Annuity

If you are approaching retirement, chances are you have been started exploring how you might enjoy a financially confident retired lifestyle.

This includes maximizing the value of your retirement portfolio – and creating dependable income streams that last as long as you need them to.

For retirement investors, one way to solve for this concern is drawing on a lifetime income stream from an annuity. But how appealing are annuities in the face of historically low interest rates? Especially ones such as those we have experienced for the last several years?

Since 2009, in the aftermath of the Great Recession, most developed countries have experienced a low-interest rate environment. Monetary authorities have sought to use low-interest rate schemas in order to spur economic growth and prevent deflation.

The U.S. saw rates cut to effectively 0% until 2016, when they began to inch higher. Still, today, the federal funds rate is only 2.5%, up just half-a-point from this time last year when it measured 2%. Read More

“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man,” Ronald Reagan once famously said.

And the worst time to try to fight this formidable foe is when you are in retirement, living on a fixed income. Many people have some employment, or some involvement with entrepreneurship, for a stream of retirement income.

But chances are they don’t offer wage increases, or other inflation-countering benefits that you might have had in your working years, to help you keep pace.

Annuities are one of the few ways to obtain retirement income that is paid out as long as you live, making them a popular component of many retirement plans.

Investors have been using fixed annuities and fixed index annuities to provide lifetime income. These guaranteed income streams cover monthly costs and help people maintain their standard of living.

But if the annuity payout is fixed at the outset of the contract, by design it can’t be increased to keep pace with inflation. Should inflation rise 10% over time, for example, the buying power of a $3,300 monthly annuity payout erodes to $2,970.

This threat has the potential to affect a retiree’s lifestyle and could even require making unwelcome cuts in spending.

So how can investors seeking the benefits of annuities manage this inherent “inflation risk” and offset its impact? These are just a few of the ways. Read More

Annuities come in all shapes and sizes. And when you are considering one as part of your retirement strategy, sure, it’s important to determine whether an annuity is right for your financial situation.

But there are more annuities than hedge funds in today’s financial marketplace. That is a staggering number of options. If, relative to other solutions, an annuity does help you achieve your retirement goals, then choosing the right one is just as important as its role in your portfolio.

When people plan for their retirement, they usually have one chance to get it right. Your choices will determine whether you live well in later years – or will fall short and will have to deal with the results. This applies just as much to annuity purchase decisions as well as other financial choices for your future.

If you happen to be considering a fixed index annuity for your retirement, understanding how the annuity indexing works is a crucial component.

Your index annuity has many ways of being credited interest. And you might also have a wide menu of index options, from the plain-vanilla S&P 500 price index to newly-minted “volatility controlled” indices.  

First, let’s explore how annuity indexing works. This will cover only annuities of the fixed variety.

Then we will address the new wave of indexing options that include volatility controls, which are a debated topic in the industry. Read More

Whether you are considering purchasing an annuity or you already have one, there are some key mistakes to avoid in order to benefit from annuity ownership.

The pitfalls below have tripped up many annuity buyers. Our insider tips on knowing what to look out for can prevent you from experiencing the same fate. Use these tips to help you in simplifying your annuity buying decisions or in optimizing your annuity contract as part of your retirement strategy. Read More

Rising interest rates and an easing regulatory environment are contributing to near-record levels of fixed annuity sales. It’s good news for people who might rely on these fixed contracts for guaranteed income or protection. A strong marketplace can lend to new innovations, contract benefits, and contract features.

In the second quarter of 2018, total fixed annuity sales reached $33.7 billion, an 18% increase over second quarter 2017 sales. That figure shattered the quarterly benchmark, according to the LIMRA Secure Retirement Institute (LIMRA), a financial industry research firm.

Year-to-date, total fixed annuity sales were $60.9 billion, 9% higher than the first half of 2017, LIMRA reported.

Why all the excitement and elevated interest in fixed annuities? Two possible reasons – rising interest rates and relaxing regulatory pressures on financial markets.

“These products offer a unique value for retirees and pre-retirees seeking protected accumulation and guaranteed lifetime income features,” says Todd Giesing, LIMRA’s annuity research director, in an interview with InvestmentNews. “Clearly, with the Department of Labor’s (DOL) fiduciary rule vacated and the prospect of continued rising interest rates, demand for this product is high.” Read More

Photo Credit: Fisher Investments, Featured in USA Today Special, Source Link. Photo is strictly intellectual property of its owner. All Rights Reserved. 

