Annuities Provide a Trouble Free Retired Life

Potential Social Security cuts may eliminate income gains at some point in the future and baby-boomers who are trying to rebuild their nest eggs are now fearful of the stock market and frustrated with bonds’ low interest rates.

To realize a trouble-free retired life choosing a Retirement Equity Indexed Annuity Can Help.

It’s a fear that grips many especially in these tough times: Even if they have saved up all of their lives, a sudden change in fortune or a sharp decline in the value of their investments could mean you’ll outlive your retirement savings. Even people who did everything right still got hammered in the recent market crisis and many cannot retire as they wanted. 

Remember that back in October 2007, prior to the most recent market meltdown, the Dow was at 14,000 points.  Today, it’s at 10,000.

Consider the Dow, which stood at 7,487 on November 13, 1997, and then was again at 7,486 on March 18, 2009, almost 12 years later.

Because of this, people want to increase the odds that their retirement plans have a good outcome and I think that annuity products are an essential part of that.

A person’s life expectancy is a significant factor that should be considered when planning your retirement income.  Investments, pension plans, and the effects of inflation are just a few things baby boomers should take into account in planning their retirement.

This is where annuities can come into play. Most people typically consider and invest in annuities after they retire, when the fear of outliving their savings or not having sufficient income for the rest of their lives oftentimes becomes a reality. It’s a way to guarantee that your income will never run out, which is the No. 1 fear of retirees.

Immediate annuities can provide a predictable stream of income for the rest of your life. Purchased from insurance companies, immediate annuities transform a fixed sum of money into monthly payments based on your life expectancy. With both private pensions and Social Security on shaky ground, annuities may prove the only dependable source of guaranteed monthly

The first step is to establish your required expenses. Then you build a “floor” of guaranteed income in an amount sufficient to cover those required expenses for life. Funds in excess of what is needed to build the floor can be invested in a variety of ways to create additional income. 

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. In fact, not a single indexed annuity purchaser has lost a penny as a result of the market declines, bank failures, or general weakening of the economy.

Equity indexed annuities are relatively new products to the market and offer the best of all world’s to the investor. While not all equity indexed annuities are ties to the same type of index, many use the S&P 500 as their benchmark. These retirement annuities increase in value when the market rises but they don’t lose money if the market drops. Instead, they receive a fixed interest rate promised in the contract.

An equity-indexed annuity is different from other fixed annuities because of the way it credits interest to your annuity’s value. Most fixed annuities only credit interest calculated at a rate set in the contract. Equity-indexed annuities credit interest using a formula based on changes in the index to which the annuity is linked. The formula decides how the additional interest, if any, is calculated and credited. How much additional interest you get and when you get it depends on the features of your particular annuity.

Your equity-indexed annuity, like other fixed annuities, also promises to pay a minimum interest rate. The rate that will be applied will not be less than this minimum guaranteed rate even if the index-linked interest rate is lower. The value of your annuity also will not drop below a guaranteed minimum.

For example, many single premium annuity contracts guarantee the minimum value will never be less than 90 percent (100 percent in some contracts) of the premium paid, plus at least 3% in annual interest (less any partial withdrawals). The insurance company will adjust the value of the annuity at the end of each term to reflect any index increases.

There is a price for the investor to pay when they use this type of retirement annuity. Since the company takes all the risk, they also get some of the reward when the market rises. Often contracts vary in the amount of the market growth that the company gives to the owner of the annuity. These are the annuity’s participation rates. Some companies offer as high as ninety percent of the growth while others offer as little as fifty percent.

Most people use equity indexed annuities as deferred contract, but you can use an equity indexed annuity as an immediate annuity also. The difference between the two is the time when you take payment.

On a deferred contract, you expect a payout later, or never in some cases and the funds go to a beneficiary. In an immediate annuity, you begin a stream of income right away. An immediate annuity is excellent for someone that wants payments for the rest of their life, no matter how long they survive.

Equity indexed annuities are good for those that want to keep up with inflation but still require safety. Make certain you check not only how the company calculates the return, but also how often they do it, in order to get the best policy.