Fixed Annuity

A fixed annuity provides a guaranteed rate of interest during the accumulation period and a guaranteed (“fixed”) amount of income when the contract is annuitized. With a fixed annuity, the insurance company is responsible for investing the premium payments and therefore assumes investment risk. The insurance company is obligated to provide guaranteed annuity payments regardless of whether their investments have generated an adequate rate of return. With a fixed annuity: 1) the money can go in as a single premium payment or a series of payments; 2) the money is invested at a fixed or guaranteed rate, and; 3) payments are at a fixed rate and can begin immediately or at some future date.

An Interview with Peter Nakada of RMS

Peter Nakada is a Managing Director, capital markets at Risk Management Solutions (RMS).  We had a chance to speak to Peter about...

Are Inflation Adjusted Annuities Worth the Cost?

Inflation protection for fixed annuities would seem to be a sensible consideration given the fact that central banks around the world are doing everything they can to reflate in the wake of an historic deleveraging.

After all, the worst possible place to be if and when inflation does kick-in is on the receiving end of nominal (not adjusted for inflation) fixed payments, and most fixed annuities fit this description perfectly.

While the inflation protection makes sense in theory, it turns-out that inflation-protected annuities may not be so sensible in practice...

Research Highlights Fixed SPIAs

Retirement researcher Wade Pfau published a research paper titled “An Efficient Frontier for Retirement Income .” Pfau’s paper analyzes the relative merits of equities, bonds, fixed single premium immediate annuities (SPIA), inflation -adjusted SPIAs and variable annuities with guaranteed lifetime withdrawal benefits ( GLWB ). Each of these allocation options are examined in the context of achieving retirement spending goals. Pfau creates an efficient frontier for a...

Why Fixed Annuities Could Prove Toxic in an Era of Financial Repression

In a recent and highly recommended Bloomberg op-ed, Carmen Reinhart discusses the options available to governments and central banks when attempting to deal with the burden of enormous amounts of public and private debt.

Reinhart suggests that the preferred policy option for many governments--including the United States--is a form of stealth taxation that amounts to...

John Hancock Unveils an Inflation Protected Annuity

John Hancock Annuities announced the release of a new fixed annuity product that provides owners with inflation protection. The “Inflation Guard” product offers principal protection through a fixed interest rate that is guaranteed through the first year of the contract. After the first year, the interest rate is floating. This floating rate is based on a rate of inflation that is derived from the year-over-year change in the Consumer Price Index-Urban or “CPI-U.” A...