Annuities A Risk Free Retirement Plan

Many people spend more time planning their next two week break than they do planning their retirement – the longest holiday of their lives.  Just imagine running out of money part way through your holiday. How bad would that be?

When deciding what retirement and investment vehicles are appropriate for you, there are several types of products and special situations to consider. Each savings vehicle or investment will affect your lifestyle during your retirement years, and carries with it specific risks and requirements.

Many financial advisors suggest annuities to those looking for an appropriate investment that offers guaranteed income during their retirement years. This type of investment reduces the volatility experienced in traditional stock market investments and certain subtypes like the Equity Indexed Annuity allow owners to still cash in on large gains in the market.

Generally, minimum annuity interest rates exceed those paid by traditional CDs.  Equity-Indexed annuities pay guaranteed minimum interest rates but actual returns fluctuate based on stock market indices such as the S-P 500. This means that you may take advantage of an up market with larger gains, usually up to 8 to 10 percent per year. At the same time, when the market plummets, you have the safety net of a minimum base rate regardless.

In fact the Obama administration’s is now looking at how annuity contracts are perceived and used. Reports in the NY Times, Wall Street Journal and Boston Globe this week drive home the message that the Obama administration has come to the conclusion that one of the easiest and most pragmatic ways to boost retirement savings and provide a more secure retirement income for American’s is to encourage the use of annuities.

With an annuity you can have a stream of income that will last a lifetime, we call it longetivity insurance.  As the world of medicine continues to improve, life expectancies keep rising. Recent estimates give a healthy 65-year-old man a 24% chance of living to at least 90 and a healthy woman a 35% chance of living that long. Statistics also show married couples generally live longer than their single peers. So if you’re married, you should add a couple more years to your life expectancy.

We appear poised to enter a golden age in the use of and appreciation for annuities for the vast majority of Americans. Another safety factor to consider is the stability of insurance companies.  Insurance companies purpose is dealing with risk. You can check Insurance companies and their financial strength relying on the organizations that rate insurance companies’: A. M. Best Company, Standard & Poor, Moody’s, and Fitch.   

The challenge most retiree’s have is you’ll have to walk the line between overspending and underspending your retirement funds. To ensure that you don’t spend too much, it’s important to keep your spending in check. By setting limits on how much money you can take out and spend each year to make sure your nest egg will last the rest of your lifetime. Many retirees can only withdraw somewhere between 3-5% of their retirement assets each year to fund all their living expenses without worrying about running out of money.

We believe that more people who take advantage of guaranteed lifetime income are in a better position to achieve retirement income security. Additionally, annuities are common for those nearing or in retirement that are looking for a vehicle to rollover their 401k funds into, or hoping to simply protect their retirement nest egg.  On the whole, I like the strategy of moving money into an IRA.

It’s not unusual for employers to allow a transfer of the bulk of your retirement money out of your retirement account once an employee reaches a certain age and transfer it into an IRA.   

The first reason deals with control. By directly transferring the money into an IRA annuity, you will have more investment options available. This allows you to build a portfolio and coordinate it with other investments. From purely a control standpoint, it makes sense to transfer the money.

I like the idea of transferring money out of your current retirement plan, but you don’t want to turn around and invest that money in high-cost investments.

The second reason to transfer money into an IRA annuity is cost. By transferring the money into an IRA annuity, you invest at a much lower cost. The cost savings, if you look over any one year, may not be that significant. However, when you talk about a number of years, the savings can be substantial. 

Ensuring a comfortable retirement in today’s volatile investment climate is daunting, but it is also achievable with the knowledge of what to do and, as important, not to do.  It is imperative for seniors and others saving for retirement to avoid complacency and be actively involved to ensure their unique and personal needs are being taken care of.