuity or are thinking about getting one, what can happen to your annuity if the stock market crashes? Will the market downturn impact your annuity? The short answer is that it depends on the type of annuity that you have. Other factors can come into play as well.

In this article, we will cover what can happen to your annuity when the stock market crashes. Keep in mind the five primary annuity types as you read this guide on annuities and market crashes: immediate annuities, fixed annuities, multi-year guarantee annuities (MYGAs), fixed index annuities, and variable annuities. As you will see, only the last two types of annuities can be affected by a stock market crash.

Read More

Next Steps to Consider

  • Start a Conversation About Your Retirement What-Ifs

    retirement planning services next steps

    Start a Conversation About Your Retirement What-Ifs

    Already working with someone or thinking about getting help? Ask us about what is on your mind. Learn More

  • What Independent Guidance
    Does for You

    independent vs captive advice

    What Independent Guidance
    Does for You

    See how the crucial differences between independent and captive financial professionals add up. Learn More

  • Stories from Others
    Just Like You

    safe money working with us

    Stories from Others
    Just Like You

    Hear from others who had financial challenges, were looking for answers, and how we helped them find solutions. Learn More

Proud Member