Retirement Planning Blog

Bonus Annuity – How Does It Work?

bonus annuity

A bonus annuity is an annuity product that offers either an upfront bonus on premium or a first-year bonus on the interest rate. The premium bonuses are usually associated with fixed index annuities, while the interest rate bonus usually comes with a traditional fixed annuity. Bonuses are even attached to variable annuities on occasion.

Life insurance companies offer the bonus as an incentive to choose that annuity. One of the complexities of annuity bonuses is that, while they usually get credited on day 1, they actually vest over the contract’s life.

It’s good to know that generally speaking, the growth potential of a bonus annuity will be less than that of a non-bonus annuity. This is one trade-off for the annuity bonus.

Here’s a rundown of how bonus annuities work. This is a good starting point of what to look out for if you are considering a bonus annuity for your financial goals.

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Lock In Your Gains with Fixed Index Annuities and Protect Against Market Losses

lock in your gains with fixed index annuities

For some time, U.S. investors and retirees have been in the strange environment of extremely low interest rates coupled with high equity-market valuations. This has kept returns on annuities lower, but interest rates can change at any time. 

Of course, all of this can change at any time. It’s good to consider your interest rate environment, inflation, and other economic issues when considering an annuity.

In volatile markets, retirees and those close to retirement worry about the sequence of returns risk. Sequence risk arises out of the timing of losses. Losses late in one’s investment life, particularly near retirement, are challenging to recoup because of the short time window available. A loss that might be serious at 35 can be catastrophic at 55.

When you are building your nest egg, you have time to recoup from losses. That time may be shorter or longer, depending on your age, but it’s there, and you can recover. On the other hand, when you are actually living off those same assets, a bad return or loss can have a severe impact on your lifestyle. Moreover, since you are likely in a far more conservative asset allocation strategy, your ability to recover from the loss is more limited. 

Markets can take huge up or down swings at any time – or simply fluctuate in a small range. Those facing disastrous sequence losses when a market veers rapidly down wonder if there is a way to participate in market gains without facing the full fury of potential market losses.

In these conditions, retirees are looking for a place to obtain some growth but not face the risk of losses in the stock market. They want to be able to participate in some market gains, but not be fully exposed to the risks of actually being in the market.  One place to achieve that goal is in the fixed index annuity, or FIA.

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What Are the Disadvantages of Annuities?

what are the disadvantages of annuities

Annuities are a major staple for retirement planning in the financial products marketplace today. Their guarantees of principal protection and lifetime income make them attractive to many people, especially in the aftermath of the pandemic.  

Nevertheless, some financial advisors and retirement savers just don’t like annuities, and there are a variety of reasons for why. Annuities have limits, just like any other financial product, and you should understand what you will get with an annuity before signing on the dotted line. Here’s a quick rundown of some drawbacks of annuities – and also other places in which they come out strong.

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Guaranteed Retirement Income Beyond Annuities: Financial Boom or Bust?

guaranteed retirement income beyond annuities

The idea of dependable, ongoing lifetime payments in retirement is appealing to many people. For over two thousand years, annuities have been a time-tested source of guaranteed income across continents, cultures, and walks of life.

Even now, the need for guaranteed lifetime income is still strong in the face of ever-changing markets, meager interest rates, and other economic factors often beyond anyone’s control.

Of course, there are some ways to get guaranteed retirement income beyond annuities. You have a number of vehicles at your disposal:

  • Bond ladders,
  • CDs,
  • Treasury securities,
  • Defined-pension payouts,
  • Reverse mortgages, and
  • Other certain fixed-interest investments

The Guaranteed Income Question

The million-dollar question is whether these guaranteed instruments can offer you the same level of confidence as annuities can.

Yes, decisions on what to include inside your income strategy always depend on your personal situation. But annuities themselves can pay you a guaranteed income for life in ways that others can’t.

