Annuity Rates 2011
Fortunately, for the record number of Retirees also knows as the “Baby Boomers” Annuity Rates in 2011 have started to creep up. While rates still have plenty of room to rise there is no telling when that rise may happen. People have been waiting for cd and annuity rates to rise for over three years now, and unfortunately there has not been much change. Now, in 2011, the Federal Reserve and Ben Bernanke are committed to keeping rates low attempting to boost the stock market. Although everyone will benefit from a rising stock market it is the retired person who really gets hurt when the stock market goes down. Unfortunately, Retirees need income now and the stock market is one of the least attractive places to invest. If you are retired, although the stock market may make up a portion of your portfolio the bulk of your portfolio will be in much safer products, like annuities that are geared to delivering income , which consequently are tied to interest rates.
Retirees who need to create as much guaranteed income as possible (similar to social security or a pension) only a couple options with the most attractive currently being annuities. Immediate Annuities and Fixed-Indexed annuities have offered the best rates in 2011, when compared with CDs. Unlike bonds which decline in value if interest rates rise Annuities do not lose value in a rising interest rate environment.
It remains a challenging environment for the fixed income investor. But with the right mix of Stocks, Bonds and Immediate Annuities and Fixed Annuities you will be well suited to take on any type of market the economy and the Federal Reserve creates.
Posts Tagged ‘Fixed Annuity’
Annuity Rates 2011
Thursday, March 31st, 2011 by ryanAnnuities for the future
Tuesday, February 15th, 2011 by ryanThere was a great article today on www.cnbc.com Annuities in 401(k) Plans Offer income, but High Fees, which discusses alternative ways for baby boomer to receive guarnateed income from their retirement savings. It’s always a good idea to talk with an expert about which type of annuity may be right for you. In most cases it’s not the fees that one should be concerned about it’s the amount of income you will be guarnateed and the trade-offs between retaining control of your money or maximizing income. Give us a call at 888-515-7152 for expert annutiy advice. or visit us at www.AnnutiyRateShopper.com
Fixed Annuities or Bonds?
Monday, February 14th, 2011 by ryanAs a Certified Financial Planner© I am constantly being asked what is going to happen to bond prices if interest rates go up. Unfortunately for many people that own bonds, if interest rates go up, the price of their bonds will go down. As more and more people are entering retirement and looking for safe places to put their money bonds are traditionally a safe bet. However with historically low interest rates it is more likely that interest rates will rise and bond prices will fall in the future than vice a verse. One strategy that we are recommending is that people shift a portion of their fixed income allocation into short term Multi Year Guaranteed Fixed Annuities. The main benefit here is that when the contract is up you can reinvest your principal plus interest from your fixed annuity into some other investment without any penalty. Not only that but if interest rates go up you don’t have to worry about the value of your fixed annuity going down, because fixed annuities are not subject to the same price fluctuations that bonds are.
For example, you can get a 6 year fixed annuity paying 3.35% each year of the contract. At the end of the contract you get you get all of your money back plus interest. It doesn’t matter what happens to rates. In the meantime if you needed to access your money your could get 10% of your value each year.
Fixed annuities are a great alternative to bonds in a rising interest rate environment. For more information visit our site, www.AnnutiyRateShopper.com or email me at ryan@annuityrateshopper.com or call me at 888-515-7152.
Immediate Annuity Rates
Monday, February 7th, 2011 by ryanImmediate annuity rates are slowly coming back up. With over 2 years of depressed rates on fixed annuities and immediate annuities we are now starting to see rates pick back up slowly. In fact I was able to 70 year old client almost 8% on an immediate annuity that will pay him and his wife a monthly income for as long as they live. If you’re interested in what we can do for you, give us a call 888-515-7152.
Monday, October 18th, 2010 by ryan
People often call and ask about the traditional fixed annuities otherwise known as bonus annuities. They will see a rate for a 10 year annuity that pays 8% interest posted on a website like ours www.AnnuityRateShopper.com. When I tell them that the 8% interest is a first year interest rate and that the subsequent rates reset annually (not going below a preset floor, generally 1%) a lot of times they feel cheated or misled.
