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
For the past few decades, people have been living longer than what Social Security was designed to pay out for. Millions of new retirees are joining the ranks of Social Security benefits recipients, now and in the coming decades.
In time, the outflowing payments to Social Security beneficiaries will start exceeding what Social Security has in reserves. The Social Security Administration will then have a decision to make.
It will have to rely more on the inflows from payroll taxes (and possibly other funding measures) in order to keep up its promised benefits payments to future generations of retirees.
Before the pandemic crisis, Social Security was looking at its reserves being depleted by roughly 2035. But now, over 20 million people have lost their jobs as a result of the spread of the coronavirus.
That is 10% of the U.S. workforce. Payroll taxes that would be pouring into the U.S. Treasury from everyone’s paychecks have lessened considerably. As a result, Social Security has been dipping further into its reserve funds in order to keep up its promises to retirees and other benefits recipients. Read More
With markets in turmoil right now, many retirement savers are looking for ways to protect their money now so they can retire later. And not for just any retirement. They want a comfortable retirement that they can enjoy on their own terms and where they stay retired.
What can you do now to preserve the money you have accumulated and grown for so many years? The answer will be different for every person. It depends largely on their situation, risk tolerance, need for liquidity, and goals.
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
At some point or another, you may have heard of the “Four Percent Withdrawal Rule,” but what exactly is it? And why does it matter for your retirement?
The four percent rule is the brainchild of south California financial planner Bill Bergen. Simply put, the rule states that a retiree can withdraw 4% of their initial retirement portfolio balance, and thereafter, adjust their amount for inflation each year. This approach would give the retiree a reliable “paycheck” that lasted for 30 years.
Back in 1994, Bergen had many clients worrying about safe withdrawal rates. They were anxious about how much they could spend in retirement without running out of money. Searching for answers in financial textbooks, Bergen found that no educational materials at the time gave a definitive answer.
With that, Bergen went to work on his computer. He ran analyses on data provided by no less than Roger Ibbotson, whose blockbuster research includes groundbreaking findings on indexed annuities as a retirement asset class.
The end result? Bergen’s now-famous four percent withdrawal rule. Today, it’s one of the most widely quoted and used rules of thumb in finance.
But those days had vastly different economic conditions than now. Given that, is the 4 percent rule still relevant for retirement investors today? 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
If you have any money in the market, chances are you have heard of recent slumps in U.S. market indexes.
From February 21st to February 28th, the Dow Jones Industrial Average index fell 12.4%. That drop was quickly followed by a couple of record setters in March. The worst drop in three decades came on March 13th.
The Dow fell 10%, its then-worst decline since the 1987 Black Monday market crash. Then, on March 16th, the market indexes had another record-setting drop. The Dow fell 12.9% and the S&P 500 declined 12% in one day, respectively.
On the whole, investor concerns over the novel coronavirus and the oil supply feud between Russia and Saudi Arabia have sent global financial markets into a tailspin. For those on the cusp of retirement, the timing couldn’t be worse.
Of course, every market is different. As a result, no one can be 100% sure of what will happen next. Even so, what might retirement investors face in the near future?
The decline has actually taken us into bear territory, which is typically defined a market drop of 20% or greater.
But as Peter Oppenheimer, chief global equity strategist at Goldman Sachs, observes, there hasn’t ever been a bear market spurned by a viral outbreak. 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
Tune into a financial show on TV or the radio dial, and chances are you have heard it.
The retirement income shortfall among Americans has been a hot topic in the financial advisory community for a long time now. But, surprisingly, what hasn’t received as much attention is the issue of carrying debt into retirement.
It’s a serious matter. More retirees are carrying larger amounts of debt into their non-working years than ever before.. With its rapid pace of growth, this trend is threatening to further disrupt the retirement plans of many seniors.
According to blogger Chris Farrell, the median total consumer debt for retiree-led households (age 65+) was $31,300 in 2016.
That was 250% more than it was in 2001 ($12,250) and nearly 450% more than the level in 1989 ($7,250). Some 60% of senior households carried some of debt, up from 42% in 1992.
Other studies have similar findings. According to one study by researchers at the Ohio State University, among households ages 55-70, some 75% of households had some sort of debt load. That is up from 64% of households in 1989.
As Farrell mentioned on a podcast with NextAvenue: “Over the past ten years — since the financial crisis — one thing that is really striking is how much debt consumers have taken on, particularly in the past couple of years. And people over 60 are increasingly comfortable taking on debt.” Read More
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