Annuities Lock in Income

The market’s ups and downs have prompted many investors to choose short-term investments like money market funds over riskier stocks.  Others are reluctant to return to stocks after the bear market of 2008 and 2009. 

With devastating declines in the financial markets, putting out the raging financial flames takes  top priority.  After periods of turbulence, it’s important to see how your investments have weathered the storm. 

I have to stress that while most people view bonds as your typical income investment, that I agree with many writers, and economists that we have seen the end of the bond market rally and that there are huge risks in going “long” in bonds at this time, or purchasing bond mutual funds.

There is a substantial risk that rates will, at some point in the near to medium future, have to increase as inflation and dollar concerns related to US debt begin to push upwards. Those holding long bonds and bond funds could potentially get hammered, not to mention the short term market risk of defaults or debt work outs on bonds of vulnerable companies, states and governments.

So the bottom line is that if after analyzing your income needs you find that your pensions and Social Security won’t provide sufficient guaranteed income, you might consider an immediate annuity.

Are you interested in a conservative investment that has a guaranteed return? Then annuities may be for you. Annuities are considered conservative, providing the ironclad guarantees and are the perfect investment for anyone who is interested in finding a low risk investment; particularly those who have just retired and are looking for a way to protect their retirement fund from the volatility of the market. 

The solution that I am advocating is the “25% income solution” which is based on the use of life income annuities, or period certain annuities. In it’s simplest form you take 25% of the available capital, dedicate it to a fixed, life income for the individual and then structure a savings plan for the other 75% dedicated to grow over time as interest rates or markets rise.

It is an orderly method of providing guaranteed, easily budgeted cash flow, is paid on schedule due to market conditions and allows for the longer view investment on the remaining 75% as well.

Everyday people and investors can protect their savings guaranteed and still achieve accumulation gains in an annuity despite uncertain economic conditions.  The sheltered value of guaranteed investments is at its peak.  Even the government is currently proposing that you evaluate the benefits of a guaranteed accumulation annuity, as Social Security benefits in the future could vary widely from what they are today.

Everyone from the Obama administration to AARP to a growing number of advisers is encouraging consumers to consider annuities as a way to lock in income in retirement.

A recent press release was announced by Labor Secretary Hilda Solis. She outlined her top regulatory goals for 2010, outlining plans to reduce the incidents of workers like you and me, outliving their retirement savings. She will be accelerating public awareness of acquiring annuities, and inspiring employers to offer annuities as a smart alternative choice.

I think the best use of an annuity is to provide guaranteed income for life. That’s something no other investment can do.  There’s no strict rule here, but for your own peace of mind you probably would want to have as much of your essential expenses as possible funded by assured income sources, starting with pensions and Social Security. If there’s a gap — i.e., your essential expenses will exceed your pension and Social Security payments — an annuity can bridge some or all of it.

A lot of people just don’t understand these products and there are many new untrained insurance agents calling themselves financial representatives.  They may represent a well-known insurance company seen on television or a company in business for 150 years. An annuity transaction involves the insurance company and the purchase. The licensed insurance agent who actually sells the annuity is a liaison between the two.

Unfortunately, many annuity agents do not know exactly what they are selling.  An insurance agent has a duty and responsibility to inform the consumer of all the details of the product they are purchasing. It’s part of the consumer’s due diligence responsibility to recognize and avoid them.

There are a few things you can do:

• Know what you want in an annuity
• Know what features are important to you
• Know what is important for your annuities not to have
• Tell your agent EXACTLY what you want and don’t want and document it for future purposes
• Be well educated PRIOR to making a purchase
• Assume you are going to be ripped off so you will act more carefully.
• Seek out an independent financial consultant with years of experience in guiding people toward the correct plan available.  Most importantly get one who will always tell you “like it is” even if it’s sometimes hard to listen to and even harder sometimes to act upon.

It is important for you to acknowledge that your financial future has shifted to your hands. Gone are the days of relying on Social Security, Medicare, and pensions to keep pace with your present standard of living. Do not expect the government to personally bail you out. Instead act on the proposed public awareness to investing in yourself.

An annuity is like any other other financial product in that you can only be sure of getting the best deal if you shop around between providers. Whilst we are adept at comparing prices for car insurance, mortgages, loans, credit cards etc we are woefully inadequate at comparing offers for retirement annuities.

To get the best retirement annuity you must compare offers from many providers. Many annuitants stick with the first offer made by their provider and therefore miss out on thousands of dollars worth of retirement income.