Annuity FYI Visitor Blog

Unfortunately government Social Security doesn’t look like it is going to give retirees the retirement they expected in the future, so wise investors are looking for ways to supplement or replace that lost income.  “Save Your Retirement From Certain Doom” by Dan Caplinger of The Motley Fool talks about a few options for replacing that income.  A recent Social Security Administration update showed that while Medicare should remain solvent longer than originally expected, Social Security looks to pay out more in benefits this year than it will receive for the first time in over two decades.  The author recommends the use of annuities to help generate income in retirement that will cover Social Security shortfalls.

Immediate annuities provide income streams over your lifetime.  After buying the investment from an insurance company, your fixed payment becomes a monthly stream of income payments that vary based on life expectancies.  Annuities may be the only dependable way to guarantee your monthly income with the uncertainty linked to Social Security and private pension plans.  The author also believes that retirees should take more risk in order to profit from higher returns.  He suggests dividend stocks like Annaly Capital, growth stocks like Netflix, and higher-yielding bonds.  While he acknowledges that any new plan should be used carefully, these options seem to make for a greater chance of future financial security than relying on Social Security.

Younger adults in the 25 to 34 year old age range are very worried about their financial future.  The Middletown Press article “Younger adults fret about future” by Cara Baruzzi explains the results of a new survey.  Ipsos, a market research company, says that almost three-fourths of younger adults have less than $50,000 saved for retirement.  Of those who do have 401k plans, 90% don’t have near that amount saved yet.  Many of these young adults showed an interest in annuities, with 83% of those surveyed saying they would look into the investment product for their futures.  Of those already in a 401k plan at work, 36% said they’d research putting all of part of that money into an annuity.

With half of the young adults surveyed worried that they won’t have enough money to live how they’d like in retirement, their interest to compare annuities and some low-cost funds that are exchange traded shows a possible growing aversion to risk.  They have seen their parents and grandparents lose a lot in the recent decline in the stock market and they want to ensure that their money will be safe into the future.  Most will spend 25 years or so in retirement.  They don’t have much faith in Social Security, so many worry that they won’t be able to meet even their basic expenses throughout retirement.  Younger adults need more educational information and resources to help plan for their future retirement.

While the Wise Indexed CD and other products guaranteed by FDIC insurance have been popular and are still good investments, there are four investment products that can earn you more interest than CDs at a low risk.  In the Herald Net’s article “Four low-risk ways to earn more interest,” a McClatchy Newspapers article is highlighted.  While these four investments are not without any risk, they have a relatively low risk for their available reward.  Some type of risk has to be taken in order to rise above inflation.

The first recommendation is the purchase of annuities.  They are sold by an insurance company and guarantee payments to the investor.  By purchasing from a high-quality company and fully understanding the terms of your annuity agreement, investors have the ability to earn more interest at a lower risk.  Three other investments that may do this for you as well are stocks paying dividends, bonds or bond funds, and preferred stocks.  The latter are more like bonds than common stocks as their price changes with the levels of interest rates.  Speak to an expert about annuities or another investment if you are looking to get more interest from a low-risk product.

According to California’s Daily Breeze article “MONEYWISE: Looking into the renewed interest in investing in annuities,” Stephanie Enright says that the government’s interest in promoting annuities has sparked an increased interest from investors.  Annuities are most often issued by insurance companies and grow over time with the expectation that you can receive lifetime income payments in retirement.  Two reasons annuities are popular are that some have a long-term-care insurance rider, which is increasingly popular today.  They also grow tax-deferred until you receive your money, then they are taxed like ordinary income.

Fixed annuities and variable annuities are your two options.  The fixed variety gives you a certain return based on interest rates at the time of purchase or a link to a financial index.  Variable annuities can have greater risk, but greater reward as your return is variable.

The author believes that the two most important things to consider when looking into annuities are the financial strength of the insurance company issuing the product and the structure of your contract.  Comdex ranks insurers based on the financial strength ratings from companies like Moodys, Standard & Poor’s, and A.M. Best Co.  Their stability and financial strength is the only thing guaranteeing your lifetime income payments.  You also want to know how your annuity agent is paid through commissions and fees.  Other contract details include riders like death benefits for spouses or other relatives.  Make sure you know all of the annuity details before purchasing the product.

Look into the five financial ratings companies when you want to purchase annuities or life insurance policies.  According to “Use ratings when considering annuities, life insurance,” Claire Schwemlein of the Chillicothe Gazette explains the importance of these ratings.  By knowing an insurance company’s financial strength ratings, you are better able to determine their ability to make good on your annuity and life insurance promises.  Whether you have purchased a death benefit annuity or some other type, your guarantee is only as strong as the financial paying abilities of your insurer.

The five financial ratings companies are Standard & Poor’s, Fitch, A.M. Best, Moody’s, and Weiss.  Each company has its own way of rating insurance companies, but they take into account debt, historical customer payments, their current ability to pay claims, financial figures, and investment portfolios.  Their financial strength ratings can be the determining factor on whether you are paid out the full value of your fixed annuities or life insurance policies.  While financial strength ratings are very important, you should also research the company’s customer service abilities and the costs associated with the annuities or other policies you are looking into.  Insurance companies have to pay the ratings agencies to rate them, so it is possible that your insurer isn’t rated by all or any of the firms.