Annuity

If you have spent some time exploring your options for retirement planning, you might have heard of a qualified longevity annuity contract, or QLAC for short. But what is a QLAC? What are some reasons that folks might consider this option for their situations?

As everyone knows, people tend to have many financial concerns nowadays. Having enough retirement income is a top concern among those who have stepped back from a full-time career. Among other things, low interest rates have made it harder to generate predictable income for even just run-of-the-mill living expenses in retirement.

With low rates hitting fixed-interest options such as CDs, Treasury securities, and bonds, the challenge is figuring out how to adequately supplement other sources of predictable income, such as Social Security or a pension. No wonder, then, that surveys have found that many retirees are afraid that they might run out of money in their later years.

Since they have a monopoly on paying reliable lifetime income, annuities are one vehicle that can help fill this gap. In fact, besides Social Security, annuities are the only thing on the planet capable of paying you a guaranteed income for life.

Challenges Still Linger

But even the income from an annuity may not be enough to cover a retiree’s expenses when they get into their final years, especially if they need services such as long-term care or home healthcare.

Conversely, many retirees won’t need to start taking money from their IRAs or workplace retirement plans when they turn 72 (the new age at which required minimum distributions must start). RMDs can create a tax headache for those with considerable retirement assets, and they may be an excess source of income in some cases.

Enter again a possible solution with QLACs, which can help with providing income in later years or providing some tax relief for a while regarding required minimum distributions.

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Could annuities be a good investment for retirement? If you could have more peace of mind or your plan could be stronger from having contractual guarantees in it, such as guaranteed income for life, then it’s good to consider an annuity.

What about saving for retirement? If you are taking advantage of contributions to retirement accounts, then annuities can provide another tax-advantaged vehicle for you to build up even more retirement savings. These are just a few ways that an annuity might help you in your financial goals.

One Important Clarification

All of that being said, let’s go back to the original question: “Are annuities a good investment for retirees?” To delve fully into that, it’s important to be clear about what annuities are.

By definition, an annuity is a contract with an insurance company. In exchange for someone putting money into the annuity contract, the insurance carrier promises to uphold contractual guarantees over a certain time. This might be a contractual guarantee to pay you a lifetime income stream, for example.

Because of this use as a contract, many annuities aren’t technically an investment. Fixed-type annuities such as fixed annuities, multi-year guarantee annuities, and fixed index annuities are really fixed insurance contracts. In this regard, they are more of a risk-managing tool.

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The short answer? Immediate annuities actually don’t come with an accumulation period. Once you have paid premium into the contract – in most cases a one-time lump – the insurance carrier will start income payments nearly right away. Your income payouts may start anywhere from 1-12 months after the premium payment date.

When this starting date is depends on your contract and frequency of payments. You may receive income on a monthly, quarterly, or even annual basis. Many contract holders opt for a monthly payment schedule.   

The insurance carrier puts the entire sum of your premium into a pool of other premiums it has been paid. Then it allocates these premiums into conservative, low-risk investments. In return, the carrier pledges to make payments to you – or someone you specify – for a specified period of time, which can be for the rest of your life. The income you receive includes a fixed sum and interest paid on a continual basis.  

Therefore, immediate annuities don’t have an accumulation period – there is little time between when you pay premium and start receiving income. Many immediate annuity contracts start income payments just a month after the day you bought your annuity.

Where accumulation periods do apply is with deferred annuities. In these contracts, your money will be left alone for a number of years before you start taking income. Let’s get into more details below. Read More

When it comes to annuities, have you ever heard of “period certain” payouts or other confusing terms? Many people use annuities for guaranteed income streams. It’s helpful to know what these terms might mean if you are thinking about an annuity for your retirement.

One of the great things about annuity contracts is how they can be structured to fit different situations. Do you want guaranteed monthly income for the rest of your life? The insurance company will pay you like clockwork, even if all of the money in your contract runs out and it’s still paying you decades later.