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Fixed Index Annuity Riders — What You Should Know About Them

fixed index annuity riders img

When using an annuity for retirement income security, there are many questions that need to be considered. Annuities can pay you a guaranteed income for life, but they aren’t for everyone. They need to have a defined purpose in your retirement plan that solves a specific problem.

The annuity owner can determine when the annuity begins to pay out, and how the payouts occur. The payouts can occur for a fixed period of time, or they can be set up to pay out for the remainder of the contract holder’s life.

Done? Not yet. The financial professional offering you the annuity might suggest a series of additional benefits, called “riders,” which can be attached to your annuity. A rider can offer add-on benefits to your base contract. It can make the decision-making process even more involved.

Here are some of the types of riders you might find on a fixed index annuity. We will also answer some of the questions that can arise when you explore these riders.

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Backdoor Roth Conversion: What It Is and How to Do One

You might have heard of a backdoor Roth conversion before, but what exactly is it? In short, a backdoor Roth IRA is a way for those with high incomes to take advantage of a Roth account despite IRS contribution limits.

To start with, you have to have an IRA to convert to a Roth. So, if you don’t meet the qualifications for opening a Roth IRA below, you can only open a traditional IRA.
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The Rule of 120 – What Should You Know About It for Retirement?

The Rule of 120 is a long-standing rule of thumb for financial asset diversification. Retirement planning is complicated, and some people find this rule useful as a starting point to evaluate the amount of risk that they have in their financial plan.

According to the Rule of 120, you subtract your current age from 120, then put the difference in stocks and other equities. The rest goes into ‘safe’ financial products, known as fixed-income assets such as fixed-type annuities, bonds, Treasury securities, and CDs.

In other words, if you are 20 years old, 100 percent of your money should be in stocks. On the other hand, if 70 is your age, then you would be at 50 percent in ‘risky’ assets, such as equities.

To be clear, the Rule of 120 is helpful when you are just beginning things. But it’s not the best rule of thumb for everyone and in every situation. Let’s go more over how this rule can be used – and what some limits may be.

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How to Find a Good Retirement Income Planner

retirement income planner

There are many kinds of financial professionals that are available today. With no shortage to choose from, why would you want to limit your search only to retirement income planners – or those who plan for retirement income?

The simple answer is life changes, and financial wellness at this point requires a certain specialty. You wouldn’t go to a family medicine doctor for matters relating to brain surgery. That is what a neurosurgeon is for.

The same goes for income planning near and in retirement. An experienced retirement income planner will be able to help you maximize the fruits of your life’s work net of taxes, inflation, fees, and other factors. They should be able to create dependable income streams that have a good chance of holding up for however long your retirement lasts.

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Wealth Protection: What You Can Do to Preserve Your Family Assets

We all have spent most of our working lives hearing advice to save and plan for retirement. But retirement isn’t just about gathering assets for later years. It’s also about protecting them from loss.

Here are some practical wealth protection tips and strategies that you can implement to preserve your hard-earned assets.

What Is Wealth Protection?

Wealth protection in the financial industry refers to wealth management strategies and tools to help individuals, families, and businesses protect their assets. Everyone needs to put protective measures in place to deal with unexpected events, which will undoubtedly occur.

You will face various potential threats to your financial well-being throughout your life. These risks involve potential harm to your retirement plans and your estate plan. You will also want to manage your liability risk, whether professional in your career or at home in your family.

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How Mortality Credits Make Annuities Work

If you want to maximize your retirement income, then it’s good to know how mortality credits can affect how much lifetime income you receive from an annuity. Insurance companies use mortality credits in their calculations of income payments to their annuity contract holders.

Leveraging mortality credits could make a big deal in just how much income you receive throughout retirement. Moreover, this income stream can let you keep up your current lifestyle in retirement with a predictable, ongoing flow of money to spend each month.

Here’s a look at how mortality credits drive annuity payments – and how these can play to your advantage for a financially comfortable retirement.
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Next Steps to Consider

  • Start a Conversation About Your Retirement What-Ifs

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    Start a Conversation About Your Retirement What-Ifs

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    Does for You

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

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    Stories from Others
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