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Annuity News
| Don't Overlook Annuities in Your Retirement Planning 05/20/2010
Don't Overlook Annuities in Your Retirement Planning
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Fixed Annuity Advantages 05/18/2010 Advantages of Fixed Annuities Advantages of fixed annuities are endless. Fixed annuities are referred to by many different names: tax-deferred annuities, CD-type annuities, traditio [ ... ] |
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Annuities are a great place to put your money when you are retired or planning on retiring. While you are in the accumulation phase of your life they can be a great place to accumulate money because of the high guaranteed interest and the tax deferral. Once retired annuities can be a great tool to help protect and preserve what you've worked so hard to accumulate. Since traditional pension plans are quickly becoming thing of the past more and more retirees are looking for ways to retire comfortably and with peace of mind. (See our video on you tube about retirement risks). The way most retirees plan for retirement is put all of there money in 6 and 12 month CD's. There are two problems with this and a number risks that they assume when doing this; Reinvestment Risk, Longevity Risk. Reinvestment Risk: Once you retire you no longer have a job that provides you with a regular paycheck. In fact you are now forced to provide your own paycheck based upon your savings. A way that some retirees handle this problem is by investing in CD's at the bank and simply living off the interest. There is nothing wrong with this, except now your interest or your "monthly paycheck" is going to fluctuate based upon market interest rates. On the other hand if rates begin to rise you are probably pretty happy, if they fall you are probably unhappy. Recently in 2005 CD's were averaging about 5%. today in 2009 they are averaging about 2%. That means that if you had $1,000,000 invested in CD's and were living off the interest your monthly paycheck in 2005 was $50,000 (5% of $1,000,000). But in 2009 your monthly paycheck was no $20,000 (2% of $1,000,000). That means you have to adjust your lifestlye of standard of living to accommodate the interest rate change. How to Protect against Reinvestment risk: By purchasing a longer term Fixed Annuities you can lock in your interest rate for a longer period of time thereby giving you the ability to worry less about interest rate fluctuations. Typically Fixed annuities offer greater interest rates than do CD's (in some cases almost double) which is advantageous if your are living off the interest. Another strategy people use is to ladder fixed annuities. By laddering fixed annuities they purchase a 3 year a 6 Year and a 9 year fixed annuity. Typically the rates are higher at 9 years than they are at 3 years and quite a bit higher if they were to purchase a 6 month CD. Every 3 years they have their original principal come due and they would reinvest that into another 9 year fixed annuity. By doing this this they are protected if interest rates rise they can take advantage of that upward movement with the money that comes due. If interest rates drop they still have to reinvest at a lower rate but they still have 2/3 of their money earning higher than average rates of return. For more information and annuity strategies please contact us. Longevity Risk: There is no doubt that people are living longer than ever these days. In fact a staggering statistic is that a couple age 65 getting ready to retire is faced with the fact that they have a 62% chance of one of them living to be 93 years old. That means they need to plan for nearly 30 years worth of income. Take into account inflation and you have to have a lot of money to live as comfortable as you would probably like. Making sure you have enough money to provide yourself with a regular paycheck that you will never outlive should be top of mind for most, the questions is how? You could build a diversified portfolio of mutual funds with a conservative asset allocation which is what a stock broker or financial advisor might recomend. That would not be a bad strategy but as we saw in 2008 even a conservative portfolio was down 20%. If you retire and are used to living off interest or a regular income and you lose 20% of your money it makes it very difficult to recover. How to protect against Longevity Risk: Immediate annuities can be a great solution for retirement planning. An immediate annuity provides you a fixed income for the rest of your life, no matter how long you live. How does it work?: You enter into a contract with an insurance company whereby you give them a lump some of money $100,000, $500,000, $1,000,000 etc. in exchange for a consistent monthly paycheck that you will never outlive. Essentially what you are doing is creating your own personal pension plan. If you are curious as to how much monthly income you would earn from a lump sum or how much you would have to invest to get a certain amount of income check out our immediate annuity calculator. When coming up with a custom strategy for you we look at how much money you spend, how much money you need to spend, how long do you want to plan for, and how accessible you want your money. There are many annuity products out there that offer long term rates but offer you accessibility in emergencies. Our goal is to help you to create the best strategy for you by giving you the widest range of safe investment options, essentially making your money last by giving you the most income, and most importantly having the peace of mind that your money is working in the most efficient way possible for you. Please contact us for further information and a custom strategy tailor fit to meet your needs. |