Long-time money manager Ken Fisher says he hates annuities. And he isn’t exactly shy about it. Since 2013, the head of Fisher Investments has run many blistering anti-annuity promotions – from critical columns and print ads to aggressive TV spots and online display advertising.

Over time, those promotional spots have driven market awareness, boosting Fisher’s profile as a well-recognized annuity critic. Many campaigns still run today, with the ads building on the Fisher celebrity, retirement tips, annuity leg sweeps, or other stickler points.

But while the annuity marketing blitz has been a success, a recent article raises questions about Fisher’s strong public stand against annuities.

It may point to what some call a contradiction between the “I hate annuities” mantra of Fisher advertising campaigns and the investment holdings of Fisher’s firm.

At InvestmentNews, reporter Greg Iacurci writes that while the infamous anti-annuity ads were running, Fisher Investments itself was invested in companies with large annuity business. Read More

Before you commit to an annuity as part of your retirement plan, it’s good to know the basics of this retirement tool. Every year, Americans put hundreds of millions of dollars into new annuity policies. Yet there still seems to be a measure of annuity misconceptions and confusion among consumers.  

You may have seen that a quick internet search of the word “annuity” delivers a wildly diverse set of opinions! And every financial pundit has their own take on annuities. Some of the loudest voices on the internet even claim to be against them, all the while offering annuity or annuity-like solutions to their following.

To help you sort through the noise, we break down common annuity myths and supplement the conversation with some facts. Read More

Once a retirement staple, pensions have been gradually disappearing. Now we hold more responsibility for retirement than ever. That has its own challenges, including how to overcome longevity risk. You have to figure out how to pay for potentially decades of retired living.

Arguably one of the best ways to combat longevity risk is with annuities. However, as you come into the home-stretch and explore your income options, it’s natural to ask, “How safe are annuities for my retirement?”

The good news is they can be quite safe. But there will be some legwork involved to make any annuity-buying decisions that are right for you. Here are some pointers to follow as you consider an annuity for your retirement portfolio. Read More

Are annuities taxable? It’s an important question if you are shopping for annuities with the goal of guaranteed income. An annuity can help us sleep better at night, knowing how much income the contract will provide each month and that it can last as long as we do.

But while guaranteed income may sound good, there is also the flip-side to consider. You may wonder about whether annuity contracts might pose a potential tax trap.

It’s smart to consider the topic. And why? Because taxes are a primary concern for people in retirement. While released in 2010, a survey by Lincoln Financial Group still has relevance today. 

The study of affluent retirees found that federal income taxes were their largest expense. Among the respondents—age 62 through 75 with annual household incomes greater than $100,000—taxes were their largest expense. The survey results show that nearly 1 of every 3 dollars a retiree spent went to taxes.

Good news, though. A 2016 article by the Center for Retirement Research suggests that a “tax time bomb” may not be inevitable for many retirees. However, that premise is based upon 2007 U.S. household taxpayer numbers crunched by the Hamilton Project.

And other research, like a 2014 study on middle-income household awareness of retirement tax issues by Bankers Life, shows that taxes could well be a considerable chunk of future retiree spending. 

All of which leads back to that question: How could throwing annuities into the mix affect a tax bill? Read More

Have you heard of a “market value adjustment” when researching annuities? A market value adjustment is a contract feature that comes with annuities of the fixed variety. Generally you will find it attached to traditional fixed annuities and indexed annuities.

A contract with this feature is called a “market value adjusted annuity,” or an MVA annuity for short. MVA annuities tend to offer higher interest rates than regular fixed annuities do.

With a market value adjustment feature in the contract, the insurance company shares some of its investment risk with an annuity policyholder. In exchange, the policyholder may enjoy more chances for growth potential than a regular fixed contract may provide. That being said, the market value adjustment factor applies typically to excess contract withdrawals and surrender charges. And depending on the interest rate environment, an MVA may be positive or negative, which can increase or decrease a surrender charge amount. 

The insurance company uses the market value adjustment factor as a safeguard against annuity contract surrenders and, in turn, to maintain its financial strength. That way it can maintain its contractual guarantees and promises made to its annuity policyholders.

Let’s look more at what a market value adjustment involves — and how it may be beneficial or negative. Read More