Date posted: March 20, 2011
There are too many Americans who are not considering the effects of inflation in their retirement planning, according to “How to keep inflation from ruining your retirement,” published in The Statesman. In fifty years inflation has caused the median home price in the United States to go from $11,900 to $170,000. Experts predict that fifty years from now you may not even be able to buy a car for that same $170,000. That is why it is so crucial to account for inflation when planning your retirement, whether you are investing in equity linked CDs, annuities, or another product. Nearly 3/4 of those retiring early consider inflation, but that number drops to just over half when you account for all retirees. It is excellent that so many Americans and their advisors are working rising prices into retirement planning, but there are still too many people that aren’t.
For a basic explanation, inflation trends show a 3% yearly increase in prices. If that trend continues, in ten years a retiree will pay $13 for something that costs $10 today and in twenty years they’ll be paying $18 for the same product. Without accounting for inflation when retirement planning, that retiree will run out of money much faster than they might have anticipated. There are some investments and steps to take to protect yourself from inflation and longevity risk.
Treasury bonds that are adjusted for inflation, such as TIPS, can be a good investment because you receive more income as the Consumer Price Index increases. For those nearing retirement, an immediate annuity with an inflation rider is another good way to protect yourself. Your monthly lifetime payments will increase by a specified amount yearly to account for inflation. Wait as long as you can to start collecting Social Security because the delay could increase your yearly benefit dramatically as prices and interest rates increase. By investing in equities, such as equity linked CDS, indexed annuity products, and others tied to common stocks, you can help avert inflation risk. It is also important to manage interest rate risk in your investments when planning for retirement. Speak with an expert to help manage your inflation and interest rate risks.
Date posted: March 19, 2011
One of the biggest concerns that people have with annuities is the problem of unethical advisors selling investors products that aren’t right for them. The National Association of Insurance Commissioners (NAIC) approved regulations last year to protect investors from such practices. The Suitability in Annuity Transactions Model Regulations prevent advisors from selling senior citizens annuities that are not suitable for them. When the model was approved, the NAIC’s goal was for every state in the U.S. to adopt the practices and monitor their financial transactions. New York and California are coming on board now and adopting the suitability regulations in their states.
Annuities are excellent investments that provide a guaranteed lifetime stream of income to investors. They have become increasingly popular during these difficult economic times where many older investors have lost a lot of money in the stock market. It is important to compare annuities and figure out what is best in each individual situation though, especially for senior citizens and others close to retirement. The California Department of Insurance plans to set up a supervision system for insurers selling products to investors age 65 and up. In New York, the State Insurance Department will prohibit salespeople who are commission-based from using professional titles that market them as experts when they are not. Senior citizens tend to be more trusting of these titles and can be coerced into an investment that may not be suitable. That is why these suitability regulations are so important.
Date posted: March 14, 2011
Our series of questions from you continues.
I am a teacher and have been contributing to a 403b tax sheltered annuity (TSA) for nearly 20 years. I am interested in borrowing money from this account for a down-payment on a home. Is this possible, and if so, how does it work and what kind of terms should I expect? If not, can I transfer my 403b to another annuity that will allow me to borrow for this purpose?
Virtually all 403b plans provide for some type of loan provision, and will allow you to borrow your own money for fifteen to twenty years at an average cost of 2% for the purchase of a personal residence. Many plans also allow personal loans for any reason up to five years. Speak with your benefits administrator to double check the availability of such loan provisions and the terms to make sure that you are comfortable with them.
Also, we would probably recommend that you consider taking advantage of a 90-24 provision, which allows you to move (without penalties or taxes) a majority of your 403b / TSA to a newer and more competitive annuity that will offer more features and benefits.
Date posted: March 13, 2011
Analysts from Citigroup changed their tune about Prudential’s outlook going into the future, according to Annuity News Journal’s Steve Thompson. In the article “Prudential Outlook Brighter According to Citigroup,” we learn that the acquisition of two of AIG’s Japanese units is likely to be beneficial for Prudential. Japanese investors who were worried about the value of their annuity products and life insurance with AIG are confident in the security that Prudential now brings to them. Prudential is the number one foreign life insurance company in Japan, which should only be strengthened after their acquisition of AIG’s Star Life Insurance and Edison Life Insurance.
Prior to the changes made by Citigroup’s analysts in late February, they had projected lower earnings per share and stock value for Prudential. They had put a Hold on Prudential’s ratings as well. Prudential looks to expand their sales of the best annuities and life insurance for their Japanese customers after the acquisition of AIG’s units. Both Star and Edison Life Insurance companies will be run by Prudential’s entity Gibraltar Life Insurance Company. Citigroup’s projected earnings per share for Prudential in 2011 are $6.60 and in 2012 they are $7.60. They expect long term investors to be pleased with the performance of their investments with Prudential. While the first two months of 2011 showed economic improvements, the analysts’ caution that the overall economy in both the United States and Japan will continue to effect financial institutions. It remains to be seen what the devastating earthquakes and tsunami in Japan will do to the financial markets.
Date posted: March 10, 2011
Although fixed annuity rates are low right now, they are following the trends of similar products like CDs and treasury bonds, so investors have to keep it in perspective. The Insurance News Net article “Do Fixed Annuity Rates Matter Right Now?” by Linda Koco tries to put the lower rates into perspective for us. According to the Fisher Annuity Index, which tracks rates over one-year periods, 5-year fixed annuity rates were 2.23% as of January 31. That is a decline from the same product last year which offered an average rate of 2.64%. Since other similar investments are showing the same interest rate trends, fixed annuities are still a good investment option as a source of guaranteed lifetime income.
Fixed annuity rates did start increasing in February, according to the same report. There are not too many products out there offering rates greater than 3%. The highest rate investors can get for a 5-year fixed annuity is 3.5% right now. One way to get a better return from fixed annuities is to divide your money into multiple products, such as putting some in 3-year, 5-year and even 7-year products offering higher interest rates. The 7-year fixed annuity rates can be as high as 4%. The majority of fixed annuity investors have their money in 5-year products right now. There are even a handful of wealthier investors putting their money into companies with lower ratings that are offering higher interest rates.
Some advisors recommend investing in fixed indexed annuities to look for better returns. This way investors get interest credited based on one of the external stock market indexes. The different policy features that are offered with fixed indexed annuities are drawing clients in. Guaranteed Lifetime Withdrawal Benefits (GLWBs) and death benefit guarantees are two of the most popular right now. Investors still care about their annuity rates, but in this type of environment they just can’t be the most important feature.