Annuities Fit The Three Legged Stool Model

The retirement guarantees provided by annuities are more important to investors than ever.  There is a trend that many babyboomers are now using. Annuities for preretirement individuals and those retiring with a lump sum distribution to help balance their’ risk tolerance or provide security. 

Historically, retirement planning was based on a three-legged stool model approach.  So our parents had the expectation and could comfortably retire with a company pension, Social Security benefits and their individual investments. 

But that retirement model has changed and you can no longer rely on a company pension. And if there is a company pension plan the risk and cost have in most cases shifted to you.

In a survey conducted by the Employee Benefit Research Institute.  

• Only 16% of workers said they’re “very confident” about their retirement income. 
• Among the 902 workers, 54% said that the total value of their household savings and investments — exclusive of their primary home and defined benefit plans — is less than $25,000.
• Another 27% said they have less than $1,000, up from 20% in 2009. 
• Only 69% of the polled workers said they and/or their spouse had saved for retirement in 2010.

As we baby boomers approach retirement, many of us have started a much closer look at what we need in the form of assets as we live to the age of 80 years and beyond. Many babyboomers are staring at gaping investment losses and perhaps even planning to delay their own retirements.

If we want to live comfortably at the age of 85 or 90, we will need to have more predictable returns than most investments likely will give us. Are you betting that the markets are the way to grow the nest-egg you want, when you prepare for retirement can you count on the markets actually performing?

Over the past two years, investors have been taken for a wild ride. I do not think any of us are willing to take the bet and that’s why more and more of us are looking for tools that guarantees a minimum return and a flow of income for life with the money we have already accumulated. Annuities offer a way off the roller coaster.

A little research on your part helps you make good choices for those assets you cannot afford to lose.  If you are interested in making your money grow over time, you should know about an investment instrument called fixed annuity.

Fixed annuities have a given set interest rates by the insurance company. The insurer controls the investments within the annuity and provides the owner with guaranteed values and payouts.

Fixed annuities offer a different set of risks and rewards. The key advantage of these products is they provide a steady income for the rest of your life. That insures you against market risk, the chance that the value of your investments will fall, and longevity risk, the chance that you could live so long that you run out of retirement money.

The income rate depends on your age and the annuity payment option you choose.

Life Only- The Company pays income for your lifetime. It doesn’t make any payments to anyone after you die. This payment option usually pays the highest income possible. You might choose it if you have no dependents, if you have taken care of them through other means, or if the dependents have enough income of their own.

Life Annuity with Period Certain-The Company pays income for as long as you live and guaranteed to make payments for a set number of years even if you die. This period certain is usually 10 or 20 years. If you live longer than the period certain, you’ll continue to receive payments until you die. If you die during the period certain, your beneficiary gets regular payments for the rest of that period. If you die after the period certain, your beneficiary doesn’t receive any payments from your annuity. Because the “period certain” is an added benefit, each income payment will be smaller than in a life-only option.

Joint and Survivor- The company pays income as long as either you or your beneficiary lives. You may choose to have payments continue for a set length of time. Because the survivor feature is an added benefit, each income payment is smaller than in a life-only option.

You will want to obtain a quote from at least two insurance companies.