Annuity

The modern financial landscape for today’s retirees is quite different from that of prior generations. Corporate pensions are disappearing, and the Social Security program faces new pressures from record-breaking numbers of people retiring.

Annuities have steadily emerged as a solution to these retirement income challenges. But up until some years ago, many retirees eschewed the use of annuities. Why? Because in order to get a guaranteed lifetime stream of income, they had to annuitize their contracts.

In order to do this, they had to effectively forfeit control of their money for the rest of their lives. Thankfully, life insurance companies have innovated and come up with a new benefit that gives more flexibility: an annuity income rider benefit. Read More

For retirement savers wanting more growth potential than what CDs and other fixed-interest assets might offer, fixed index annuities can be an attractive option. Indexed annuities can earn more interest over time than what these other options might.

Even so, some people would rather know that they are earning a guaranteed rate of interest. They are more comfortable with a minimum interest rate for their money’s growth.

Multi-year guaranteed annuities, or MYGA annuities, can fill this role for those who want a guaranteed interest rate with full protection of principal.

Multi-guarantee annuities are backed by the same dollar-for-dollar reserve requirements that apply to fixed and indexed annuities.

That means that for every dollar of MYGA premium that is issued, the insurance company must keep at least one dollar in its cash reserves to cover the outstanding amount. Read More

So, you have decided that an annuity makes sense for your retirement. But what type of annuity might be right for you? This will depend on the answers to a variety of questions.

What is your risk tolerance? What timeline do you have for your money? What annuity guarantees are important to you? What you hope to accomplish with the annuity contract? All of these considerations and more are relevant to what annuity might be a good fit for you.

Here are some questions to consider as you think about what annuity might be right for your situation. Read More

Annuities can bring more stability and certainty to a retirement portfolio. But how do you know you are getting a good deal for your money?

The biggest advantage that annuities can give for your retirement is their guarantees. Or in other words, the contractual assurances that the contract-issuing insurance company promises to provide you.

For your retirement, you might already have a number of financial guarantees that will contribute to your retirement security.

You paid into the coffers of Social Security during your career. In exchange, Uncle Sam guarantees you will receive a monthly paycheck from the SSA once you begin your benefits.

If you buy Treasury securities, you are guaranteed a return of your initial principal once the bonds mature. The bonds also pay you guaranteed semiannual interest payments during the maturity period. You also have these same guarantees when you hold a CD from the bank. Read More

If you asked a hundred financial advisors about what they use to construct retirement strategies, you would surely get as many opinions as there are flavors of ice cream.

Many portfolio strategies today call for strategic mixes of equities and bonds. Lots of research is on the so-called 60/40 portfolio, made up of 60% equity assets and 40% bond assets.

The problem is that bonds are particularly vulnerable to interest rate risk, which is the danger of an asset losing value when interest rates rise. And with interest rates sitting at basically zero percent for the foreseeable future, the only direction they can go is up.

This isn’t to say that bonds don’t have a place in a retirement income strategy. But there is also the flip-side to consider.

Do you really have all options on the table if your advisor leaves annuities out of the conversation? Unlike bonds of any sort, annuities are unique in that life insurers include estimates of people’s expected mortality into their payouts. Read More

Unlike other types of vehicles, annuities are the only financial instrument capable of paying a guaranteed lifetime income. They are the only one on the planet. No individual investor can duplicate what insurance companies can offer you with paying you a guaranteed income stream.

Nor can any other asset class do what annuities do. They have contractual guarantees backing them.

Dollar-for-dollar capital reserve requirements, as well as mortality estimates built into every single payout by the insurance company, makes these income promises quite dependable. In this sense, annuities have a monopoly on lifetime income.

You can choose to receive guaranteed income for a certain timespan. Say you need guaranteed income for just 10 years. Then your guaranteed income can be structured to last for that long. Or you can receive guaranteed income for the rest of your life, regardless of how the markets perform. Read More

Many people buy annuities for protection. But what kinds of protection can they provide? The answer depends in large part on the kind of annuity you own.

At the very least, all annuities can protect you against the financial risk of running out of money in retirement. Annuities counter this hazard by paying you a guaranteed income. Your income can last for a certain timespan or for life. This protection is available with fixed-type and variable annuities alike.

However, fixed annuities also protect the contract owner against downfalls tied to market risk, long-term care costs, and financial risks that can derail your legacy wishes. Here’s a rundown of what an annuity can protect you against in your retirement-saving and post-retirement years. Read More

In times of wild market swings and low-interest rates from Treasurys, CDs, and other fixed-interest assets, annuities can bring a sense of calm and predictability to a portfolio. Many people refer to annuities as “retirement annuities,” because they are particularly well-designed for retirement goals.

Annuities are the only instrument capable of paying you a guaranteed income stream for as long as you live. No other instrument on the planet offers this.

You can think of this in terms of a monthly paycheck or money for life. You will receive a check in the mail from the life insurance company that you can count on, again and again, for the rest of your lifetime.

That is no matter how equity markets perform. Annuity income can therefore be seen as a kind of “private pension.”

Speaking in an analogy, you already have your own annuity with Social Security payments. You paid into Social Security’s coffers during your career. Then, when retired, you receive a monthly income that pays you like clockwork.

Annuities work in much the same way. They can be a great supplement to the assured income you will receive from your Social Security payouts.

Depending upon your overall goals, annuities can also help you reach your objectives with other contract features as well. Here’s a look at why retirement annuities can bring predictability to your lifestyle and stability to your portfolio. Read More

Sometimes the stock market can go through a rough patch. The market takes a dive, and then the near-term outlook for stocks might not be that rosy. During those times, many people go on the hunt for ways to keep their money safe.

For millions of Americans, one answer is fixed-type annuities. If you are considering annuities as a place of refuge, then this next question couldn’t be more important for you.

If you had money in a fixed annuity or a fixed index annuity and the market dropped, how much money would you lose? The answer, of course, is not even a cent due to the market falling.

One of the benefits of fixed and index annuities is their guarantee of principal protection. When you put money into a fixed index annuity, the insurance company pledges to keep your money protected from falling index values. The financial safety nets that it maintains to protect your money are indeed very strong.

Even if the market sees a swing like it did in the early 2000s or in 2008, it wouldn’t matter. Your money will stay intact inside your annuity contract. Read More

People buy annuities for many reasons, from market protection to guaranteed income payouts. After all, an annuity is the only instrument capable of paying a guaranteed income for life. But who guarantees annuities? What sort of safeguards stand behind those guarantees?

The annuity guarantor is, of course, the life insurance company issuing the contract.

By law, life insurance companies must maintain very strict capital reserves for every dollar of fixed annuity premium. State regulators require annuity insurers to keep dollar-for-dollar reserves in coverage for every dollar of fixed annuity premium they hold.

Many life insurance companies hold reserves above this. For example, some insurers have $1.08 in reserve capital for every annuity premium dollar.

Hence, this is what financial pundits mean when they say that a life insurer’s ability to make good on their annuity promises depend on that company’s financial strength and claims-paying ability.

What about other safeguards if an insurance company has a liquidity problem? There are also other measures that state insurance regulators put in place as a financial safety net.

Let’s get more into the details of how insurance companies’ financial strength are monitored. We will also cover some of these other safety net features that help back up fixed annuity guarantees to policyholders. Read More