Date posted: October 31, 2011
It’s time to change our traditional beliefs about retirement, according to Business Week’s “The Great Retirement Rethink” by Elizabeth Ody. While it’s really not what anyone wants to hear, basically we need work longer and even lower some of our expectations about retirement. After averaging a gain of close to 10% each year from 1926 to 2000, the S & P 500 has lost around .4% annually since 2000. Those who purchase some of the best immediate annuities may worry less than others, but only 23% of those surveyed are confident that they’ll be able to cover their most basic living expenses in retirement. That is a very sad fact.
Extending your working lifetime is one of the best ways to secure a better retirement. You are making money to add to your retirement savings, you aren’t taking money out of that savings, the market may make gains, and your savings will not have to be used for as long of a time. Whether you stop working or not, try to delay Social Security payments as long as you can as well because payments increase the longer you delay. Although drawing down 4% of your retirement assets each year has been the norm, many experts suggest that it’s best to lower that number to 3%. Annuities are another way to help guarantee a secure retirement. You’ll want to do an annuity rates comparison because your returns are based on current low interest rates. Even though the economic conditions warrant some financial changes that are less than ideal, delaying retirement five years can make a huge difference in your savings.
Written by Rachel Summit
Date posted: October 30, 2011
In a rebuttal of an anti-annuity article in the Huffington Post, Steve Vernon of Money Watch says that the author drew sweeping conclusions without fully researching annuities. Vernon’s article, “Huffington Post’s Slam on Annuities Is Uninformed and Way Off Base,” says that while some annuities are not great products, that surely isn’t reason to conclude that all annuities are not. He says that immediate annuities can be an important part of many retirees’ portfolios. The monthly income from immediate annuities pays you for the rest of your life and doesn’t base your payments on any economic conditions.
Vernon also says that the Huffington Post is misinformed about the government’s interest in offering annuities to 401k plan holders. He is disturbed that they call annuities toxic and say the government is doing a disservice to Americans by pushing what they call a “retirement rip-off”. In fact, the government has sought feedback from citizens and companies alike in their discussion of annuities and the fiduciaries making 401k annuity decisions have no conflict of interest as the Huffington Post suggests. Immediate annuities, both those used with 401k plans and those not, have been shown to give the most retirement income in comparison to other sources. In this rebuttal of a poorly researched article, the author simply says to do your research, compare annuities, and get the facts before bashing a product.
Written by Rachel Summit
Date posted: October 28, 2011
I smacked my forehead in frustration at a story about annuities in last week’s issue (October 15) of Barron’s. One shouldn’t expect Barron’s to know a lot about annuities, because its sweet spot is stocks and bonds. But still.
The author of the article tried to discover if she could buy an annuity online without interference from an insurance salesperson or advisor. “Frankly,” she wrote, “I would be more likely to consider an annuity if I could complete all the steps online, avoiding the possibility of talking to an advisor who sounds like, well, an insurance salesman.” Let’s hit the pause button right there. People generally need assistance when buying an annuity. Why? Because most annuities have an irrevocable aspect, and people should consult knowledgeable (and licensed, because annuities are highly regulated) intermediaries before making irrevocable decisions.
Why is there an irrevocable aspect to annuities? Because the active ingredient in many annuities is the guarantee of a certain return or a specific income, and those guarantees often depend on the illiquidity of the underlying bond investments. In a word, guarantees are insurance. By definition, insurance isn’t something you can easily jump in and out of. The Barron’s writer continued: “I’m put off by the feeling that I can generate more income investing on my own [than buying an annuity].” To repeat, annuities are not investments. Insurance is always more expensive than investments (unless you happen to count negative returns as an expense) because you are buying protection.
As for her quest to buy an annuity online, the Barron’s writer called several no-load investment companies (Fidelity, Vanguard and TIAA-CREF) and an insurance company (USAA) but was dissatisfied with the annuity services. I wish that she had called annuityfyi.com, where the staff works hard to screen annuities for high quality and help individuals buy appropriate products via Internet and phone.
Written by Kerry Pechter
Date posted: October 27, 2011
Security Benefit Life Insurance Company has introduced a new fixed annuity built for 403(b) plans. According to a Market Watch press release, “New Fixed Annuity From Security Benefit Life Insurance Company Brings Flexibility to 403(b) Marketplace,” this ‘Total Interest Annuity’ has one really interesting benefit. This fixed annuity is SBL’s first to allow ongoing contributions of up to $16,500 every year. You can also use IRA’s or other rollovers to fund the ‘Total Interest Annuity’.
The competitive guaranteed crediting rate will be reset once a year. SBL hopes that by offering a high initial crediting rate along with a 2% bonus on any contributions during the first year, they will get people to invest early. This includes a bonus for any 401k annuities or other rollovers. They want to show that they are committed to the 403(b) marketplace with this new fixed annuity. SBL is also showing their support for advisors by giving them a product to ease clients’ worry about risk and volatile markets.
Security Benefit has over 200,000 retirement accounts, mostly in the K-12 education sector. They believe that the ‘Total Interest Annuity’ will help retirees looking for safety and competitive crediting rates. The product is meant for conservative investors who are trying to get away from high market risk and/or are very near retirement.
Date posted: October 26, 2011
The Fed recently said that they have no plans to raise the near zero interest rates for at least two years, according to Insurance News Net’s “The Three Certainties in Life: Death, Taxes, Easy Money Policy” by John Rafferty. This is good news for financial planning purposes because it is a bit like seeing into the future. There is no guessing game about what will happen to annuity rates, CD rates and the like. If you had any worry about purchasing an indexed product, now seems to be the time to do so. In the past, when 5 year fixed annuity rates were around 5%, you could be losing $28,000 of guaranteed interest by investing in an indexed product with the potential to have no gain. But now that rates are closer to 1.5%, your decision to go for an indexed product is unlikely to lose you money.
By comparing the 10 year outlook on a few different investment options, the author explains why an indexed annuity could be your best investment now. A $100,000 10 year CD would currently earn you around 2.7%, so your value would be $127,000 at the end of ten years. If you are looking to use that money for retirement and not a lump sum withdrawal, a fixed equity indexed annuity could get you an income base more like $179,000 in the same time frame. This is considering a product with a 6% rollup compounded annually and a living benefit rider. This income base could get you a yearly income over $8,000, which is 40% more than investing in the CD. If you opted for the joint life annuity, you would still have a 30% increase. This is simply a basic description of the investments, which have many more moving parts to consider.
Written by Rachel Summit