I think if people had a better understanding for how these bonus annuities worked they wouldn’t have the negative feeling that many have after finding out that the advertised rate is only for the first year, and not guaranteed for the life of the conract. Many people are familiar with cd’s and cd type annuities (Multi Year Guarantee Annuities) where depending upon how long of a contract they purchase they know exactly what their interest rate is going to be. To illustrate my point most cd type annuities you can purchase are as simple as this: 5 year contract, 3.15% interest rate. That means you will earn 3.15% interest each of the first 5 years and after that you are free to take your money wherever you please without any penalties or surrender charges. Simple!
Bonus Annuities (or Traditional Fixed Annuities) on the other hand might have a better first year rate but no guarnateed rates in the subsequent years of the contract. For example. You might have an 8 year contract with a first year rate of 7% and a minimum guarantee of 2%. What that means is in year 1 the insurance company will pay you a set rate of 7%. In years 2-8 the insurance company does not know what rates will be at that time, and as such will declare a rate at the beginning of the year in those subsequent years.
Insurance companies take on risk when issuing a multi year guarantee annuity or CD Type annuity because they have to hedge their bets on future interest rate movements. In a traditional fixed annuity or bonus annuity they don’t have to take on as much risk because they are only guaranteeing a rate for 1 year.
the bottom line is this: If you feel most comfortable knowing exactly what your rate is going to be each year then you are better off with the Multi year guarantee annuity or CD Type annuity. However in a rising interest rate environment, you have the opportunity in the bonus annuity or traditional fixed annuity to not only take advantage of the first year rate but increased rated in the subsequent years based on higher interest rates. Where are rates going from here? No one knows but I would suspect that higher is the more probable answer.
To find our what is the best annuity for your particular situation give us a call at 888-515-7152 or email us at ryan@annuityrateshopper.com.
The Best Fixed Annuity Right Now
Thursday, July 22nd, 2010 by ryanI often get asked what is the best fixed annuity right now. Although a lot of it depends upon your own personal situation one things remains pretty constant with my recommendations; The shorter term the better. It is my belief that interest rates will remain low for probably the next 2-3 years and it will probably be 3-5 years until we start to see CD rates and fixed annuity rates creep back up into the 5% range. With that said I like products that are shorter in length (5-6 years) and have liquidity above and beyond earned interest.
Why am I looking for those two things. First, the shorter term you go the shorter the time from you can withdrawal ALL of your money and reinvest it at a potentially higher rate. Second, if I am wrong about interest rates taking 3-5 years to creep back up to the 5% range and it happens sooner then that, by being able to withdrawal up to 10% per year (without penalty) gives you the option to reinvest that money at a higher rate than you are currently getting. One of the main benefits to fixed annuities over CD’s is the flexibility to withdrawal more than just interest.
The two fixed annuities I like right now and I will get to in my next blog post are the ING Secure Index 5 and Lincoln Financial New Directions 6. Both are Fixed Indexed Annuities, both have good guaranteed minimum interest rates and excellent index crediting strategies.
Understanding the IRS Penalty on Annuities
Tuesday, April 6th, 2010 by ryanUnderstanding the IRS Penalty
The most known annuity penalty that can occur from (whether it be a fixed annuity, a fixed indexed annuity or a variable annuity) the IRS is the 10% penalty for withdrawals prior to age 59.5. If you withdrawal money prior to attaining the age 59.5 the IRS will impose a 10% penalty on top of any taxes that are owed on the distributions. This is similar to the penalty imposed for early withdrawals on retirement accounts. The reason for this, is simple, the IRS views annuities as long term retirement vehicles and as such grant them with tax deferral. Since the IRS grants special tax provisions for annuity policies they also impose penalties if they are not used as intended.
This 10% penalty can be avoided on immediate annuities however where the annuity provides income from either 1 month after payment to 1 year after payment for a specified period of time. Unless you are over age 59.5 or plan to not withdrawal your money before age 59.5 we recommend investing in another vehicle. There are other ways to avoid paying the 10% penalty if you are under age 59.5 (listed below):
Death of the annuitant
For most fixed annuities if the annuitant dies the money is left to a designated beneficiary. The beneficiary of that fixed annuity does not need to be 59.5 in order to receive the proceeds. Fixed annuities can be a very effective estate planning tool (described in more detail elsewhere).
Annuitization
Annuitization is what happens when the owner of an annuity policy decided to turn the fixed annuity into an immediate annuity. Essentially he is shifting from an accumulation phase (earning interest) to a distribution phase (receiving income). An immediate annuity is not considered an asset instead it is considered an income stream and as such avoids the 10% IRS penalty.