Annuity

An annuity comes in many forms, but a simple definition is that an annuity is a contract that converts a sum of money into a series of periodic payments for an agreed upon period of time. An annuity can be thought of as a financial vehicle that converts a pool of money into a stream of income. Annuities are most useful in addressing the financial planning needs of people in or approaching retirement. Annuities are unique in the financial world because they can provide protection against the risk or outliving one’s assets (longevity risk) by guaranteeing income payments in perpetuity or any other selected amount of time. Annuities can be viewed as a type of personal pension plan. Social Security is similar to an annuity in that money contributed over the course of one’s working years is converted into a series of periodic payments that provide income during retirement.

There are Downsides to Selling Annuities if Your Insurer is Struggling

Even with life and annuity insurers struggling, consumers should think twice and seek sound advice before selling an existing annuity. "Should consumers be worried by declining financial-strength ratings of insurance companies that issue their life policies and annuity contracts? Experts say lowered strength ratings are cause for concern. But they warn that rash action -- like dumping your annuity without doing your homework first -- may subject you to big problems." Source: Wall Street Journal...

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Consumers Need to be on Guard as Life and Annuity Insurers Seek Regulatory Relief on Reserve Requirements

Currrent annuity owners and prospective purchasers need to keep an eye on the financial ratings of annuity providers. "While the biggest financial headlines over the past few months have focused on bailing out banks and other businesses with taxpayer money, many owners of annuities and life insurance are following another rescue attempt, with some bewilderment: efforts by insurers to get tens of billions of dollars in relief from state insurance regulators. The proliferation of relief efforts...

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Former Clinton Economic Adviser Calls for Changes to Retirement Savings System – Annuities Would Provide Layer of Guaranteed Income

Use of annuities seen as an effective way to lock-in guaranteed income for retirees. Mandatory participation through private sector plans is suggested. Hybrid 401(k)s with built-in annuity options are one possible vehicle. "We also need to consider a new tier of retirement income… The goal of this additional tier would be to replace about 20 percent of pre-retirement income. To accomplish the goal, participation should be mandatory, participants should have no access to money before retirement...

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Consider Alternatives Such as Immediate Annuities to “Stop Risking Life Savings”

Article encourages partial annuitization through fixed annuities as a prudent approach to planning one's retirement finances. Even if you invest well and diversify your portfolio, you can't be completely sure that you'll outlive your money. That's where putting a portion of your assets into an immediate annuity can be useful -- by guaranteeing a stream of income for life, supplementing what you'll get from Social Security and any employer pension you might receive. Source: Motley Fool Full Story

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Hybrid 401(k)s that Include Annuities Slow to Gain Market Traction

Barclays and other large asset managers roll-out sophisticated defined contribution plans that have annuity options built into the plans. Employers, however, have been slow to adopt the new programs. If you're approaching retirement right now, there's no easy fix for your portfolio. But if you are in midcareer, you may soon have a chance to structure your 401(k) in a much different way. A dozen or so asset managers and insurers, including AllianceBernstein, AXA, Barclays Global Investors, John...

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