Or what if you want the guaranteed income to last for only a certain period? Then you have some flexibility in how long you choose to receive those payments. With help from your financial professional, you can explore different annuity payout options and see what makes sense for your needs.

Of course, some people worry about not being able to enjoy these guaranteed annuity payouts for as long as they might wish. What if something major happened and they passed away sooner in retirement than expected? They wouldn’t have a full return of the money that they had paid into the contract.

The good news is someone can choose payout options that continue payments to their loved ones should they pass away in this manner.

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Are you at or near the point of needing principal protection? Not everyone has the same psychology of investing, but many people start tapping the brakes on their tolerance for risk as they near retirement. While financial markets had some history-making moments in the 2000s, they saw never-before-swings in 2020, as an example.

Because of the economic and financial disruptions from the novel coronavirus, and resulting investor fears, the stock market had wild swings happen just in a matter of days. Beforehand, it had taken weeks or months to see such market volatility.

Such uncertainty was tough for retirees and for those who are just on the cusp of retirement. According to Pew Research, 10,000 baby boomers reach age 65 each day. That is a trend that started in 2011, and that Pew expects to go on until 2029.

In other words, this uncharted territory can have a lot at stake. If you are nearing retirement, you may be wondering about your own financial future. Perhaps you are thinking about whether you should have some principal protection for some of your retirement money? Read More

Many know Ken Fisher as the Chairman of Fisher Investments, but you might recognize more from his ‘I Hate Annuities’ campaigns. From attention-grabbing TV commercials to spirited digital ads, Fisher hardly runs from controversy.

“I would rather die and go to hell than sell an annuity,” he famously declares in one commercial. But does Fisher really hate annuities this much? More importantly, should you write off annuities for your retirement because of his criticisms of them?

Fisher Investments, a registered investment advisory firm, operates an annuity buyout program. In exchange for investors becoming clients of his firm, Fisher Investments will pay the surrender charges on the variable annuities which the investors are leaving. Read More

Just bring up the topic of annuities, and chances are you might have all sorts of reactions. The history of annuities shows that these guaranteed contracts have provided financial security and assurances for a long time.

Annuities didn’t exactly pop up yesterday. In fact, they have been around for thousands of years, providing guaranteed income to pensioners, families, and individuals when they need it most. What’s more, their guarantees can cover more than just lifetime income.

If you are wondering if annuities make sense for your retirement goals, a quick walkthrough of their history can give a good idea of their track record.

Here’s a look at how annuities have provided crucial security, stability, and promises to millions of people across thousands of years of human history. Read More

What is the primary reason for you and other retirees to buy an annuity? Millions of people own annuities, but exactly for what purpose? Generally, annuities can provide lifetime income, protection against risk, and long-term growth with tax advantage. They can also offer contractual guarantees for long-term care spending and death benefit proceeds.

Why you might buy an annuity will depend on your age and where you are at in your retirement-planning journey. These contracts can help you solve problems not only with guarantees in retirement, but also with saving up for later goals during your working years. Read More

Millions of Americans depend on annuities for retirement saving, protection, and income. If you are considering an annuity for retirement, the right annuity contract can help make a difference in you reaching your goals. But first, you need to make sure that an annuity truly fits your financial situation and objectives.

The search starts with making sure that you have a solid insurance company issuing your annuity contract. Why is this so crucial? Read More

Does it make sense for you to buy an annuity at age 60? How about when in your 60s in general?

It really depends on the annuity and what it would do for you. An annuity should solve specific problems in your retirement plan and cover any gaps with its contractual guarantees.

Tens of millions of people depend on annuities and their guaranteed promises for retirement. While you may be considering an annuity while in your 60s, the ages of those who buy annuities tend to be across the board.

Some buy fixed-type annuities in their 40s so they can accumulate money alongside retirement accounts or an employer plan. Others use annuities for income in their 70s, or even later, so they have dependable guaranteed cash-flow. Several annuity buyers fall somewhere in between those age ranges.

Now, what situations might make sense to purchase an annuity in your 60-somethings? Read More